A Nail In The Coffin In California
The LA Daily News reports from California. “For weeks, mortgage banker Ben Marsh has been swamped with questions from clients worried about losing their homes in this bad economy. ‘What should I do? What should I do?’ they have asked Marsh, who has offered up several options, including renting out a room to help cover the mortgage. ‘Now I’m following my own advice. I figure an ounce of prevention is better than a pound of cure.’”
“Marsh is looking for a boarder to rent a bedroom that has a plasma TV and stereo surround sound in his spacious three-story home in the hillsides above Woodland Hills and Calabasas; the home includes a baby grand piano and other musical instruments, a Jacuzzi and a gym. All for $1,000 a month. ‘Times are tough, and I’m not closing the 12 to 15 loans a month I used to,’ said the single man in his 30s. ‘So I figured that before things get too bad, I’d take some steps to keep them from getting bad.’”
“‘We’ve seen an upsurge in homeowners renting out rooms in their homes. It’s a sign of the times,’ said Mark Verge, owner of Westside Rentals, which also places roommates. ‘I was recently in our Valley office, and a 62-year-old woman walked in looking to share her home with a roommate, and (there was) another homeowner who said, ‘I’ve never done this before, but I’m looking to rent out a room in my house to help me with my mortgage.”‘
“Renting out rooms is also a humbling experience for many of these homeowners, who don’t want relatives, friends and neighbors to know they have rented out rooms to strangers or that they have financial problems. Many of the homeowners advertising for boarders on the Internet confirmed they were taking that step because of the hard times today, but most were reluctant to be identified in this story.”
“‘It was hard enough coming to grips with renting out a room in our home,’ said a Northridge homeowner who would only identify himself as Jeff. ‘I don’t think I’m ready to announce to the world that I need help paying my mortgage.’”
National Public Radio. “As California continues to struggle with big economic problems, Gov. Arnold Schwarzenegger has proposed a list of measures intended to help — including a 90-day freeze on pending home foreclosures. Sammy Montiel lives in a two-story home in Beaumont, Calif. He bought the house just before he was deployed to Iraq last March with his National Guard unit. He came back in June, so he has lived in the house for only six months — and now he can no longer afford to make the monthly mortgage payments.”
“‘Since I’ve been out — nothing but struggling since then,’ Montiel says. ‘I didn’t imagine I’d face this when I came back home. I didn’t want to face this.’”
“‘The economy is really, really bad, and a lot of people just left like my neighbors — they just left and the other people across the street are, you know, going into foreclosures and short sales,’ Edith Montiel says.”
“Norm Miller, a real estate economist at the University of San Diego, says the governor’s proposed foreclosure freeze isn’t a good solution. He says it would just delay the inevitable correction the market needs to make if it is to recover. And, he says, if the government steps in and unilaterally lowers interest rates on existing contracts, it’s going to be hard to find buyers for California mortgages.”
“‘If there’s the risk that California does things independently of the rest of the country, then we eliminate the demand for buying mortgages from California, and that means our interest rates for mortgages would climb dramatically,’ Miller says.”
The Santa Cruz Sentinel. “Gretchen Regenhardt, attorney with California Rural Legal Assistance in Santa Cruz, was skeptical ‘Any program that is voluntary for the banks is just that and may not happen,’ she said. ‘Many, many households … are in so far over their heads that a 30 percent reduction in their monthly payments would not be enough. This is generally true for zero-down purchases and those loans that started out with the tiny teaser interest rates and have risen as high as 12 percent or 18 percent after a year or two.’”
“Watsonville City Councilman-elect Emilio Martinez investigated allegations of mortgage fraud as a private investigator. Such fraud, he predicted almost two years ago, would result in a foreclosure epidemic and a recession. ‘We can’t rescue property owners whose property is upside down, bought the home with no money down, and the value of their home continues to drop,’ Martinez said. ‘People will continue to walk away from these homes.’”
“Seb Frey, a real estate agent in Capitola, said the governor’s proposals might help enough homeowners to slow the foreclosure rate but there could be unintended consequences. ‘A key part of the problem is that many owners are looking at their houses being worth less than half, in many cases, of what they paid for them and having little interest in making payments until they are again above water,’ he said.”
“Tighter lending standards, while a good idea, will limit the buyer pool, he noted. ‘These various initiatives are going to lessen the immediate pain from the foreclosure mess, but will have an adverse effect of slowing a complete recovery, that is, putting off normal, healthy home price appreciation somewhat further off in the future,’ he said.”
The Legal Newsline. “It’s been called a bailout and a boondoggle, a market correction and a rescue plan, a savior and a swindle. But the impact of the recent $700 million given by Congress to strengthen the country’s lending institutions remains completely unclear, leading financial analysts say.”
“Despite the attention, recent foreclosure data shows that foreclosures continue at record levels. A disturbing trend came out of Massachusetts, the first state to pass legislation designed to stall foreclosures, this past month. After seeing a sharp decline in foreclosures in the three months following the legislation, foreclosure rates skyrocketed in September.”
“Freezing foreclosures continues as the popular buzz word, but the step of reworking loans is falling by the wayside, according to many of the leading activists touting the urgent need for relief to beleaguered homeowners. ‘How is the bailout going to work?’ asked Robert Gnaizda, general counsel for the Greenlining Institute. ‘Not at all.’”
“Bank of America bought Countrywide Financial Corp in July. Countrywide is the subject of many lawsuits for its predatory lending practices, including allegations that employees were given bonuses for selling customers more risky and expensive loans. But the settlement did not address the role of investors, who bought interest in bundled mortgages from institutions like Countrywide.”
“‘Many investors are saying they don’t agree to loan modification unless you demonstrate fraud,’ Gnaizda said. ‘But even in the recent Bank of America settlement, the company is not admitting to a pattern of fraud. Bank of America will not want to sully its reputation, nor its acquisition of Countrywide. They can’t make loan modifications without investor approval, and the investors won’t agree.’”
The Oakland Tribune. “With the 10th-highest foreclosure rate in the nation, Oakland has demonstrated that it’s in pretty bad shape. The next challenge will be meeting deadlines to prove why the city needs the most help. The Federal Housing and Economic Recovery Act provided nearly $4 billion to state and local governments to buy and rehabilitate foreclosed homes. Of that money, Oakland was allocated $8.2 million. By Dec. 1, it must propose its solutions for helping residents affected by the subprime loan crisis.”
“Oakland also is competing with other cities ranked among the top 10 in foreclosures, including Stockton, Bakersfield, Sacramento and Fresno, for a share of the state’s pot of money. In the past three years, about one in four single-family homes in Oakland has experienced a foreclosure filing. According to RealtyTrac, the city to date has nearly 16,000 properties with foreclosure filings.”
“While Council member Desley Brooks (Eastmont-Seminary) says she thinks the federal money will be put to good use, it simply is not enough. The funds also do not help to keep families from losing their homes. ‘This amount won’t even begin to make a dent in the problem,’ she said. ‘People are squatting in the (vacant) properties, engaging in illegal conduct in addition to the blight that results due to lack of maintenance.’”
The Dallas Morning News. “The severity of the nation’s economic downturn will hang on when the U.S. home market comes back, a top housing economist said Friday. ‘The depth of the recession will be dependent upon whether we have a housing market recovery,’ said Lawrence Yun, chief economist with the National Association of Realtors. ‘If we have a housing market recovery, that will begin to get the economy going.’”
“But if the nationwide home market continues to sputter, Mr. Yun fears, ‘we may be seeing a recessionary condition we have not seen for 30 years.’”
“The Realtors – who are meeting in Florida this weekend – are forecasting a 5 percent to 6 percent rise in nationwide pre-owned home sales in 2009. Real estate agents are grumbling that the billions of tax dollars spent to bail out troubled banks and failing Wall Street firms haven’t helped the housing market.”
“‘Right now, being a Realtor means you are a nonprofit organization. When is this going to get down to Main Street?,’ one attendee asked James B. Lockhart, chairman of the Federal Housing Finance Agency. Solving the housing sector’s problems and loosening the credit markets will take time, he told a crowded hall.”
“‘A lot of dumb things were done over the last two or three years by a lot of people,’ he said.”
The Bakersfield Californian. “A second Bakersfield appraiser who performed work for the former Crisp & Cole Real Estate company has been accused of wrongdoing by state regulators, who want to revoke or suspend his license. The accusation is being handled by the state Attorney General’s office. It details six counts of creating ‘misleading and inaccurate’ reports involving four properties. Two of the appraisals in the accusation…had been done for Crisp & Cole’s mortgage arm.”
The Press Enterprise. “The father and mother-in-law of two leaders of an alleged Riverside County-based investment group that bilked scores of homeowners in multiple states were charged this week with federal crimes that could lead to prison terms. Dow Duncan and Joetta Zimmer…were arrested Thursday on charges of making false statements to lenders on mortgage applications to purchase homes for themselves.”
“Court documents that the U.S. attorney filed this week in the U.S. Central District Court in Riverside say that Zimmer and Duncan on separate occasions inflated their income and assets and falsified their employment history on mortgage applications with Washington Mutual Bank to purchase houses in the La Cresta neighborhood of Murrieta in which they falsely stated they intended to live.”
“Duncan is the father of James B. Duncan, and Zimmer is the mother-in-law of Hendrix Montecastro, two of three leaders of a network of companies…whom the Securities and Exchange Commission has accused of defrauding at least 95 investors of more than $11 million and forcing many of them into foreclosure.”
“Separately, the U.S. attorney submitted a complaint asking for the indictment of Duncan for making false statements in order to qualify for two mortgages totaling $1.8 million from Washington Mutual to buy a house to live in. According to the complaint, Duncan, the owner of a construction company, said on his mortgage application that he had monthly income of $60,000 when his federal tax return showed it was less than $3,400 in 2006 and less than $2,600 in 2007.’
“Richard Ackerman, the Temecula lawyer who has filed investor lawsuits for damages in Riverside County Superior Court, said Duncan and Zimmer were relatively minor players in the alleged investment scheme and he expects more indictments will be coming. ‘It is a shot over the bow,’ Ackerman said. ‘Mr. Duncan and Mr. Montecastro ought to see from this that if the U.S. attorney’s office is aiming at people this low in the totem pole, the people at the top are in really big trouble.’”
The Contra Costa Times. “A law enforcement task force is investigating thousands of Bay Area homeowners, mortgage agents, investors and others who may have committed mortgage fraud, the latest fallout from a housing bubble that wrecked the finances of countless people. Federal, state, and local investigators who make up the 30-member task force have begun to probe as many as 11,000 cases involving people who may have committed fraud during the residential real estate frenzy, said Assistant U.S. Attorney Susan Badger. She heads the task force on behalf of the U.S. attorney’s office in San Francisco.”
“Some local mortgage agents say at least one-third — and perhaps one-half — of the home loans that were written in the East Bay at the height of the housing bubble were loans with fraudulent documentation about income and debt of borrowers.”
“‘The crimes run the gamut,’ Badger said. ‘The task force is looking at crimes committed by people from the top down and from the bottom up. There were a whole lot of participants in this. There is a whole array of culpability from people who turned a blind eye or committed out-and-out fraud.’”
“‘”There was an explosion of speculative fever with all the new homes being built in the East Bay and the Central Valley,’ said George Duarte, broker-owner of a Fremont-based mortgage brokerage. ‘It just got extreme and it was wrong.’”
“What typically happened, executives said, is that an individual seeking a mortgage often could obtain a loan that obliged the borrower to simply state income or debt levels without any verification that the information was accurate. These were known as stated income, or limited documentation, or no documentation, loans. ‘It was a pretty common practice at the time,’ said Don Morton, a broker with Danville-based Empire Realty Associates. ‘We used to call them liar’s loans. People would do whatever it took to get the loans approved.’”
“A better group of targets, said Robert Gnaizda, Greenlining Institute general counsel, would be executives of companies such as World Savings and Countrywide. ‘The prosecutors should go after the CEO or other top executives of Countrywide, or they should go after Washington Mutual officials, or Wachovia officials, or World Savings or Golden West officials. The World Savings executives reside in the Bay Area. The prosecutors should at least investigate them.’”
“Gnaizda said he was referring to former executives at Golden West but not to the CEOs Herbert and Marion Sandler. ‘World Savings was the most liberal in pushing these loan programs,’ Duarte said.”
“‘There are a lot of active investigations,’ Badger said. ‘Charges are imminent.’”
The North County Times. “Regulators shut down Houston-based Franklin Bank and Security Pacific Bank in Los Angeles on Friday. The co-founder and chairman of parent Franklin Bank Corp., Lewis Ranieri, is credited with inventing mortgage-backed securities two decades ago, but apparently was unable to save his own company from getting ensnared in the home-loan bust.”
“The bank’s failure is a bitter irony because it is the mortgage securitization business of which Ranieri is known as a pioneer _ the repackaging of home loans as bonds that are sold to investors _ that was at the heart of the mortgage and credit crises. Last spring, the audit committee of the company’s board found in an investigation certain weaknesses in accounting, disclosure and other issues relating to residential real estate loans.”
The Voice of San Diego. “To pay off its debts for its deluxe new City Hall, police station and other facilities built this decade, Chula Vista counted on receiving building fees for 600 housing units a year, a total of about $5.3 million. Inspired by gangbusters development within its boundaries, the city built a lavish, sprawling new public center, paying for it partly with the development-related cash already burning a hole in its pocket. The rest it financed with bonds, pledging to pay off those loans with fees from the future building permits.”
“But the struggling city has received only 20 permits so far this year, four months into the new fiscal year. City officials thought they were being conservative when they took out bonds based on the receipt of 600 housing permits. They considered it a bar that would be easily cleared for years to come, especially in light of the thousands of houses built there several years in a row.”
“‘Six hundred permits didn’t seem unreasonable,’ said Maria Kachadoorian, finance director for the city. ‘No one knew that the housing market was going to crash as far as it did.’”
The Union Tribune. “The cap on single-family home loans in San Diego County that can be purchased by government-sponsored Fannie Mae and Freddie Mac will be reduced in January from $697,500 to $546,250. The Federal Housing Finance Agency announced yesterday that it is replacing temporary caps that expire on Dec. 31.”
“Lowering the limit is expected to place downward pressure on home prices, which have declined sharply since the median home price here peaked at $517,500 in November 2005. The median in September was $328,000, down nearly 37 percent from the peak, according to the MDA DataQuick research firm.”
“‘I think that this is basically continuing the credit squeeze,’ said Dave McDonald, president of the local chapter of the California Association of Mortgage Brokers. ‘It’s a nail in the coffin, as far as options for buyers and sellers’ of homes exceeding the new limit.”
