One Unintended Benefit In California
The San Francisco Chronicle reports from California. “The recession that has already devastated the Central Valley has started to hurt the Bay Area, causing job losses that will continue through 2009 when the economy should begin a slow and weak recovery, according to a bleak forecast issued today. It was with some humility that UCLA economists issued this report, predicting high unemployment through 2010 as the state gradually recovers from the housing bubble.”
“In recent quarterly forecasts they had suggested the state might dodge the recession. But forecast Director Edward Leamer said the financial crisis that erupted in September and October had ‘unleashed a tidal wave of fear’ that caused spending and investment to collapse, confounding all the forecast’s expectations.”
“‘When you do forecasting you look at historical trends and try to project how they might play out,’ Leamer said. ‘But nothing such as this has ever happened. Everybody is relying on hunches.’”
The Bay Area Newsgroup. “To describe the economic outlook for the Bay Area and California, forget about slump or sluggish. Recession and nose-dive are what’s on tap for the moribund regions, according to a bleak pair of new forecasts, although recovery could begin by late 2009. The recession nationwide and in the state will savage the East Bay and Central Valley locally and parts of Southern California to a much greater degree than the Golden State overall, the UCLA Anderson Forecast predicted in a report released today.”
“‘The East Bay will be much weaker than places such as Silicon Valley and San Francisco,’ said Jerry Nickelsburg, an economist with the Anderson Forecast. ‘We see that 2009 will be a year of contraction in employment and income for California.’”
“California has probably lost about 150,000 construction jobs in the downturn, Nickelsburg estimated. But those totals could swell to 200,000 before the slump is over, he warned. Another major problem area is retail. Because of the housing bubble, retail developments became overbuilt. Spooked by weak jobs and rising foreclosures, consumers have curbed spending. This means that retail layoffs, which have already begun, could intensify.”
“However, one unintended benefit could materialize because of the devastation that has wrecked the housing markets. The foreclosures and collapsing prices could make homes more affordable. ‘As painful as the adjustment is and as regrettable as it is, there are benefits from the decline in home values,’ said Jeffrey Michael, director of UOP’s Business Forecasting Center. ‘The housing downturn has created some opportunities for buyers and the seeds of recovery.’”
The Burbank Leader. “Burbank winter shelter officials are requesting further resources to meet the needs of an explosion of families needing assistance. ‘Our numbers are much higher this early in the season. We’ve had more families show up in three days than we had in the entire 3 1/2 months last year,’ said Andy Bales, chief executive of the Los Angeles Union Rescue Mission.”
“‘It’s the economic situation — foreclosure, unemployment,’ Bales said. ‘I think it’s just the start.’”
The Sacramento News Review. “According to the Employment Development Department, there were 1.4 million unemployed Californians in this year’s third quarter, an increase of 406,800 people—40 percent—compared to the same period last year. In October, unemployment climbed to 8.2 percent, a 14-year high.”
“EDD spokeswoman Loree Levy says California’s unemployment insurance system is funded by an ‘antiquated revenue system’that will not be able to meet the needs of the state’s growing number of unemployed workers…Combined with the recent wave of job losses from the collapsing housing bubble, this structural gap led to a 55 percent decrease in the fund during the past year.”
“Rancho Cordova resident Chris Wallace, 28, worked full time in a local warehouse for two years until he was laid off in September. Unemployment only provides ‘about 50 percent’ of his former salary. ‘I don’t plan on being out of work [long],’ he said. To that end, he plans to move to South Carolina, where ‘more help and support’ may land him a new job.”
The Modesto Bee. “Foreclosure filings fell nationwide in November, but they spiked dramatically in the Northern San Joaquin Valley, statistics released by RealtyTrac show. Lenders repossessed 1,641 homes last month in Stanislaus, San Joaquin and Merced counties, and they warned 2,727 additional homeowners that foreclosure was imminent if they didn’t pay up.”
“The three counties placed among the five worst in the nation on RealtyTrac’s foreclosure rankings. That’s been true for nearly every month for the past two years. Last month in Stanislaus, lenders that foreclosed got stuck with more than $197 million worth of unpaid mortgages, according to figures released by ForeclosureRadar.”
“Lenders that renegotiated mortgages rather than foreclose aren’t doing so well either.
“More than half of the homeowners (nationwide) who received loan modifications to reduce monthly mortgage payments in the first half of 2008 are already delinquent on their loans again, according to the U.S. Office of Thrift Supervision,’ RealtyTrac’s James Saccacio said. ‘Many of these delinquencies could turn into foreclosures next year.’”
The Voice of San Diego. “It takes banks months to repossess and sell homes after owners stop making mortgage payments. In that time, some homes fall into natural disrepair. But a number of the foreclosures on the market deteriorate faster. Thieves snatch the copper piping or wiring to sell. And sometimes former owners strip the place of fixtures, hoping to sell them or to send a message to the bank.”
“‘They’re taking everything,’ said Sara Schwarzentraub, real estate appraiser and owner of Inter-State Appraisal Service. ‘Everything that’s not nailed down and some stuff that is nailed down.’”
“Just because the house-gutting occurrence is common doesn’t mean it’s legal. A house is collateral on a mortgage, and a kitchen sink is intrinsic in that value, as is a working toilet and a stove. And taking a hammer to the house before you leave just to spite the bank? ‘If there’s willful destruction of property, that’s deliberate harm to the collateral,’ said local real estate attorney William Markham. Banks can go after owners for breach of contract.”
“‘The question is, if it’s a few thousand dollars, is it worth prosecuting people who probably have no money anyway?’ Schwarzentraub said.”
“Another real estate broker listing homes on behalf of banks, Jim Klinge, said between 20 and 25 percent of the bank-owned houses he sees or lists have had stuff taken out of them. ‘Some of them just need the money, and they think they can rip off the appliances and get some money for it,’ he said.”
“It’s a bone of contention for Klinge, who often must quarrel with asset managers at the bank to let him fix up the house before he puts it on the market. Sometimes they refuse, even though most financing available — including the first-time homebuyer programs under the Federal Housing Administration and Veterans Affairs — require specific livability standards before they’ll lend money to a homebuyer.”
“One of Klinge’s listings, a foreclosure, has no stove and no dishwasher, and has mold in the downstairs. Klinge asked the asset manager for $3,900 to remediate the mold. The request was denied, in favor of waiting for a cash buyer who won’t mind paying for its removal. Three buyers have come and gone, and Klinge has held the listing for six months. It’s not the only one.”
“‘It’s a real hot button — the banks are crazy to just be throwing these in the market,’ he said. ‘How are you going to finance these? It’s not rocket science; this is basic real estate 101. You can’t get a loan without a kitchen.’”
The Bakersfield Californian. “As the clock ticks down on former Bakersfield real estate broker Carl Cole’s deadline to legally challenge his license revocation, Cole continues to work at a real estate agency in Thousand Oaks under the name of one of his defunct companies, Points West Group. But Points West, which has one active listing for a house in Oxnard, is not properly registered with the state Department of Real Estate, said spokesman Tom Pool.”
“As of Wednesday, Cole, 61, is described as an ‘administrative assistant’ on his Web site. The supervising broker is a former employee of Crisp & Cole Real Estate, the flamed-out partnership of Cole and former sales agent David Crisp, 29.”
“An ongoing Californian tally shows at least 139 Crisp & Cole-related properties with loans totaling more than $82 million have foreclosed, defaulted or been sold ’short.’ Most are single-family homes in the Bakersfield area. In September 2007, federal agents raided 13 local business and homes tied to Crisp & Cole operations. No charges have been filed in the federal investigation.”
The Associated Press. “Investigations into the collapse of financial titans such as Lehman Brothers, Bear Stearns and Washington Mutual have attracted most of the attention in the ongoing unraveling of the nation’s mortgage-backed security mess.”
“Lost in the headlines are prosecutions proceeding quietly on the local level against smaller players. In dozens of jurisdictions around the country, federal prosecutors are charging hundreds of people with originating the bad loans that helped derail the world’s financial markets.”
“Prosecutors are finding buyers who created fake identities to take out home loans, brokers who paid kickbacks to ensure fraudulent mortgages were approved and lenders who took bribes and forged documents. They are the ones who fraudulently overstated property values and borrowers’ incomes, who used illegal means to secure loans that homeowners ultimately couldn’t afford, though they had plenty of encouragement from Wall Street. That fraud helped artificially inflate home values that have since come crashing to earth.”
“‘Let’s not lose sight of the fact that there is immense criminal fraud involved in this financial crisis,’ said U.S. Attorney McGregor Scott, whose district spans California’s vast Central Valley and is among those most affected by the housing bust. ‘It’s a profound ripple effect that affects everyone. We have a duty to put these people in prison.’”
“The FBI says about 80 percent of mortgage fraud losses under investigation involve industry insiders who inflated property values or made loans based on fictional information.
The remaining 20 percent is by individual borrowers who lied about their income or job history to qualify for loans. The larger group is where law enforcement is focused. ‘We are mainly focusing on the mortgage brokers and title companies because they are really at the center of mortgage fraud in this district,’ said William Edwards, the acting U.S. attorney for northern Ohio.”
“U.S. Attorney Gregory Brower has had to shuffle attorneys to handle cases like the one Nevada prosecutors say involved 432 fake buyers for 227 properties worth more than $107 million. At least 143 of the homes are now in default, costing lenders more than $17 million. Five Las Vegas brokers, mortgage agents and loan officers have pleaded guilty and six are awaiting trial.”
“Michael Cardoza, a San Francisco-area attorney representing one of those charged in central California, said prosecutors should be setting their sights higher. ‘It’s amazing to me that the people on Wall Street walk away with millions and millions if not billions of dollars,’ said Cardoza. ‘Now they’re just picking off little people . . . They’re doing scapegoats is what they’re doing.’”
The LA Times. “In the midst of a downturn in the real estate market, some developers are finding that they no longer can sell condos in buildings that even a year ago would have been quickly snapped up. Flummoxed by a precipitous drop in qualified buyers, they are choosing to rent out their buildings instead. It’s happening in downtown Los Angeles, and to a lesser degree in Hollywood and the San Fernando Valley — areas where high-density housing has sprung up in recent years.”
“And the shift raises questions about some of the fundamental assumptions surrounding urban development. Instead of buyers who can afford the hefty down payments and mortgages, some of these developments are now attracting renters who need only put down rents of $1,500 to $4,500 a month.”
“Mike Farzan, one of the Chapman’s co-developers, said that the decision for his building to go rental was something that was precipitated when some buyers had lost their jobs, and others watched loan commitments slip away as mortgage lenders changed guidelines. ‘Faced with the uncertainty,’ he said, ‘we decided to go rental, at least for a few years, until things settle down.’”
“Downtown condo owners in L.A. and elsewhere often see the property as an investment rather than as a place to live and build a community. ‘I saw it in New York; you can see it in London,’ said developer Tom Gilmore. ‘You can have a completely filled condo building and not have anyone living there on a daily basis.’”
“Daria Benedict had been in escrow for nearly a year on a 725-square-foot loft in the Chapman building in downtown Los Angeles when she got the first indication that the rehabilitation of the historic office building into high-end condos might have hit a snag. The developer of the building asked for a larger deposit on Benedict’s purchase of a 13th-floor unit that promised an open floor plan and oversized windows. Benedict had to scramble to find the extra cash.”
“But it hardly mattered. In May, the developers took the Chapman building off the market altogether, returned buyers’ deposits and instead opted to rent out the 168 units.”
“Benedict she continues to live at the Douglas building, a few blocks north of the Roosevelt. She said she has adopted a pragmatic take on her real estate fortune — one tied in part to downtown’s changing fortunes as a residential neighborhood.”
“‘In the long run, I think it saved me,’ she said. ‘I would have purchased that home for over market value. Even though I thought it was a great deal, downtown is a long-term investment thing. You have to invest and hope that it’s like Manhattan.’”
