The Housing Bubble

The San Fernando Valley Business Journal reports from California. “Gangi Development of Burbank has decided to go the auction route with their new Glendora townhome development. On Dec. 14, the companies hope to sell all 20 of the units in the Vermont Avenue Lofts complex in one fell swoop. Given that the craftsman-style homes are expected to fetch about prices about 50 percent lower than what the developer anticipated when the project was conceived a few years ago, the cost savings of the auction format are very appealing, said Frank Gangi.”

“‘Instead of selling over an eight, nine or 10-month period, we’re basically selling the units in one day,’ said Gangi.”

From KTLA. “On Saturday, thousands turned out for two events aimed at providing some relief; a food giveaway and free mortgage help. In Montebello, nearly 5,000 turned out for a food turkeys and other Thanksgiving Day items, a number that stunned organizers. In Van Nuys, about 2,000 homeowners attended a workshop promoted as ‘Home Preservation Day.’”

“To the dismay of many, property owners discovered that they have to be behind at least two months with their mortgage and facing foreclosure before they can restructure their home loan. But some of those not yet behind in their payments complained that bankers need to do more to prevent looming loan defaults and home foreclosures.”

“IndyMac spokesman Evan Wagner was sympathetic. But he said his Pasadena-based thrift is limited in its flexibility to rework loans. ‘We’re stuck enforcing existing contractual agreements’ with outside institutions that own about 93% of IndyMac’s loans, Wagner said.”

“‘The program is evolving. We’re helping people today who we couldn’t help a month ago,’ he said. But loan modifications are ‘not about a better deal. . . . There’s no principal reduction.’”

The LA Times. “Nationwide, 3.07% of prime mortgages were in foreclosure or at least 60 days late in the second quarter of this year, the latest period for which the Mortgage Bankers Assn. has figures, easily topping the previous record of 1.97% set in 1985. In California, with a jobless rate topping 8% and home prices down more than 40% from their peak and falling, the situation is significantly worse, with 4.15% of prime loans seriously delinquent. That far exceeded peaks of about 2.6% reached in the recessions of the 1980s and 1990s.”

“The bleeding housing market had drained the equity from Judy Jones’ home in Murrieta, but her life still seemed secure. She had a government job, after all, and a 30-year fixed-rate mortgage at 5.875%, unlike the shaky, variable-rate loans of many of her Inland Empire neighbors. Then her employer, the city of Corona, decided to deal with the economic slump by eliminating 112 positions, including Jones’ job.”

“She moved from El Cajon to Murrieta in 2005 with her adult daughter, who provided $20,000 of the $80,000 down payment on the new three-bedroom home. With property values still rising, they took out a second mortgage for home improvements in 2006, a 15-year loan for $40,000 with a fixed interest rate of 9.25%, bringing their total mortgage debt to about $355,000.”

“Jones figures she owes about $100,000 more on the mortgages than her home’s current value. ‘Every week at church, somebody else is out of work,’ Jones said. ‘I’ve been a homeowner a long time — the last 10 years as a single mother — and I never missed a payment. Now look at me. And it could be you — any middle-class person who goes to work today could be walking out the door of a foreclosed house in a couple of months.’”

The Press Enterprise. “Modifications used by lenders range from adding the past due amounts to the loan balance — which results in a higher monthly house payment — to temporarily halting rate increases on adjustable mortgages, lowering interest rates and lengthening the life of the loan. Reducing the mortgage balance is the rarest solution, experts say, because it is often unpopular with the investors who own the loans.”

“Paul Lloyd said he works seven days a week — weekdays as a water delivery man and weekends as a handyman — and his wife works as a nurse so they can continue to make a $3,800-a-month, interest-only payment on their house in Fontana. They worry that they may lose the house to foreclosure in eight years when they will have to start making an even larger monthly mortgage payment to cover principal and interest.”

“The couple is counting on their good credit and work record to enable them to qualify for the federal government’s new Hope for Homeowners refinancing program which could lower their loan balance. Lloyd said he believes lenders are reluctant to make any concession. ‘You have to keep pushing and hope you are one of the lucky few to qualify,’ he said.”

The Desert Sun. “More than 50 new and used home buyers poured into the Riverside County Education Center in Indio to discuss a litany of problems over adjustable rate mortgages and depreciating home values in subdivisions across the Coachella Valley. ‘It’s a ticking time bomb,’ said Chris Young, an organizer for Alliance for Homebuyer Justice. ‘We want to make builders accountable for their role in the housing crisis.’”

“The Alliance has said its examination of mortgage data in sectors of the country that had explosive home-building growth shows a pattern whereby some large home builders in the Coachella Valley were issuing adjustable rate mortgages. More than a third made by builders in 2006 involved five-year ARMs that will reset in 2011, they said.”

“‘There is no question there are abuses in the mortgage side and underwriting,’ said Fred Bell, executive director of the Desert Chapter of the Building Industry Association. ‘But to go after the builders who are a minute portion of that is disingenuous. The reality of it was the industry at large has had its challenges.’”

The Orange County Register. “For a few delirious years, subprime mortgages brought fat profits to Orange County lenders – plus Mercedes, Beemers and the occasional Lamborghini for their salespeople. Subprime loans left a more lasting impact elsewhere, in places like Fresno and Moreno Valley, Florida and Michigan – areas now suffering from massive foreclosures.”

“In central Santa Ana – today the county’s foreclosure hotspot – the subprime share topped 40 percent. A series of maps shows subprime lending spreading year by year from the South to California to the Midwest and Northeast.”

“John Mahoney, director of the Real Estate & Land Use Institute at Cal State Fresno, has studied the new home market in Fresno for years. Between 2004 and 2006, said Mahoney, the number of new housing units produced each year doubled. The median price also doubled. Easy money was ‘the primary component that fueled the overbuilding, the overpricing,’ Mahoney said. It was ‘a marketing cycle that fed on itself.’”

The Fresno Bee. “In Merced County, existing-home prices fell 43.2% to $130,300, and the area now is the most affordable market in the state. The median price of an existing home in Fresno County tumbled almost 32% to $168,000 last month from a year ago and on new houses fell 12.7% to $248,000.”

“Bank-owned houses are increasingly the product of choice, totaling 56% of the 799 resales in October, said MDA DataQuick. Only a month earlier, foreclosures represented 54.4% of all the sales. They comprised 15.4% of the market in October 2007.”

“Production and sales are down so far that the president of the California Building Industry Association is predicting a shortfall of new housing. ‘California needs to be building around 230,000 units per year to keep up with population growth, but we won’t even build a third of that number this year,’ said Robert Rivinius.”

“The association is trying to juice sales by pushing Congress to increase the temporary homebuyer tax credit of $7,500 enacted earlier this year, and to make it a credit that does not have to be repaid.”

The Recordnet. “Federal regulators issued a cease-and-desist order on Delta Bank, National Association effective Oct. 14, giving the bank until the end of this month to comply with numerous conditions to ensure its future stability. Stockton banking expert Joe Johnson, who spent 36 years in commercial banking and now teaches entrepreneurship at University of the Pacific’s Eberhardt School of Business, explained that a cease-and-desist order is the most serious level of enforcement action the OCC can take.”

“‘They are going to want to see those things done. Regulators these days are feeling their oats; they will do what they think they have to do,’ Johnson said, adding that such an order indicates significant problems and concerns that demand the attention of the bank’s entire management team and board of directors, who can be held personally liable for noncompliance.”

The Contra Costa Times. “On Friday night, federal regulators seized the iconic Inland Empire institution that was started on Christmas Eve 1892 and sold it to the subsidiary of Minneapolis-based U.S. Bancorp. Walter Hackett, a former PFF commercial loan department manager, said most, if not all, of the lawsuits against PFF executives probably aren’t going away.”

“‘You’ve still got board members who are worth millions,’ he said.”

“Hackett is also a witness for a group of shareholders who are building their case against PFF - one of several suits claiming PFF executives and board members foresaw financial losses and sold their stock while telling shareholders everything was OK. ‘I still think it warrants an investigation by the Department of Justice,’ he said.”

“Upland resident Jack Peterson walked out of PFF’s Upland branch after he checked to see if his PFF checks would still be honored. He said he was told they would be. Peterson was watching television that morning and noticed that PFF had been seized by the government. ‘I assumed everything would be fine, and it is, if you want to call this fine - a fine mess,’ said Peterson, a 25-year customer. ‘I wish they had spent more attention on banking rather than making money. Of course, they aren’t the only one.’”

The Press Democrat. “At the southern edge of the greater Sacramento area’s seemingly endless sprawl lies a road to nowhere, a wide parkway in Elk Grove built to reach homes yet to be constructed. A condominium project in Carmichael looks completed from the exterior, but a closer inspection shows unoccupied units, unfinished interiors and missing balconies.”

“These and other stalled development projects throughout the once red-hot Sacramento real estate market make up much of the wreckage of Exchange Bank’s construction loan portfolio. For a bank that had never lost a dime on a construction loan, the reversal of fortune has been agonizing.”

“Exchange Bank felt comfortable lending money to Rancho Cordova-based Reynen & Bardis Communities in part because of its size. But even this veteran developer has run aground. Founders John Reynen and Christo Bardis both filed for personal bankruptcy this year, citing a staggering $1 billion in development loans that they personally backed.”

“Another residential project Exchange Bank has been forced to foreclose on is a subdivision in Rancho Cordova by Cambridge Homes. After completing all of the streets, curbs and site improvements, the builder ‘folded up the tent and went away,’ said Bill Campbell, principal planner for the city of Rancho Cordova.”

“Cambridge, which had planned to build more than 100 homes in Anthology, found demand had evaporated for its modest homes, which started in the high $200,000s. ‘They can’t even give them away at that price,’ Campbell said.”

“The bank is facing losses because property values have fallen faster and further than anyone ever could have imagined, said bank President William Schrader. ‘The values of development properties have dropped down in many cases more than 50 percent, and no developer can withstand that type of situation, and no lender can escape those types of conditions,’ he said.”

The Mercury News. “San Jose property owner Salvador Ruiz paid a company $8,950 to renegotiate the terms of his loans on two houses four months ago, but he says they did nothing and haven’t returned his money. ‘They tell me everything’s OK, but they haven’t done anything so far,’ said Ruiz, who is filing a complaint with the California Department of Real Estate.”

“The state Attorney General’s office is prosecuting First Gov, also called Foreclosure Prevention Services, a Los Angeles company that promised to renegotiate loans for $1,500 to $5,000 but instead ‘ripped them off for thousands of dollars’ while their homes went into foreclosure, according to the Attorney General’s office.”

“East Side real estate broker Jaime Alvarez says he’s successfully modified the loans of six people in the past four months, charging $1,200 upon completion. But he says he doesn’t like to advertise the service because success is so rare. Alvarez doesn’t need state approval because he doesn’t get paid until after he gets a loan modified. ‘It’s constant phone calls, faxing, going from one department to another department, from one negotiator to another. These banks are backed up. It can take three to four months to get these through.’”

“It’s a ‘hot market,’ Alvarez said. ‘There are a lot of people getting into it that are probably not knowledgeable about real estate, but see an opportunity to make money from desperate families.’”

The Union Tribune. “Back when it seemed the county’s real estate prices would just keep rising, land-preservation groups struggled to keep pace with their goals for protecting habitat from bulldozers. How times have changed. Conservationists say fast-falling property values and dwindling development are allowing them to snatch up open space.”

“‘We have brokers that are chasing us in the street. . . . They have significantly cut their asking prices, sometimes just trying to unload their land for whatever they can get,’ said Mike Kelly, president of the San Diego Conservation Resources Network, an alliance of land trusts also called conservancies.”

The Herald Tribune reports from Florida. “Mark Brivik, a real estate investor who made a living buying, fixing up and selling houses on Longboat Key and other parts of Southwest Florida, has filed for Chapter 7 bankruptcy protection. Brivik distinguished himself from other investors during the past two decades by selling houses back and forth to business associates and companies he controlled or had a stake in. In one case, Brivik transferred a house at 549 Lane on Longboat Key back and forth between his corporations and business associates 12 times from 1995 to 2005 before it was finally foreclosed upon by First Priority in November 2007. In the process, Brivik and his partners increased their loans from $405,000 in 1996 to $1.4 million in 2002.”

“‘It’s a sign of the times,’ Brivik said during a brief telephone call this month. ‘A lot of people are filing for bankruptcy. It’s not something you want to do. It’s just something that’s happening.’”

“If the dominant image of the housing boom in Southwest Florida was a home in paradise, an emerging picture of its decline is of residents, out of work and forced from their homes, struggling to find shelter. James Lippincott has lived in Charlotte County for 32 years and had a job at a scrap parts shop until he was laid off in December. Now he sleeps on the floor of a house in foreclosure in North Port. He watched the former resident lock up and figured out how to break in.”

“He leaves in the mornings before 7 to avoid being seen by neighbors. ‘They kept promising my job back when things turned back around but it never came back,’ Lippincott said.”

The St Petersburg Times. “More than 22,700 jobs have been lost since September 2007 in the Tampa Bay area, the hardest-hit area in the state. Annie Lesso lives in a two-story house in the Uptown neighborhood with hardwood floors and a $1,200 mortgage. Earlier this year, she paid off her credit cards and ripped them up.”

Still, even without credit card debt, Lesso is struggling. The sacrifices are starting to pile up. Lesso has sent out nearly 200 resumes. She hasn’t heard back from anyone. ‘ve had two months with nothing,’ she says. ‘This is one of the few places I could come in and apply.’”

“Tanya Giles, the hotel’s human resources manager, nods sympathetically. ‘It has to be really rough out there,’ Giles says. ‘We get 30 people a day.’ Lesso’s jaw drops. ‘Thirty people a day?’”

“In the classroom, under rows of fluorescent ceiling lights, real estate instructor Robert DiBlasi gazes out across 100 chairs. Ninety-four of them are empty. Sandra Castagne worked for condo builders in Chicago for years but never got a license in Florida. Castagne has heard about money to be made selling foreclosed houses. A profitable sideline is short sales. ‘I know the business. I’ve been doing it so long,’ Castagne says. ‘Seems like every home is a short sale.’”

“Over at the Greater Tampa Association of Realtors, president Deborah Farmer is surprised by the new blood pouring into the business. Just last week she inducted 32 agents, most newly licensed, into GTAR. Though that’s far below the 200 monthly inductees of two years ago, she detected no apprehension in the latest crop.”

“‘I looked over at them and said, ‘man, do you know what you’re doing?’ Farmer says. ‘When I got into it 10 years ago, you had to hit the ground running. It was O.J.T. — on the job training. Now things are so slow, they have time to learn.’”

The Cape Coral Daily Breeze. “Carmen Ashby finds herself at this satellite office of the Southwest Florida Workforce Development Board more often than she would like these days. She’s been out of work since June, after being laid off as a furniture sales consultant in Fort Myers. ‘I noticed it was so slow, the number of customers was so few,’ she said. ‘We were waiting three hours between customers. It was ridiculous.’”

“Carmen Ashby’s home is not in foreclosure, though paying the mortgage has proved increasingly difficult in the last few months. Instead, her home acts more like a chain that keeps her tethered to a pole, hoping that things will turn around, that she will find a job in Lee and save the home, the dream, that brought her and her husband to Southwest Florida from Middlesex county, New Jersey. Her husband has since returned to New Jersey.”

“It was a conscious decision, according to Ashby, who might also head back north if things don’t start looking up. Unless the real estate market turns around, she’ll take a considerable loss on her home. ‘It’s getting worse,’ she said. ‘I feel like I made a mistake (coming to Lee county), but my home is keeping me here.’”

The Naples News. “A credit crunch has hit a public-private partnership looking to build an affordable work-force housing project in eastern Collier County. The development is on hold because construction financing can’t be found – anywhere.”

“With so many homes on the market and so many foreclosures, the Naples area has developed ‘a black eye’ nationally and lenders seem to feel that ‘everything down here is kind of jinxed,’ said said Pat McCuan, CEO of MDG Capital Corporation in Naples, the project’s developer.”

“The lack of financing is disappointing, McCuan said. ‘We are not blaming anyone,’ he said. ‘This is an economic tsunami that has hit the entire country.’”

“If Wall Street is the villain, is Main Street the victim? Ponder this: Where did ‘The Street’ get all those mortgages they sliced and diced into financial sludge, slathered in perfume and peddled worldwide? If you said, ‘from people,’ you’re right. But if you said, ‘Well, from right here in Southwest Florida” — bingo!”

“After 15 years of fast real estate money, this rose died. Now, world economies are falling out of a bed that gets higher every day.”

“We didn’t heed our parents’ words: ‘If it seems too good to be true, it probably is.’ We changed homes like shirts. Once a coined term, ‘flipping’ became a real-estate strategy. There can’t be a bright light bulb out there who didn’t know that the power might go off someday. And it did.”

“Building got so hectic that inspectors were allowed four inspections an hour, including travel time. Do you think these harried inspectors missed anything?”

“Foreclosures have hit apartments that converted to condos and working class neighborhoods the hardest. Golden Gate Estates has seen 1,074 final judgments in mortgage foreclosure this year and there’s been another 392 in Golden Gate. Ross McIntosh, founder of The Bidder’s Broker in Naples, said entire subdivisions are getting foreclosed on including Marbella Lakes off Livingston Road in Collier County.”

“‘I’ve lost my affection for auctions,’ he said. ‘We are beginning to see motivated sellers. We don’t need to go to the auction to get the auction price anymore.’”

NBC Los Angeles. “Marriage counselors and divorce lawyers nationwide say more distressed couples are putting off divorce because the cost of splitting up is prohibitive in a time of stagnant salaries, plummeting home values and rising unemployment. In South Florida, where the condominium-heavy Miami area has been described as ground zero of the mortgage crisis, Miami-Dade County reported an 18 percent drop in divorce filings from January to May, compared to the same period last year.”

“‘What the judicial officers are telling us is that people who do come in are saying they can’t afford the cost of splitting up and going into two households — they can barely pay for the one,’ said Scott L. Rubin, a marital and family lawyer in Miami.”

“‘The housing market is down, it’s hard to sell, and when you can sell, you’re selling it at a depressed price, so a lot of people are deciding … ‘It’s not worth it to do it (at) this time. Let’s stay together. Let’s try to work through our problems and hope that the economy will spring back,’ Rubin said.”

The New York Times. “The housing crisis has kept thousands of older Americans who need support and care from moving into retirement communities or assisted-living centers, effectively stranding them in their own homes. Ruth Scher put her two-bedroom condominium in Delray Beach, Fla., on the market last year, but no one has made an offer. Ms. Scher hoped to move to a retirement community in Cornwall, N.Y., where she has friends. But in the year her home sat on the market, she could not even find a broker willing to sell the property, she said. She finally de-listed her condominium.”

“‘They tell you, ‘We’re sorry, we can’t get any people to come and look,’ Ms. Scher said. ‘If I can’t sell here, I can’t go nowhere.’”

The Sun Sentinel. “South Florida’s home prices have gone south, but mortgage fraud hasn’t. Law enforcement and corporate officials alike are bracing for a new wave of cases as the market falters. When the housing bubble burst and criminals could no longer profit by reselling properties at ever-greater prices, they simply walked away. An April FBI report warns the depressed housing market provides ‘an ideal climate’ to create more victims.”

“After falling behind on their mortgage, Henry Gribensk and his wife received a flood of mailers promising help with foreclosure. One, from a company called Florida Housing Council, seemed promising, Gribensk said. The company’s owner went to their Loxahatchee home with a stack of documents, which the couple hastily signed, thinking Moussa would help them restore their credit and avoid foreclosure. Instead, the contract transferred their property to a trust, making the Gribensks renters and subject to eviction, they allege in a lawsuit.”

“‘Somehow he got his name on the deed,’ said Gribensk, maintenance manager for two Palm Beach condominiums. ‘It’s not even our house right now.’”

The Orlando Sentinel. “County property appraisers in Seminole, Orange, Osceola, Volusia and Lake reported 155,835 vacant residential lots this year. Most are lots in new subdivisions approved during the peak of the housing boom in late 2005 and early 2006.”

“‘Right now there is a glut of vacant lots on the market,’ said Frank Royce, Lake’s deputy county property appraiser. ‘I think there are enough lots platted out there that we would not, in my opinion, see them all developed within our lifetimes.’”

“Anthony Crocco, Central Florida director for MetroStudy, said the Metro Orlando area has at least an 82-month backlog of vacant residential lots. ‘The problem is that there is so much inventory — including resale and foreclosure — of homes,’ Crocco said. ‘The buyers stopped suddenly in late 2005, but the developers and the builders just couldn’t cut the [construction] process quick enough.’”

“When Todd Vandre moved in to his spacious two-story home in early 2007, construction workers were busy building other homes in the subdivision. Today, 69 of the subdivision’s 571 planned single-family residences and town homes have been finished.”

“‘Right now, I’m willing to wait [for more new homes],’ he said. ‘But what happens when we want to move? . . . So far it’s not so bad. It’s quiet and we have more privacy. . . . But I worry about the resale value sometimes, if I ever do decide to sell.’”

“Kerri Day and her husband live in Osceola County’s Turtle Creek subdivision, where they bought a home last year. Their house is among 53 completed out of 456 lots in the subdivision. However, only about 17 houses in Turtle Creek are occupied. The builder, Levitt and Sons, stopped new-home construction and filed for bankruptcy protection a year ago, citing falling prices and an overabundance of new homes.”

Now Day’s new home is surrounded by grassy lots and empty streets. Day fears if she puts her house on the market now, it would not sell for near the $450,000 she paid. ‘I hate it here,’ she said. ‘We have no neighbors. . . . It’s like we’re living in Jurassic Park. . . . It’s very weird.’”

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