The Housing Bubble

The Merced Sun Star reports from California. “Rep. Dennis Cardoza questioned how the federal government decided to divide $3.9 billion in foreclosure aid and asked that it take another look at its math and methods before sending out the checks. Apparently, one reason Merced was left off the list was a lower number of houses standing vacant for more than 90 days than several nearby areas, according to U.S. postal figures. Dorothy Kielty, president of the Merced County Association of Realtors, said she was also surprised Merced wasn’t getting any money directly from HUD.”

“‘I don’t see how they got the statistics that say, ‘You don’t need the money,’ she said. ‘Drive around any neighborhood. You can see the empty houses.’”

The Bakersfield Californian. “With home prices falling to reasonable levels, the chance to buy may be too good to pass up, particularly for people who didn’t drink the Kool-Aid during the boom. The median price of homes sold in Bakersfield in August was $196,000, according to figures from the Bakersfield Association of Realtors. The median price a year earlier was $280,000.”

“‘Prices right now are the best that they’ve been,’ said Realtor Susan Ferguson. Instead of paying rent to somebody else, people with good credit and the resources for a down payment can ‘make that investment in yourself,’ she said.”

“Credit freeze? Not so fast. Bakersfield residents — qualified ones — can still get home, car and business loans, local lenders say, despite Wall Street’s throes. ‘We are open for lending in Kern County,’ said Neil Marshall, chief financial officer at Kern Federal Credit Union.”

“Applicants must be qualified, they say, and plenty of people do get turned down. ‘Marginal borrowers just aren’t going to make it,’ said Beth Cheatwood, branch manager of Medallion Mortgage.”

“Marshall believes the current turmoil could be good for his not-for-profit industry. ‘I think this is an opportunity for credit unions,’ he said, which had been criticized by some for being too conservative during the real estate boom. Most are now well capitalized, he said.”

“Bart Hill, CEO of San Joaquin Bank, said the community bank has the same credit requirements as ever: It looks at the borrower’s ability and willingness to pay back the debt. Lenders and brokers who made subprime loans, he said, often ‘overlooked the ability of the customer to repay the money,’ he said.”

The San Francisco Chronicle. “House Speaker Nancy Pelosi looked ashen as she faced reporters Monday afternoon…on news that the House had defeated, 228-205, a $700 billion bailout of the U.S. financial system.”

“Darrell Issa, R-Vista (San Diego County), calmly told reporters afterward, ‘This is a manufactured crisis.’ He said the administration already has the tools it needs to inject capital into banks, action he said would be ‘every bit as effective’ as the bailout.”

“Issa and other dissident Republicans had consulted with William Isaac, former chairman of the Federal Deposit Insurance Corp., who urged them to explore alternatives. ‘People began to realize that they don’t have to give $700 billion to the administration,’ Issa said. ‘The FDIC can provide the capital … . They can end this crisis with the tools they have.’”

The Associated Press. “Nearly half of California’s Democratic House members voted against the $700 billion bailout package, contributing to its stunning defeat and defying the wishes of House Speaker Nancy Pelosi.”

“Among the California Democrats voting ‘yes’ was newcomer Laura Richardson of Carson, who has played her own role in the housing crisis that set off the current financial meltdown. Richardson had a house sold at a foreclosure auction earlier this year and defaulted on two other homes.”

The Marin Independent Journal. “Petaluma resident Mario Gallo, manager of Big Dogg Pizza, said business has been great since he opened three months ago, but he was worried nonetheless. Gallo said he knows a lot of people who have become homeless and jobless.”

“‘And these are people who had money,’ he said. ‘This is scary. We’re in big trouble.’”

“Sam Tsan, owner of Joanne’s Nails for 21 years, said his business is down by half this year. ‘I’ve never seen anything like this,’ he said in a vacant shop. ‘People aren’t spending money. We don’t know what will happen tomorrow.’”

The Desert Sun. “‘Politics has trumped economics,’ longtime Inland Empire economist John Husing said. ‘If they don’t turn this around, we will have a financial meltdown.’”

“Politics and the upcoming presidential election likely scuttled action, said Greg Berkemer, executive vice president of the California Desert Association of Realtors. ‘It appeared members of Congress were so busy playing CYA (cover your assets), they forgot about the USA,’ he said.”

The Press Enterprise. “One problem with that scenario is the government has no experience working out loans in default, said John Marcell, an Upland mortgage broker and president of the California Association of Mortgage Brokers Education and Research Foundation.”

“During the last real estate recession, 1989-91, the U.S. Department of Housing and Urban Development didn’t modify any mortgages, he said. It simply liquidated houses insured by the Federal Housing Administration after they were foreclosed on.”

“‘Who do we have in government who knows how to do this?’ Marcell asked.”

“Christopher Thornberg, economist with Los Angeles-based Beacon Economics, said the only bailout package that would work would have to satisfy both sides of a diverse coin. Instead, he said, advocates of the bailout drafted a package that was not well thought out and ‘were trying to cram it down people’s throats.’”

The Sacramento Bee. “Rick Hagstrom, chief operating officer at Tri Counties Bank in Chico, called the bill ‘a gross disruption of free markets’ and said its proponents were exaggerating the severity of the problem. There’s money available, he said, but borrowers are becoming gun-shy.”

“Vicky Henderson, senior loan consultant at Sacramento-based Vitek Mortgage, said she’s seen the anxiety firsthand in the past week. ‘People that are putting something down (on home loans) are afraid they’ll never get it back again,’ she said. ‘Home values continue to fall, and they’re concerned about that. They’re also concerned if the mortgage company they’re with will be around.’”

“Still, Henderson said business has been brisk the past few days. ‘We had one of our biggest funding days ever on Friday,’ she said. ‘First–time homebuyers and people who are qualified have really had a range of products available.’”

“Bakyra Moore of south Sacramento, is struggling with an adjustable payment-option mortgage that costs $2,900 a month and ‘feels like this never-ending mountain that you have to continue to climb.’”

“The 37-year-old AT&T technician said he can’t refinance because his house, valued at about $226,000, is worth considerably less than he owes. But his lender won’t negotiate with him because he hasn’t yet fallen behind on payments. Maybe the government would be more flexible, he said.”

“‘That’s what I’m hoping,’ he said. ‘It’s a constant topic in my family.’”

“Kevin Harper, a resident of Cool in El Dorado County, had his house repossessed this year. A carpenter who worked on bridges, he was injured on the job. Unable to work, he said the banks wouldn’t help him stay out of foreclosure. Now, he has no interest in seeing Wall Street bailed out.”

“‘I think they should have to pay exactly like I had to pay,’ he said. ‘I had to declare bankruptcy. Those fools, they should, too.’”

“A small but extreme example: As the House voted down the bailout plan Monday, real estate broker Steven Krohn was called by a client who’s trying to sell a home near Fruitridge Road. The instructions: Drop the listing price by one-third, to $129,000.”

WJXT Jacksonville reports from Florida. “In the latest byproduct of the widening global financial crisis, Citigroup Inc. will acquire the banking operations of Wachovia Corp. — the second largest bank in Florida. As details of its takeover unfolded, Wachovia shares plunged 91 percent to 94 cents. Wachovia’s problems stem largely from its acquisition of mortgage lender Golden West Financial Corp. in 2006 for roughly $25 billion at the height of the nation’s housing boom. With that purchase, Wachovia inherited a deteriorating $122 billion portfolio of Pick-A-Payment loans, Golden West’s specialty, which let borrowers skip some payments.”

From Bloomberg. “On a May 2007 conference call, Wachovia Corp.’s then-CEO Ken Thompson trumpeted the $24 billion acquisition of Golden West Financial Corp., a California lender that specialized in payment-option adjustable-rate mortgages. ‘I think that 12 months or so from now people are going to look at the acquisition of Golden West as one that produced great success for Wachovia,’ Thompson said.”

“‘Golden West was the beginning of the end’ for Wachovia, said Anat Bird, a former Wells Fargo & Co. executive. Golden West ‘had lousy assets, lousy liabilities and they paid a fortune for it.”’

“On his May 2007 conference call, Thompson said that ‘credit quality is not an issue’ and the option ARM product line would ‘hit the ball out of the park.”’

“‘There have been some issues with housing depreciation in California and Florida, where a lot of our loans were made,’ said Wachovia spokesman Don Vecchiarello.”

The Orlando Sentinel. “Slumping home markets in Central Florida and elsewhere across the country had begun to show some signs of bottoming out, but that could change if Congress fails to approve a bailout, said Hank Fishkind of the Orlando-based economic-forecasting company Fishkind and Associates. ‘Housing, along with everything else, is going to get a lot worse,’ Fishkind said. ‘Let’s hope they [lawmakers] reconsider their foolish actions, quickly.’”

“So far, most of the country’s home foreclosures have been because of bad loans, said Sean Snaith, an economics professor at the University of Central Florida. And as the housing market slid further, he said, credit markets began tightening and potential home buyers have had a tougher time getting mortgages approved. But the next wave of foreclosures, he warned, would involve people with ordinary loans who would lose their homes after losing their jobs.”

The Ledger. “‘It’s a challenge to correctly predict with any precision where the bottom is going to be. The bottom is going to occur when we get a better balance of supply and demand,’ Sean Snaith, economist for the University of Central Florida, told The Ledger. “We’re still seeing a glut of housing right now related to the credit crunch.’”

The Miami Herald. “Longtime mortgage broker Javier M. Noriega said lately lenders have been steadily tightening rules even for people with medium to strong credit. They want higher credit scores and larger down payments, which many customers just don’t have. Without the bailout, things could just get worse, he said.”

”’Right now, what I am getting is nothing,’ said Noriega, VP of First Southeast Mortgage in Hollywood. ‘I just don’t see the light at the end of the tunnel at this point. We were hoping that this package would at least alleviate some of the problem.”’

“To understand how the credit crisis is hitting home in South Florida, consider the plight of Teresa and Hoover Encalada. The couple found a two-bedroom condo they loved at the Plaza on Brickell. At $434,000, the price was right. Their credit was good. Friday, they got the bad news: The lender wants 45 percent down on a five-year loan with an initial interest rate of 7.8 percent. Now Encalada, a 39-year-old administrative assistant, and her husband, an Ecuadorean banana grower, are waiting on a second bank offer requiring only 40 percent down before they proceed.”

“The Encaladas thought they’d have no problem. At most they planned to put 30 percent down, leaving enough money to buy new furniture. ‘Now, I can only get the place,’ Teresa Encalada said. ‘Furniture and improvements will just have to wait.”’

“She was only 21 when she decided to become a mortgage broker. A newlywed, Michelle LaPiana felt that her own broker had misled her and her husband during the daunting purchase of their first home in Hialeah. The closing costs were nearly double what the couple previously had been told. By the time they sat with a title agent to sign the loan documents, it was too late to walk away without losing thousands of dollars.”

“In 2001, she joined Fieldstone Mortgage’s subprime division as a wholesale account executive. She would hold the same position at a string of other wholesalers over the next six years, specializing in high-cost and highly profitably subprime mortgages. ‘Subprime loans were the hot commodity of Wall Street. That’s all everybody wanted,’ LaPiana said.”

“In the peak years of the boom, she says she did an average of five deals a day. Sometimes, her biweekly paychecks topped $20,000. ‘I still have the pay stubs,’ LaPiana said ruefully, adding she couldn’t toss them because she hopes to once again earn such a handsome income.”

“Almost as fast as the subprime industry itself, LaPiana’s life went into a tailspin. She went from making great money to collecting unemployment. Her savings were eaten up by an expensive adjustable-rate loan, a car payment and the cost of supporting a family of four.”

“In July, she woke up one morning and found her Jeep Commander missing from the driveway. It had been repossessed. ‘I knew it was going to happen,’ she said. LaPiana made her last mortgage payment in May. The lenders are hounding her out of her half-million-dollar dream. She’s had to borrow money from friends. ‘I feel I was a victim, but I feel government is not going to help people like me,’ LaPiana said.”

The Dayton Daily News. “Look for the U.S. housing market crisis to be deeper, longer and scarier if the legislative deadlock continues. ‘If they don’t do something, they’re going to shut down real estate completely,’ said Richard Shuman, a Florida real estate agent and mortgage broker.”

“Though falling prices make homes more affordable, potential buyers don’t qualify for a mortgage unless they have the best credit. ‘How many people are going to sit down and say: ‘You know honey, it’s a good time to buy a house?’ asked Thomas Lawler, a housing economist in Virginia.”

The Palm Beach Post. “At this year’s Florida Association of Realtors gathering…Tony Macaluso, a broker and real estate instructor from Palm Beach Gardens, told Realtors he blames the ‘evil media.’”

“Real estate consultant Jim Sherry, meanwhile, offered this bit of analysis: ‘The media is still after us.’”

“Macaluso said in a more lucid moment: ‘Was it a surprise that properties were overvalued? It shouldn’t have been to any of us.’”

“A real estate investor and a mortgage broker have admitted their roles in a scam fleecing lenders of millions of dollars in home loans. In a deal for a home in Wellington, investor Ralph Michel arranged for an inflated appraisal that doubled the value of the house, then took a $650,000 kickback at closing, only to stop making payments on the loan, prosecutors said. In another deal in Versailles, Michel got a $600,000 kickback.”

“Lauren Jasky of Compass Mortgage Services in Boca Raton, meanwhile, collected at least $200,000 in mortgage brokerage fees from the deals, federal prosecutors said. The mortgage fraud ring also enlisted straw buyers, such as the part-time Publix cashier whose income on loan applications was inflated from $13,000 to $344,000 so she could qualify for $1.3 million in loans on a Boca Raton home, prosecutors said.”

“Experts say plenty of help is available to those who are threatened with foreclosure of their home but that homeowners need to seek assistance early and often. And they shouldn’t expect it to be easy. ‘Stay in your home as long as possible. ‘Until you get kicked out,’ says Stephanie Porta, head organizer for the Orlando branch of the Association of Community Organizations for Reform Now. If you move out and the home is vandalized, the bank can charge you to repair the damage.”

“‘Unfortunately, sometimes saving the home is not the right thing to do for the person in the long run,’ said Anita Lynn Lapidus, a staff attorney for the housing unit of Community Legal Services of Mid-Florida. ‘Sometimes buying the home in the first place was just totally the wrong move.’”

The Sun Sentinel. “‘The worst thing you can do is abandon that home,’ even if it is in foreclosure, said Marcia Oban, of New Visions CDC. Homeowners typically can remain in the house for six or seven months, she said; time to save the money not paid on the mortgage. ‘Save the money toward moving out,’ Oban said.”

The News Press. “I was sitting in a meeting earlier this week when I noticed a text on my cell phone from one of my listing clients. ‘Quick question,’ he said. ‘Is there any way in this market that we can slightly increase our asking price?’”

“My wit has been known to outrun my brains, so my initial thought was to respond, ‘Are you nuts?’”

“I told him if we had multiple offers we could talk about raising the price. However, since we haven’t had an offer in six months, nor has there been a recent sale in his neighborhood in almost a year, we should be talking about lowering the price, not raising it.”

“His final response? ‘Not comfortable with lowering the price. Should we take it off the market and wait for better days?’”

“He then closed our cyber conversation by asking the question that every agent and seller should be asking each other, ‘Do under-motivated sellers belong in this market?’”

“Declining home values have Palm Beach County commissioners contemplating changing affordable housing rules imposed on developers during the real estate boom. The county’s $164,000 to $304,000 price range was set in 2006, based on median home prices that hovered near $400,000. In August, the county’s median price for existing single-family homes was $323,300, according to the Florida Association of Realtors.”

“‘We don’t know what affordable is,’ Commissioner Burt Aaronson said about the slide in the real estate market.”

“Juan Del Busto, the regional executive of the Federal Reserve Bank of Atlanta’s Miami Branch, briefed the 120-plus attendees about the Miami Branch’s role as a local gatherer and distributor of key economic and tourism information. He noted how the federal reserve has hired educators to spread economics knowledge.”

“‘As we have seen recently, a lot of CEOs, a lot of bankers and a lot of people need to have an economic education,’ Del Busto said. Most nodded in agreement.”

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