The Housing Bubble

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The Press Democrat reports from California. “Exchange Bank’s top executive, J. Barrie Graham, resigned unexpectedly as president and chief executive officer of Sonoma County’s oldest and largest commercial bank. Exchange Bank has long been a key lender for local builders. But the real estate slump hit builders hard, and Exchange Bank has felt the blows.”

“‘I always like to say we’re intelligent risk takers. That may prove to be wrong now,’ said Exchange Bank’s veteran Chairman C. William Reinking.”

“‘It tells you a higher percentage of their loans are involved in construction. The bank made a lot of money on these loans. It was probably the most dynamic area of growth in their loan portfolio,’ said Fred Ptucha, investment adviser in Santa Rosa and longtime analyst of bank stocks. ‘With hindsight you could say they did go too far.’”

“Bank officials defended their lending standards and the decision to expand into the Sacramento area. ‘The speed at which this thing fell apart was just unheard of,’ Reinking said.”

From KGO TV. “For hundreds of people in desperate shape because of the mortgage mess, San Jose was the place to be Wednesday night. Homeowners from around the Bay Area came to get immediate help to avoid foreclosure and the turnout was overwhelming.”

“People were clamoring to get in. Lines stretched around the building. As many as 400 people converged at Independence High School in San Jose, all hoping to get out of their mortgage mess.”

“People with so-called liar loans, mortgages approved without proof of income or assets, are expected to be the next wave of homeowners to default. The Silicon Valley California Association of Mortgage Brokers does however, have some words of advice.”

“‘Work with your lender, don’t wait! Be persistent, lenders are overwhelmed with the number of people out there that are in foreclosure, that are in desperate and dire situations. If they say they’re going to call you and they don’t do it. Call them, continue to follow up,’ said Cathy Warshawsky, with the Silicon Valley California Association of Mortgage Brokers.”

“This is the first foreclosure prevention fair put on by the City of San Jose, but it likely won’t be the last. The night’s high turnout has prompted city officials to think about organizing another one.”

The Manteca Bulletin. “The average price of home deals closed in Manteca has dropped $1,584 a week since July 21. What is happening now are most banks aren’t messing around with the pricing of foreclosures that they put on the market. Most are deliberately under pricing them to attract between 15 and 18 offers within a week of listing them.”

“There were 42 price reductions in the week ending Aug. 11 as the group as a whole went from an original average of $299,052 down to $255,899. In the previous week ending Aug. 4, there were also 42 price reductions. That group’s average went from $246,373 down to $201,709. That is skewed quite a bit as most of the price reductions aren’t happening below $210,000. Instead, a number of country properties have seen reductions of $100,000 plus in the past two weeks.”

“Florsheim Homes CEO Joe Anfuso has indicated such news is welcome as it is a clear sign that the market is correcting itself.”

The Plumas County News. “(On Aug. 14) Jay Sabelman, president of the Plumas Realtors Association, spoke about the state of the housing economy in the Lake Almanor Basin and told members of the Rotary Club of Chester that although ‘volume is down and sales are down, there are tremendous values out there in the real estate market today.’”

“He said there are 275 homes for sale at this time in the Lake Almanor Basin. Continuing, he said 29 homes were sold between January 2008 and now; 55 homes were sold during the same period in 2007.”

“Responding to general questions Sabelman said the median price of sales outside Chester ranged from $420,000-$520,000. When asked about local home losses he said, ‘Westwood is a very prevalent foreclosure market.’”

“‘Last winter was very tough on association members. We have 200 Realtor members in Plumas County and probably 60-70 in our area who are fighting to keep their heads above water,’ he said.”

The Monterey County Herald. “Home sales in Monterey County continue to rise, while the median price of sales continues its downward trend, according to a real estate research firm. Compared to July 2007, the number of sales for new and resale properties, including single-family detached residences and condominiums, was up 53.5 percent…according to MDA DataQuick.”

“The median sales price was down 44.1 percent year to year, dropping $242,000 in the past year from $549,000 in July 2007 to $307,000.”

“DataQuick president John Walsh said the sales increases don’t necessarily point to a sustainable rebound in the housing industry. ‘A clearer picture of the entire housing market will emerge once more of these foreclosures burn off, and more lenders, sellers and buyers get off the sidelines and back into the housing game,’ he said.”

The Grunion Gazette. “In less than a year, roughly 408,000 square feet of industrial and office buildings on about 22 acres of land at Douglas Park are expected to be completed and ready for leasing.”

“Newcastle Partners, Inc., started construction on the land next to the Long Beach Airport this June. Original plans for the Douglas Park site also included residential housing. The most recent plan proposed 1,400 residential units (town homes and condominiums). However, the Planning Commission on July 17 approved a revised plan that eliminates the residential component of the project altogether.”

The Glendale News Press. “Economic factors have created a deep funk in sales along Glendale’s Brand Boulevard of Cars, mirroring a national downturn in automobile purchases as customers continue to feel the pinch of an enduring housing slump, a pervasive credit crunch and soaring gasoline prices, officials said.”

“Sales of new cars in Los Angeles County plunged more than 18.6% from January to March as dealerships along Brand Boulevard have been feeling the pinch of sparse customers and decreased revenue.”

“New car sales at Star Ford are down 20% from last year, said Alex Tamez, director of operations. ‘It hasn’t been great. Foreclosures have affected us. The banks that had financed homes finance cars. Now, [banks] are looking deeper. It’s harder to get people approved.’”

“Business at the Ford service department has slowed because of frugal customer spending habits. ‘They used to say, ‘Do whatever needs to be done.’ Tamez said. ‘Now, people are saying, ‘Do I really need to change my air filter, do I really need to inflate my tires each time?’”

The LA Times. “Noontime shopping sprees at the mall for Pam Lewellen of San Clemente are decidedly less expensive than they used to be. These days, she says, ‘I am constantly looking for that deal.’”

“High gasoline prices and nagging uncertainty about the economy haven’t stopped her from prowling malls for fun, but she said they have pushed her away from her favorite department stores and boutiques to discounters such as Ross Dress for Less and Marshalls.”

“Particularly hard hit are owners of shopping centers and buildings that house businesses serving new homeowners such as furniture stores and electronics warehouses. Also taking a hit are upscale department stores and other shops that have traditionally drawn the middle-income consumer.”

“Times are definitely challenging for many stores and malls, according to the International Council of Shopping Centers. ‘For years the market strength was in luxury,’ said Michael P. Niemira, chief economist for the council. ‘Now it’s Wal-Mart.’”

The Union Tribune. “When he took out a $206,000 home-equity line of credit in 2007, Kevin Hall thought he’d secured all the funding he’d ever need for a major remodeling project at his Carlsbad home. That’s why his heart skipped a beat when he went online in February to transfer money from his account.”

‘He discovered that his credit line had been slashed to $72,000. Formal notification wouldn’t arrive in the mail for several weeks.”

“‘I got sucker-punched on the thing,’ said Hall, who manages a ReMax real estate office in La Jolla. ‘I was at the point in construction where the drywall was going up. I was flabbergasted.’”

“Like thousands of borrowers, Hall was a victim of falling real estate values. In Washington Mutual’s judgment, the home equity used to secure the credit line had significantly declined. And under the terms of the agreement, the bank had the right to pull the plug.”

“Washington Mutual isn’t alone in reducing its exposure to risk in regions where home prices are falling, including San Diego County.”

“‘It is widespread everywhere there was a significant run-up in home values, followed by a sharp correction,’ said Dustin Hobbs, spokesman for the California Mortgage Bankers Association.”

“Mark Goldman, a real estate finance instructor at San Diego State University, said it makes no sense for banks to notify borrowers before they reduce their line of credit.”

“‘Of course they aren’t going to call you up and say we’re taking a look at your loan,’ he said. ‘The borrower, upon receiving that notice, would likely draw down the remaining available balance on the home-equity line.’”

“Hall said the experience has left him feeling bitter. ‘We had to scramble,’ he said. ‘We were definitely robbing Peter to pay Paul. We didn’t want to run up our credit card, but that was the best solution at the time.’”

“Lenders could have avoided the problem by using tighter underwriting standards when home prices soared, said Dean Baker, an economist for the Center for Economic and Policy Research in Washington, D.C. Like many consumers, they gambled that home values would continue to rise and now they’re paying the price.”

“‘It would have been good if they had been this cautious five years ago,’ Baker said.”

The Merced Sun Star. “Five foreclosed homes at the end of El Rodebaugh Street serve as a breeding ground for wasps that zigzag over the entire neighborhood. One of those abandoned properties at 2021 Oak Grove Way has six visible nests along the fence in the backyard.”

“Randy Fagundes of Fagundes Custom Yard Care was on the scene cleaning up the abandoned home for sale. He says the source of the insect problem is simple: ‘I think this is a foreclosure problem. I’ve never seen anything like this. But then again, I’ve never seen so many foreclosures.’”

“Julia Mercado says the wasps dictate when they mow their lawns, when they can take a dip in their swimming pool and what times they let their daughter play outside.”

“‘We go through a can of wasp spray every day. It’s an epidemic,’ she shrugged.”

“At least one man who’s been proactive in dealing with the pests is Realtor Don Scorby. Scorby, who’s trying to get one of the foreclosed homes ready for sale, has gone out twice in the past week to spray the nests that litter the property.”

“‘I feel like I am representing the bank and I should take care of it,’ Scorby says. ‘You can’t show a home when there’s wasps.’”

“But will the banks or real estate agents at the other homes step up? Alan Inman, manager of the Merced County Mosquito Abatement District says the problem is the same as the mosquitoes in pools of foreclosed homes, where the county has received varying degrees of cooperation.”

The Daily Breeze. “Rep. Laura Richardson caught a break on Wednesday when code enforcement officers decided not to bill her for boarding up the garage door on her vacant Sacramento home. The city decided it would be too much trouble to determine who owned the property last month, when code enforcement officers were called out to deal with a ‘public nuisance.’”

“After Richardson stopped making payments on the home, it was sold to an investor at a foreclosure auction. But the property was returned to Richardson in June, after her bank rescinded the sale.”

“In a statement, Richardson disavowed any responsibility for the current upkeep of the home, because she said it still has not been transferred back to her.”

“‘Congresswoman Richardson is fully prepared, WHEN full transfer of the property is made and reinstated, to manage and maintain the Sacramento property,’ said her spokesman, William Marshall.”

“Richardson’s statement conflicts with available public records, which state that she has had the title to the property since June 2.”

“Sacramento police were called to the home on July 21 because the garage door was open, suggesting a possible break-in. The police called code enforcement officials, who brought in a contractor to board up the door.”

“Code enforcement officers also found rotting food on the ground, which might attract rodents, as well as junk and debris in the yard.”

“In another development, Washington Mutual paid Richardson’s outstanding property tax bill of $9,000 on July 31. No public records explain why the bank would do that, though it is possible that the tax bill was added to Richardson’s loan balance in a refinancing.”

The Pittsburg Tribune Review reports from Pennsylvania. “Teresa Hunt worries she’ll have to quit school if she doesn’t find ways to supplement her mortgage payments. She wants to offer discounted rent to someone who would watch her children a few days a week. Hunt, of Beechview lost her job in real estate a year ago and is taking night classes at Community College of Allegheny County to earn a paralegal degree. Hunt would convert part of her large downstairs family room into his or her living quarters.”

“‘It’s really just to help out,’ she said. ‘I need to do something to bring income into the house.’”

“A growing number of single parents and families such as Hunt are starting to take in boarders to help pay mortgages, prevent foreclosure and ease living costs, housing and financial experts say.”

“Randi Lowe, client relations manager for the Pittsburgh Community Reinvestment Group, cautions that what has happened with the real estate market — lower property values and a backlog of homes for sale — could continue ‘for another year or two,’ and she predicts, ‘A lot of people are going to get rolled over in the process.’”

The Associated Press on Pennsylvania. “During the housing boom, liar loans were especially popular among investors seeking to flip properties quickly. ‘Everybody drank the Kool-Aid’ said David Zugheri, co-founder of First Houston Mortgage. They knew if they didn’t give the borrower the loan they wanted, the borrower ‘could go down the street and get that loan somewhere else.’”

“While some borrowers were aware of their risky features and used them to gamble on their home’s value or pull out money for vacations, others like Salvatore Fucile insist they were victims of predatory lending.”

“Fucile, who is 82, and his wife, wound up in an option ARM from IndyMac after consolidating two mortgages on their suburban Philadelphia home. Fucile was attracted by the low monthly payments, but says the mortgage broker who signed him up for the loan didn’t tell him the principal balance could increase. It has risen about $24,000 to $276,000.”

“‘He put me in a bad position,’ said Fucile, who fears he will be forced into foreclosure. ‘He misled me.’”

The Pocono Record from Pennsylvania. “Current estimates show Monroe County’s population growth between 2000 and 2007, while slowing slightly, still increased by 19 percent to 164,722 residents. The median cost of a home in Monroe County in 2007 was $204,734. That was an increase of 95 percent since 2002, when the median cost was $105,125.”

“Nationally, median cost of a home in 2007 was $219,000. That’s 43 percent higher than 2002. The mortgage crisis this year hit the housing market hard. Prices in Monroe County fell by 9 percent to $186,541 through July.”

“Connie Foland’s been in the real estate business for 22 years. Foland thinks the growth over the past 20 years is partially a rebounding effect from a slowdown in 1988. ‘Our prices haven’t jumped up to the way New York and New Jersey have come up,’ she said.”

“And Foland said sellers know who their market is. ‘Every time I list a house, the seller would say, ‘Make sure you list the house in New York and New Jersey, because the people here wouldn’t buy our house.’ In 22 years, I’ve only sold one house to a local person. Everyone else is from New York and New Jersey.’”

“Foland warned that the influx has probably saved the local market. ‘Without the people here, we’d be in the crapper. There are not enough local people to buy houses,’ she said.”

The Frederick News Post from Maryland. “A new report shows 114 foreclosures in Frederick County in July, but another factor could double that number. Wayne Six, of Six and Associates, said Thursday that short sales, if accounted for in what he calls ‘desperation sales,’ could mean twice the number of homes sold under duress.”

“Six, an appraiser, said the foreclosure market affects neighborhoods differently. ‘It is the new subdivisions, those built in 2005 or since, that are being hammered,’ Six said.”

“That’s where buyers were lining up to purchase homes at soaring prices, many anticipating ‘flipping’ them in a few years — selling at a substantial profit. Now they find themselves owning homes worth less than what they owe on them.”

“Some neighborhoods are seeing as much as 80 percent of the homes facing foreclosure, Six said. ‘Right now, lenders are conservative. They want more down, higher credit scores. They realize now that they screwed up when the market was rolling. They were offering 100 percent financing, it was a feeding frenzy. If a bank didn’t offer 100 percent financing, another one would,’ Six said.”

“‘We knew it was coming. It was like watching a storm on the Weather Channel moving your way,’ he said.”

The Washington Independent. “At The Barber’s Chair, in the small, quiet community of Accokeek at the far end of Prince George’s County, Md., the talk often turns to the foreclosure crisis. With locals constantly in and out, Leo Harrington, the owner, hears it all.”

“How people who bought homes once valued at $800,000 down the the road at upscale subdivisions like The Preserves or at the one- and two-acre homesites of St. James have friends and relatives living in their basements to help pay the mortgage.”

“‘A lot of people moved out here from the District because they wanted to be in the ‘burbs and raise their kids here,” said Harrington. ‘You find you can get a bigger house that’s in pretty close, and a yard. But there were all these predatory loans. That’s all it was. They didn’t realize how the loans worked because when folks are lying to you, you don’t know any better. Then, when they find out they are in trouble, they start to panic, and they end up losing their homes.’”

The Loudon Times from Virginia. “Loudoun in July saw a 54 percent increase in foreclosure filings from the same month in 2007, according to RealtyTrac. The county had the second highest rate of foreclosure filings in Virginia last month.”

“In July, according to a report by the Virginia Association of Realtors, the number of homes sold in Loudoun rose 7 percent during the second quarter of 2008 from the same period last year. The average sale price, however, was down 20 percent.”

“‘The sheer number of foreclosures continues to put downward pressure on prices,’ authors of the study wrote, ‘but they also bring new home buyers into the market.’”

The Times Dispatch from Virginia. “About 630 people, mostly from the Richmond area, are transferring with Wachovia Securities to St. Louis. Hundreds of extra houses have been put up for sale in an already slow real estate market, adding to inventory levels and pushing prices down.”

“‘We’re spoiled a little bit, because we haven’t had many corporations move out,’ said Bill White, ormer president of the Richmond Association of Realtors.”

“Houses for sale by Wachovia employees range from the $200,000s to more than $1 million, agents said. The company is aggressive about pricing and moving houses, sending relocation specialists to meet with homeowners and requiring price reductions periodically.”

“If a house doesn’t sell within 120 days, the company will buy it back at a predetermined price and try to move it as fast as possible.”

“One house in Wachovia’s corporate inventory, at 6104 Warbler Way in Wyndham, was listed in mid-March for $725,000. ‘I thought it was a competitive price when we put it on the market,’ said Will Hamnett, an agent who listed the property.”

“The buyout — what the owner received — was $674,500. The corporate-owned house is on the market now for $595,000.”

“‘It’s an unbiased eye to the market — exactly what the market is telling us,’ said Adrienne Chappell, (who) is the agent on four corporate-owned properties, primarily in the West End. ‘You go by facts and figures, pure data on what a house would sell for.’”

The Chesterfield Observer from Virginia. “Local real estate guru Cecil Sears, was part of a panel discussion put on by the Home Building Association of Richmond last Wednesday. Compared to the other panel members, he was uplifting, though he chided builders for creating part of their problem.”

“Pointing to the hefty prices for new homes, he said, ‘The builders have left the buyers.’”

“Several on the panel referred to the national media, laying some of the blame at the feet of the Richmond Times-Dispatch, other daily newspapers and television news. The media, they indicated, reported the worst declines in Nevada, California and Florida, leaving the impression that Richmond also suffered from much lower sale prices and high foreclosure rates.”

“‘All real estate is local with national influences,’ offered Bill White, owner of Joyner Fine Properties. ‘Richmond didn’t have the run-up [in sales prices as other markets did] - particularly second home markets.’”

“But the rebound here and nationwide is likely to be held back by tightening regulatory scrutiny. ‘They want us to provide more equity in our loans [to builders] and properly assess our risk rating of our loan portfolios,’ Bonnie Agee, who handles single-family home construction loans for Fulton Bank, told the group. ‘Regulators are strictly adhering to regulation guidelines.’”

“A year ago, homebuyers with a credit score of 740 could get a 100 percent loan, but that’s not likely today, according to Steve Mills with Wells Fargo Home Mortgage. ‘We all have to pay for Nevada, California and Florida.’”

“The ability to get a mortgage loan will be influenced by where you live. There have been fewer foreclosures in Chesterfield County compared to Richmond and Henrico County, so that helps. Northern Virginia and Virginia Beach are problem areas, and Fredericksburg is rated as ‘declining and depressed.’”

“‘The underwriters of loans are making few exceptions,’ said Mills.”

The Journal Now from North Carolina. “The Triad has been spared the worst of the national housing crisis. But there’s little doubt these days that a credit crunch has taken up residence in the region and that financial institutions, real-estate developers and consumers are increasingly feeling the pinch.’

“The most visible sign can be found in most communities — new residential neighborhoods stuck in neutral or worse for months, with empty lots outnumbering newly built homes.”

“Most banks serving the Triad raised their provision for loan losses during the second quarter, reflecting that late payments and delinquencies are chipping away at their profits. At some banks, the higher provision contributed to a quarterly loss.”

“‘There are challenges that our company and our industry are facing which are new to us all,’ said Swope Montgomery Jr., CEO of BNC Bancorp, the holding company for Bank of North Carolina.”

“‘My fear is that the entire economy is broken, particularly at the national level, but it’s affecting us in the Carolinas, too,’ said Tony Plath, a finance professor at UNC Charlotte. ‘We’re seeing a more significant impact on commercial-loan quality and local real-estate values than I’d originally hoped we’d see.’”

“Real-estate developers are having trouble selling homes they’ve already built, and some have fallen significantly behind on loan payments.”

“Pierce Homes of Carolina Inc. is the biggest example to date. The company announced earlier this month that it was shutting down ‘as a direct result of the ongoing crisis in the housing and financial industries.’ The company had been a major land developer and home builder in the Triad.”

“Among those affected by Pierce’s decision is BNC Bancorp. The bank said in its second-quarter earnings report that it had to place ‘one large residential construction and development relationship of $4.5 million’ as a nonperforming asset.”

“‘They took out a considerable amount of loans, not just with us, to buy a lot of land in recent years at what they thought was a good price. They put in sewer and utilities and prepared the lots to develop for themselves or sell to other developers,’ Montgomery said. ‘When the slowdown hit, they had little maneuvering room left.’”

“Bank of the Carolinas said that its nonperforming assets reached $14.4 million on June 30 — representing about 3.6 percent of its outstanding loans, or what the bank called ‘a historically high level.’”

“A decision by Southern Community to raise its provision for loan losses to $3.5 million from $600,000 represented 7 cents of the 8-cent decline in diluted earnings to 3 cents. Its nonperforming assets were at $14.2 million, compared with $2.2 million a year ago.”

“‘In the majority of these cases, these real-estate loans were good loans when they were written,’ said Scott Bauer, CEO of Southern Community. ‘They became negative loans because good home builders are having a rough time in the economic slowdown.’”

“‘There’s no question that we had too much residential expansion from 2002 to 2006, with mortgages being given to homeowners who didn’t have the financial resources to maintain the loan when their adjustable-rate mortgage rose,’ said Michael Clapp, a local commercial real-estate analyst. ‘The local housing market is paying the price for that lending binge that’s likely to carry into 2010, and likely lead to more home builders going out of business.’”

“Plath, the UNC Charlotte finance professor, cautioned that the local banking market is likely to get worse before it gets better. ‘I hope it’s idiosyncratic (one or two loans) rather than systemic — a slowing economy that diminishes overall credit quality,’ Plath said. ‘It is a lot easier to fix a few problem loans than it is to fix the entire economy.’”

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