A Through-The-Floor Bust In California
The Wall Street Journal reports on California. “The relentless slide in home prices has left nearly one in six U.S. homeowners owing more on a mortgage than the home is worth. About 75.5 million U.S. households own the homes they live in. After a housing slump that has pushed values down 30% in some areas, roughly 12 million households, or 16%, owe more than their homes are worth, according to Moody’s. Among people who bought within the past five years, it’s worse: 29% are under water on their mortgages, according to an estimate by Zillow.”
“Stephanie and Jason Kirschenman thought they were being prudent when they agreed in late 2004 to buy a new four-bedroom home in Lodi, Calif., for $458,000. They put a substantial 20% down and chose a loan with a fixed interest rate for the first 10 years. Two years later, they took out a second mortgage to pay off some bills.”
“At the time, the home was appraised for about $550,000. But a mortgage broker recently estimated its value at well below the $380,000 the family owes on it, says Ms. Kirschenman. ‘We were quite shocked,’ she says.”
“The Kirschenmans thought about sending the keys to the lender. But their financial planner, Christopher Olsen, helped persuade them to stick with the house, noting that they could still afford the payments.”
From Business Week. “When Mark Akers got an offer from his mortgage lender in September to slash his monthly payments down to $2,500, from $4,200, he jumped at the chance. The Norco, California resident ran into trouble earlier this year after his wife got sick and he lost his job managing a factory that made doors for houses. His bank, IndyMac…stepped forward to halve the interest rate on his fixed-rate loan to 3%, for a period of five years. In exchange, the bank will add Akers missed payments to the loan principal, hiking it to $611,000.”
“Akers says he’s grateful. ‘Our neighbor across the street just lost his home,’ he says. ‘I said to my wife: ‘We’ve got a house we’ll die in.’”
The Contra Costa Times. “Bank of America’s new program to enable some homeowners to modify existing Countrywide mortgages may help people stay in their homes — but also could shove borrowers into a new cycle of loan failures, analysts said Monday.”
“‘Maybe the loan won’t blow up now, but it will blow up in five years,’ said Sean O’Toole, CEO with ForeclosureRadar. ‘A lot of what we have seen from Countrywide so far is more of the same, maybe worse.’”
“He cited the restructuring of a mortgage with a $930,000 balance for a house valued at $500,000. Bank of America rewrote the loan with a fixed interest rate of 2 percent that would last five years. ‘Bank of America and Countrywide are kidding themselves if they think that house will be back to $930,000 in five years,’ O’Toole said.”
The Mercury News. “The bank’s ‘Home Ownership Retention Program for Countrywide Customers’ was devised by California and 10 other states to settle predatory lending lawsuits filed against Countrywide. ‘This is going to help some families,’ said California Attorney General Jerry Brown, ‘but the overall economy is in the hands of God at this point.’”
“Presided over by Chairman Angelo Mozilo, Countrywide soared during the real estate bubble but was dragged down by the subprime crisis. Though the settlement ends the lawsuit against the company, the lawsuit continues against Mozilo and former Countrywide Home Loans President David Sambol, Brown said.”
“Mozilo ‘earned enormous sums of money and now we have catastrophic damage. We want to find out what he saw and what’s his culpability.’”
The Daily Bulletin. “Caroline Urso and her husband are hoping Bank of America will either rewrite their mortgage or lower the monthly payment on their Beaumont home. With financing from a Countrywide loan in September 2006, they bought a $425,000 home that’s now valued at $220,000, she said.”
“The couple haven’t defaulted on their Countrywide loan, but they’re struggling financially due to the softening economy. ‘For people like us, there’s nothing keeping us here in this home, other than our obligation to not deliberately default,’ Urso said. ‘There are people being told to deliberately default in order to gain some negotiating leverage with their lender, but we’re hoping the mortgage company will help us and appreciate the fact that we haven’t defaulted.’”
From ABC 7. “Like the rest of Main Street America, this Daly City neighborhood has seen its share of foreclosures. ‘Just in this little block here we’ve had like three and a couple more possibly going up now. It’s the economy, it’s really bad,’ says Colleen Seck, a Daly City resident.”
“Mortgage brokers are desperate to jump start the housing market. One way is to reduce home prices. From October 10 through the 19th, Coldwell Banker will ask clients to lower the price of their home by 10 percent. While this is a national event, the Bay area is not participating. That’s because the local Caldwell brokers say the Bay Area is not one of the hardest hit markets.”
“‘The problem is people don’t realize what good deals are out there and now is the time to buy,’ says Terri Nettles, a mortgage originator.”
The San Francisco Business Times. “The developer of a halted Oakland condo project at 630 Thomas L. Berkley Way is restarting construction, but the complex will hit the market in December as rental units. The developer originally planned to sell units for $520 per square foot. He now estimates that if the units did go on the market, they would fetch prices in the $400 per foot range.”
“‘You just can’t come anywhere near the cost of development,’ Dones said. ‘Until there is some rebound in the price in the residential market, developers are either going to be in a position to rent out units or wait.’”
“Many developers with just-finished projects or projects under construction have either lowered prices significantly or switched their units to rentals. Madison Park Financial Corp. began leasing units at its Il Piemonte project in June after only eight of 26 units sold. The same occurred with Signature Properties’ Broadway Grand and 288 Third condo developments. And Meritage Metropolitan Living put its remaining 11 units up for lease at the 67-unit Jade project.”
The Fresno Bee. “About 54% of the deals last month were foreclosures. Through the first three quarters of 2008, 1,756 bank-owned properties were sold in Fresno and Clovis. That compares with only 213 in the same period in 2007. Some experts argue that a ’shadow inventory’ of bank-owned properties is not being counted. Those are houses that are repossessed by banks and not immediately listed for sale — either by design or because the lenders don’t have the capacity to process them faster.”
“‘Banks are sitting on the inventory and don’t have them listed yet,’ said Sean O’Toole. He said 565 houses were auctioned off at the courthouse steps in September in Fresno County, and most of those went back to banks. Many have yet to hit the market.”
“In the dismal new-home market…production has hit bottom. The 92 building permits issued in Fresno County in August were down one-third from July and were a 37.7% decrease from August 2007. ‘It’s tough for the builders [to reduce prices enough to attract first-time homebuyers] given that a lot of them bought land at a premium,’ said Michael Gilmore of Royal Charter Mortgage in Fresno.”
The North County Times. “Over the past year, auctions of beaten-up foreclosures have become increasingly prevalent as a sales tactic. Now, as the nation’s financial infection spreads, new, upscale “estates” are popping up for auction, with starting bids 50 percent off the original price.”
“Shone Wang, president of Los Angeles-based developer National Security Construction, purchased a 14-house subdivision in Escondido after its original builder could not pay the construction loan. Most of the properties are sprawling ranch houses of about 4,000 square feet sitting atop a ridge overlooking East Valley Parkway.”
“Originally listed between $825,000 and $1.2 million, the houses, known as Windstone Estates and located in east Escondido, will go to auction this Saturday with prices ranging from $385,000 to $575,000. Unlike many foreclosure auctions, the houses do not carry an unpublished ‘reserve price’ that would allow the seller to reject final bids not high enough.”
“Defaults on construction loans have started to pile up as builders said they could not sell houses for a profit and the few interested buyers could not qualify for loans. ‘It’s almost impossible,’ said Tom Dobron, CEO of an Escondido builder. ‘Every one of my projects is in default, and it just didn’t have to be that way.’”
“Wang said he purchased the houses from Bank of America for $5.9 million and spent an additional $2 million finishing the project. That means if the houses sell at the minimum bids, Wang’s company would lose about $700,000 on the project.”
“He is selling in a market where sales are down 30 percent from 2005 and prices have fallen each month for the last two years. ‘If you tell anyone, ‘I’m going to buy a house,’ today, everyone would laugh at you,’ Wang said. ‘So the only way we can sell these is through an auction.’”
“Auctions are not always successful. Dobron, the Escondido developer, said an auction for one of his projects could not have gone worse. Dobron tried to sell 14 houses in the Central Valley project. Eight sold at the auction and only four or five of those sales actually closed escrow, he said. ‘It was a disaster,’ Dobron said. ‘It’s a way to make auctioneers rich.’”
The Bakersfield Californian. “Bakersfield home prices slipped closer to pre-bubble levels in September, according to the latest report from local appraiser Gary Crabtree. The median price for an existing single-family home in the greater metro area was $179,000 last month, the Preliminary Crabtree Report shows.”
“That’s a mark passed sometime between May and June 2004, when local home prices entered a mad spike that peaked two years later. In May 2004, the median was $175,000; the next month it reached $193,000. ‘That’s where it really took off,’ Crabtree said.”
“Over the next two years, the number shot to its high-water mark of $299,925 in June 2006, Crabtree said.”
From Forbes. “We examined the median home sale prices in the country’s 500 most expensive ZIP codes with data from First American CoreLogic. Then, we looked at July foreclosure rates in these areas, according to foreclosure listing firm RealtyTrak.”
“Laguna Niguel, California has 61,891 residents and borders glamorous beach cities like Laguna Beach and Dana Point, but it has the highest number of bank-owned properties–210–of the ZIPs we examined. These foreclosures have likely contributed to the decline of the area’s median home price, which has fallen by $52,750, or 7.2%, to $679,500 in the last year.”
“San Juan Capistrano, Calif., was second on our list with 190 repossessed properties among 33,826 residents. Just a few miles away, banks own 181 homes in the 4,000-acre, 23,140-person planned community Ladera Ranch.”
“In Northern Orange County, 24,044-strong Tustin Foothills came in at No. 4 with 165 bank-owned homes. The San Jose-area ZIP 95148 has 44,401 residents and lands at No. 5 with 157 bank-owned properties.”
“Sen. Dick Ackerman might argue that weather plays a role. He represents a sizable chunk of South Orange County, including Laguna Niguel, and says that there is something about the desirability of the area that makes the real estate market swing a little too far during boom and bust cycles.”
“‘People bought high-end homes when the economy was good, and then the economy went down a tick, and now some people can’t make their payments,’ he says. ‘It happens in cycles, but this time we’re seeing more of it.’”
“Moody’s Economy.com economist Mark Zandi agrees. ‘The combination of rising unemployment and falling home prices drives foreclosure,’ he says. Southern California is experiencing both. ‘It was a through-the-roof boom and a through-the-floor bust.’”
