The Housing Bubble

The Press Democrat reports from California. “The collapse of the housing bubble continues to reverberate through Sonoma County, according to a report issued Tuesday. Just over half of the homes sold in August were dumped by desperate owners trying to avoid foreclosure or by banks that seized them from borrowers who fell behind on their mortgages. The wave of transactions involving discounted properties drove the median price to its lowest level in six years.”

“The median fell to $382,500, a decline of 30.5 percent from a year ago, according to The Press Democrat monthly real estate report. The market peaked three years ago when the median hit a record $619,000. Sonoma County home prices have now fallen for 26 consecutive months in year-over-year comparisons, returning the median price to levels not seen since 2002.”

“On Friday, lender GMAC accepted a $303,000 offer for a northwest Santa Rosa home that sold for $517,000 in January 2006.”

“Sales of homes priced above $500,000 have fallen nearly 50 percent over the past year, and the number of homes for sale in that range has dropped more than 30 percent over the same time period.”

“‘What’s there is sitting there,’ said Rick Laws, Santa Rosa manager for Coldwell Banker.”

The Hollister Free Lance. “There were another 249 San Benito County homes entering some stage of the foreclosure process last month, a 207 percent jump over the same period in 2007, according to RealtyTrac. That astounding number also represents a 62 percent increase over the previous month.”

“The figures show there are 1,053 local homeowners whose properties have been sent a letter of default, put up for auction by a lender or passed outright into bank ownership.”

“Nearly half of the county properties now in foreclosure - 473 - are owned by the banks, said Hollister Code Enforcement Officer Mike Chambless. ‘I wish I had magic words to make this better, but I don’t,’ said Hollister Mayor Doug Emerson. ‘We are just going to have to tough it out.’”

“According to RealtyTrac, the rate that homes make that foreclosure list has accelerated dramatically statewide, with increases over last year’s August numbers ranging from 13 percent in Sacramento County to an increase of 2,340 percent in Lake County.”

The Signal. “More than half the people who work in the valley can’t afford to live here. That’s the challenge facing local civic leaders who want to keep Santa Clarita Valley’s economy stable. ‘Over 50 percent of the 40,000 employees employed in the Valencia Industrial Center don’t live in Santa Clarita,’ said Julie Weith, Valley Industrial Association chairwoman.”

“Regardless of state guidelines and requirements for affordable housing, Holly Schroeder, president and chief executive officer of the Building Industry Association, said the cost of housing is still market driven.”

“Schroeder said the demand is currently outpacing the supply of homes at an affordable price. ‘Even in the current downturn, there is a fundamental under supply in our region,’ she said.”

The North County Times. “The real estate market crash has prompted a developer to abandon plans for 160 condominiums next to Lowe’s Home Improvement in favor of leasing the empty acreage on Mission Avenue to a national chain of used car dealers.”

“‘The developer decided that a residential project would take too long for them to get a return on their investment,’ said Mayor Lori Holt Pfeiler. ‘It must mean that the housing market is even worse off than the car market.’”

NBC San Diego. “Some mortgage brokers say rates on 30-year loans have climbed since last week. Other say they’ve fallen and even changed from day to day. ‘Last week you could get a 30 year conforming loan for almost 5.5 percent. This week it’s back up to 6 percent’ said Victoria Johnson of Luxury Loans in La Jolla.”

“‘One lender is only offering loans with interest rates of 10% because there’s no market to sell the mortgage afterwards’ said Johnson.”

“But some lenders say rates remain low for all types of loans. But the difficulty is qualifying. ‘It’s gone back to the 80’s. To get good rates you need to have 20 percent down, 700+ Fico score, tax returns, proof of income and assets,’ said Debbie Morrell of Mike Dunn and Associates.”

“Morrell says even with all that documentation, some home purchase transactions are difficult because property appraisals need to match the purchase price. And establishing a price for a home can be very difficult since prices have fallen so quickly in certain neighborhoods in the county.”

The Press Enterprise. “While some homeowners agonize over plunging home values, Corona city officials hope to turn what has been a crisis for some into an opportunity for others. If the City Council agrees tonight, the Redevelopment Agency will launch a program offering $1.5 million in interest-free loans to moderate-income Corona families who want to buy their first home.”

“The 30-year loans will go toward the down payment, helping buyers qualify for better mortgages than they could otherwise afford. The program is not exactly new, but its funding is from a new source — redevelopment dollars — and it is aimed at getting people into some of the hundreds of Corona homes that sit vacant because of foreclosures, said Jesus Morales, the city’s housing manager.”

“‘Doing some research, we found there were quite a few homes in the plus or minus $300,000 range,’ Morales said. ‘Because the prices have come down it’s really an opportunity for them to get into this city with a reasonably priced home.’”

“Corona won’t be able to help everyone. Morales said the money requested would provide 20 families with the maximum down payment aid of $75,000.”

“The number of Corona homes listed at less than $350,000 went from fewer than 20 in 2004 to more than 500 this year, according to city data.”

“To qualify, buyers must meet income guidelines, be able to pay 3 percent of the home’s value, and live in the home at least seven years or pay the city a share of any profits if they sell.”

“‘That really gives the person time to become part of the community,’ Morales said.”

The Associated Press. “A research firm says the median Southern California home price fell 34 percent in August from last year. MDA DataQuick says in its report Wednesday that the median price for new and resale homes and condos dropped to $330,000 last month in a six-county region.”

“That’s down from the market peak of $500,000 in August 2007 and down 5.2 percent from $348,000 in July.”

“Foreclosures accounted for almost 46 percent of all resold properties last month, up from 10 percent in August 2007 and almost 44 percent in July.”

The San Francisco Chronicle. “The troubles on Wall Street have been evident for more than a year. So far, the bursting of the housing bubble has toppled three of Wall Street’s five big investment banks and quasi-private mortgage giants Fannie Mae and Freddie Mac and has threatened a huge insurer, AIG. The result will be a further credit tightening that squeezes the economy.”

“While many economists blame the Bush administration for lax oversight and overconfidence in market self-correction, Democrats had a hand in the mess too. The chairs of the Senate Banking Committee, Chris Dodd, and House Financial Services Committee, Barney Frank, have been among the staunchest defenders of Fannie Mae and Freddie Mac, said UC Davis economist Steven Sheffrin.”

“‘Everyone was in this game,’ he said. ‘The Bush administration was very pleased when the home ownership rate went up, and the Democrats in Congress were pushing for more home ownership. This really was a bipartisan thing.’”

“‘The trick is to impose regulations without destroying the innovation,’ said UC Berkeley economist Alan Auerbach. ‘There are some benefits to having made the mortgage market more flexible. The problem is, it went too far. We obviously don’t want to go back to a world of very heavily regulated banks, where no one is making mortgages. On the other hand, we don’t want people who put no money down and have no assets or income being able to buy a house.’”

“At the moment, the approach to the crisis is very much ad hoc, said Barry Eichengreen, a UC Berkeley economist and expert on financial crises. ‘We have emergency meetings every weekend, but we don’t have a system’ yet for cleaning up the bad debt now permeating the financial system.”

The Modesto Bee. “Only hours after California lawmakers broke a 78-day impasse to approve a budget that closes a $15.2 billion deficit by borrowing, Legislative Analyst Elizabeth Hill found herself in Modesto telling the Rotary Club what it all means.”

“The Modesto native, a veteran of 32 state budgets, said the state may be in for even bigger trouble next year because the depressed housing market, high energy prices and volatility on Wall Street make the economy a big wild card.”

“No one had a solution for the cash crunch that is plaguing government and businesses, but club President Marian Martino summed up her thoughts on the heady topic by quoting something she recently heard on television.”

“As Martino put it: ‘You can jump off an 80-(floor) building and pretend you’re flying for the first 79 floors.’”

The Fresno Bee. “State officials have officially revoked the real estate licenses of Tom O’Meara and Scott Webb, the developers of the failed Running Horse golf club project in southwest Fresno. They ran out of money after only two holes were built.”

“O’Meara, who is living in Palm Desert, said Tuesday that he didn’t have the money to fight the accusations, but plans to apply to have his license reinstated. ‘This has been a nightmare,’ he said, when contacted on his cell phone.”

“The state Department of Real Estate in July accused the men of defrauding 10 investors of about $6 million by allegedly selling the same lots to multiple buyers, telling investors they were buying parcels within the 780-lot development when they actually were outside, and misleading people into thinking their investments were secured by property within the project.”

“O’Meara said the project failed because financing that he was promised never came through. He denied intentions to defraud. He said he is not afraid of an FBI investigation, which at least one investor said is under way. ‘Be my guest,’ O’Meara said. ‘There is nothing to hide. The facts are what they are, and there was no misrepresentation.’”

“That’s not what Harlan Kelly said. Kelly said O’Meara in March 2006 offered to sell him three lots valued at $200,000 each for a total of $385,000. But O’Meara and Webb did not receive permission from the Department of Real Estate to sell the lots, according to the department’s complaint.”

“Nonetheless, an investor agreement was prepared and the property was lost when O’Meara filed for bankruptcy, according to the state accusation. Today, the property is back in the hands of the original lenders, and sits idle.”

“‘All we got now are weeds, a pile of dirt and an open pond,’ Kelly said.”

The Orlando Sentinel reports from Florida. “A federal bankruptcy court this month approved the sale of 122 acres that were once planned for vacation villas marketed primarily to British investors. Starting in 2006, investors started filing complaints and suing British American Homes, claiming the Florida company took their deposits but didn’t deliver the homes. The development was marketed as a vacation haven in the booming Four Corners area, where signs for vacation homes dot U.S. Highway 27.”

“‘”I was in England three weeks ago. A lot of these folks mortgaged their house to come up with the down payment. Some of them are retired. It’s not easy for them,’ said attorney Nick Bangos, who represents about 106 investors.”

The Palm Beach Post. “The three women phoned Rodney McGill in hopes that he’d teach them how to get rich in a difficult real estate market. McGill seemed a bona fide success. He drove a Rolls-Royce, hosted a radio show and was pastor of New Hope Outreach Center in Jensen Beach. His wife, Shalonda McGill, was a mortgage broker. The McGills bought four homes in Martin and St. Lucie counties by submitting fraudulent loan applications, then flipped the properties to clients for outsized profits, investigators said.”

“Investigators said the McGills in June 2006 paid $210,000 for a home in Jensen Beach, according to property records. Three months later, they sold the property to Sharon Schofield for $365,000 - a 74 percent increase at a time when home values were falling.”

“‘People thought they were getting involved in a real estate investment where he was going to mentor them,’ said Detective Ted Padich of the Florida Department of Financial Services. ‘What (the McGills) did was simply sell them homes that they already owned.’”

From TC Palm. “The developer of the large community on Michael Creek Drive plans to build the luxury waterfront subdivision despite a slump in the Treasure Coast housing market. ‘Right now anything that is on river or on the water is stratospheric in South Florida, even with the way the market has been going,’ said Cary Glickstein, owner and president of Delray Beach-based Ironwood Properties Inc.”

“Ironwood is also developing The Antilles in Vero Beach. Recently, Virginia-based Premier Real Estate Auction sold 19 units during an auction conducted at the community’s clubhouse. The most expensive unit sold for $385,000 and least expensive for $320,000 in addition to a 10 percent buyer’s premium.”

“Homes at the ritzy subdivision were selling for upwards of $700,000 during the height of the housing boom.”

“‘We thought that was a successful event,’ Glickstein said.”

“Foreclosure rates continued to escalate across the Treasure Coast in August, according to a RealtyTrac report. The study shows 1,661 homes in Martin, St. Lucie and Indian River counties entered some stage of foreclosure in August. That was more than double the 816 recorded during the same month a year ago.”

“‘The main problem here is that people are finding themselves upside down and when they owe much more than what the house is worth - that triggers a lot of foreclosures,’ said Brad Hunter, director of West Palm Beach-based Metrostudy. ‘Why continue to pay on something when it’s not worth what you’re paying for?’”

“Scott Wingfield, president of the Realtors Association of St. Lucie County, said he has brokered the sale of several foreclosed properties recently.”

“‘A lot of these properties are spec homes, properties that have never been lived in,’ Wingfield said. ‘The lenders are being very aggressive with pricing because they don’t want them on the books anymore.’”

From Florida Today. “Dark clouds of reckoning hung thick over Wall Street on Monday, as credit woes plagued two storied investment names: Lehman Brothers Holdings Inc. and Merrill Lynch & Co.”

“For consumers, ‘if you’re credit is a little shaky, it’s bad news for you,’ said David Denslow, an economist at the University of Central Florida. ‘If you’re credit is sterling, I don’t think it will affect you a lot.’”

“With the collapse of Lehman Brothers, ‘people will be wondering: Who is next? It will become more difficult (for Wall Street) to raise capital, which creates a self-fulfilling thing’ with financial fallouts. ‘Now that housing prices are falling, nobody knows how to value’ mortgage portfolios, Denslow said. ‘What’s their value? Nobody knows.’”

The Sun Sentinel. “While unscrupulous loan brokers were defrauding Florida home buyers for millions, the state Office of Financial Regulation failed to order federal background checks and fingerprint scans for people applying for mortgage licenses as required by state law, Gov. Charlie Crist’s chief inspector general, Melinda Miguel, said in the report released Tuesday.”

“While regulators were ‘asleep at the wheel,’ as one legislator put it, Florida racked up the highest home-loan fraud rate in the country - twice the national average.”

“In addition, the maximum $5,000 penalty for mortgage fraud is too small, the report said, noting that the illicit profit from a single fraudulent home sale often far outweighs the fine. It urged the Legislature to increase those penalties.”

“‘I think we have to take those recommendations and put them into action,’ Crist said Tuesday.”

“The inspector’s report came after recent stories in The Miami Herald showed more than 10,000 people with criminal histories, including convictions for money laundering and cocaine trafficking, were allowed to sell home loans during the real estate boom from 2000 to 2005.”

“The next target should be the unregulated loan originators, said Sen. Bill Posey, who chairs the Banking and Insurance committee. ‘From what I understand, those are the guys who really pulled the most shenanigans,’ he said.”

The Miami Herald. “The investigation, carried out by the Inspectors General of the State Cabinet Offices, concluded the state’s regulatory system was ‘insufficient to protect the people of the state of Florida.’”

“The Herald’s series led to the forced resignation of Commissioner Don Saxon, who had overseen the agency since 2003. Saxon said last month he hoped the report would vindicate his leadership of the agency. When asked Tuesday if the audit had done so, Crist responded with an abrupt ‘No.’”

“Saxon, who is to step down in two weeks, was on vacation and didn’t return repeated calls for comment. Investigators said the agency functioned without clear guidelines, making up rules as it went along and operating at times on wrong interpretations of the law.”

“‘In some instances, the office was not complying with existing governing directives,’ the report states.”

“”There was no enforcement mentality at OFR, and the report bore that out,’ said Chief Financial Officer Alex Sink, the first elected leader to call for Saxon’s ouster. She added that the agency needs a ‘fresh set of eyes and new leadership.’”

“Auditors found that state regulators failed to conduct federal background checks or submit fingerprint cards of the applicants to the Florida Department of Law Enforcement until March of this year — just days after The Herald made a series of requests for the criminal histories of mortgage brokers.”

“The auditors found the agency was relying on birthdates and Social Security numbers to do background checks, leaving fingerprint cards — crucial to determining criminal histories — in office files, unused.”

‘The auditors wrote that Saxon said he was ‘not aware of the strict language’ of the law and ‘did not believe’ the Legislature meant for him to immediately implement the federal background checks required by law in 2006.”

“The Miami Herald found 88 former federal criminals were licensed by regulators, including former bank robbers.”

“Auditors found that, in some cases, the agency failed to warn law enforcement of crooked brokers and boiler rooms, and that penalties imposed on bad brokers were often inadequate and far lower than proceeds from a single illicit mortgage transaction.”

“The report also noted that telephone complaints about bad brokers were not recorded by state agents or even acted upon.”

“Separately, the report found that loan originators — the largest segment of mortgage professionals in Florida — do the same work as mortgage brokers but aren’t licensed. Saxon told auditors that licensing loan originators would be next to impossible because of the ‘influence of the industry.’”

“But industry leaders in Florida told The Miami Herald they had asked Saxon’s office in 2002 and 2006 to license loan originators — but regulators refused.”

“The Herald obtained agency e-mails that showed top leaders of Saxon’s staff opposed the licensing of loan originators and, in one case, even removed a provision in a legal draft to license them.”

The St Petersburg Times. “The road to ruin for Lehman Brothers, one of the nation’s oldest and largest investment banks, began in places like Units 404 and 418 of Boca Ciega Resort & Marina. At the peak of Florida’s real estate boom in 2006, Lehman’s subprime subsidiary, BNC Mortgage, loaned a total of $512,000 to Edwin L. Jackson to buy the two condos. They were among 14 condos that Jackson bought in the same complex.”

“Lehman pooled them with other loans and sold them as securities to pension funds, mutual funds and individual investors, all eager to cash in on the seemingly unstoppable rise in real estate prices.”

“For a few heady years, loaning money to borrowers like Jackson and pooling the loans made Lehman Brothers one of Wall Street’s biggest players in the subprime mortgage boom. Then, as Jackson puts it, ‘rents fell off, sales fell off and the economy fell off.’”

“As Lehman’s value plunged, so did that of Units 404 and 418. Mortgaged for $256,000 apiece, they are now assessed at just $172,400. With two DUI convictions and a suspended license, Jackson gets around by bike these days.”

“Before the mid 1990s, local bankers took in deposits, loaned the money to home buyers and collected principal and interest until the mortgage was paid. Mortgage-backed securities consisted mostly of loans to borrowers with good credit.”

“Then, investment banks like Lehman started pooling riskier loans made to borrowers with shaky credit. Pooling the loans diversified the risk while providing the high yields sought by investors. The company also led the push by investment banks to buy their own lenders so they would have direct access to consumers.”

“Though Lehman denied it, former BNC employees said that the company falsified pay stubs, tax forms and other loan information - ‘anything to make the deal work,’ as one told the Wall Street Journal in 2007. Yet BNC and other subprime lenders operated largely beyond the reach of regulators.”

“‘The belief is that these are really smart people and you’d think they’d be dotting the i’s and crossing the t’s,’ says Scott Brown, senior economist at St. Petersburg’s Raymond James.”

“Even as rentals slowed and the sales market dried up, Jackson’s expenses on his Boca Ciega condos continued to climb. On Tuesday, six of his 14 units were vacant, including Unit 418. All the condos are now in foreclosure, though Jackson says he’s ‘trying to work things out.’”

“He says he has short-sale contracts on all 14 units. And with Lehman Brothers in bankruptcy, it could be months before anything happens with Jackson’s loans.”

“Like most borrowers, he didn’t know that his mortgages had become part of a ‘mortgage-backed security.’ He had never heard the term before Tuesday nor has he ever spoken with anyone from Lehman Brothers.”

“‘What do I have to do with all this?’ he asked, excusing himself as walked past the resort’s deserted pool area into its vast, nearly empty parking lot.”

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