January 7, 2009

The Guillotine Falls In Many Different Ways

The San Francisco Chronicle reports from California. “The number of scheduled foreclosure sales and defaults in core areas of Northern and Southern California exceeded a half million during 2008, up 132 percent from the previous year, according to Default Research. In the Bay Area counties of Alameda, Contra Costa, San Francisco and Solano, the annual total climbed 180 percent to 85,381. ‘My policy prescription: Let them get foreclosed on,’ said Christopher Thornberg, principal at Los Angeles research firm Beacon Economics. ‘The home market is not going to recover, on the building or appreciation side, until two things happen: a) all these people with dodgy mortgages who bought things they couldn’t afford get shoved out and b) all those homes get absorbed. The fastest way to do both of those things is to let prices fall.’”

“Santa Clara County saw the biggest jump in preforeclosure activity among the counties last year, up 234 percent to 18,610. Los Angeles County experienced the highest number, 122,408.”

Bay Area Newsgroup. “Here’s a somber statistic for Silicon Valley: Foreclosure activity increased at a faster clip in Santa Clara County last year than in any other California county, a foreclosure information service said Tuesday. Santa Clara County witnessed last year’s fastest growing foreclosure problem partly because the county had relatively few foreclosures in 2007 compared to other large counties, said Serdar Bankaci, founder of Default Research. But as home prices in some parts of the county fell sharply in 2008, mortgage delinquencies and foreclosures here increased steeply.”

“‘The southern part of California really got hit harder earlier on,’ he said. ‘It was just kind of a lag. We’re seeing a lot of the Northern California areas were hit hard later in 2008.’”

The Mercury News. “Mortgage rates are at their lowest level in decades, but thousands of Silicon Valley residents are discovering that qualifying for a loan is tougher than it has been in years. Banks are reluctant to lend at favorable rates to all but the most bulletproof of borrowers, according to area mortgage brokers.”

“Adding to the difficulty for many people hoping to refinance loans taken out in the past few years is that the collapse in home values has eroded their equity so much that they don’t qualify for a new loan. ‘It’s like cable TV — there’s 200 options and nothing worth watching,’ said Andy DelGesso, who failed to qualify to refinance his loan on his San Ramon home because his equity had declined to less than 20 percent of its value.”

“The banks are demanding tougher appraisals, too. ‘Everything has to be explained in greater detail,’ said appraiser Greg Walker of San Jose. ‘Every appraisal I do, we look at what’s happened in that neighborhood over the past year, and everything’s declined over the past year with the exception of a few neighborhoods.’”

“‘We were all spoiled the last few years when it was so easy to qualify,’ said Patrick Dudum, area sales manager for Equitas Capital in Los Gatos. ‘Relative to 2004 it is difficult, but if you have followed the market for any length of time, this is a normal market.’”

“‘”I’ve been stoked about this market for the last three months,’ said Dudum. ‘The government is going to throw everything in their power at this problem to fix it. We’re going reap the benefits. We’re going see a boom in the next 24 months, and the last one will pale in comparison.’”

“This year’s job market is starting out on a dismal note. Fremont is being jolted with about 500 job cuts this month, primarily from a high-tech sector that has begun to erode. Over a span of several weeks from New Year’s Eve through mid-February, companies are cutting 534 jobs from their Fremont operations. Most of the employment reductions are being undertaken by technology companies, according to official filings.”

“‘The recession started with housing, then moved to consumers because of falling home prices and foreclosures, and as consumers cut back, businesses will contract,’ said Jon Haveman, a partner with Beacon Economics. ‘The cutbacks by businesses mean they will buy fewer tech products.’”

“Yet the recession has battered the entire East Bay, not just Fremont. During the one-year period that ended in November, the East Bay lost 22,500 jobs, according to the state’s Employment Development Department.”

From News 10. “City employees in Lincoln are bracing for layoff notices that could come as early as Friday, according to Mayor Spencer Short. The impending layoffs are especially painful in Lincoln, a town which claimed the title of America’s fastest growing suburb in 2007. Back then, new housing subdivisions and strip malls couldn’t be built fast enough. The population of Lincoln exploded to 40,000 residents.’

“‘I think everyone saw the slowdown coming but it was just a sudden collapse because of the mortgage crisis and everything else,’ said Short.”

“Restaurant owner Sergio Gomez opened up La Fiesta Taqueria during the boom of 2007. The former mortgage banker said his restaurant on Main Street used to be standing room only, but now, business is down about 60 percent.”

“‘A lot of my customers I talk to, they tell me, ‘Hey, I’m getting laid off in a couple of weeks.’ Business has been slow,’ said Gomez.”

The Ventura County Star. “The guillotine falls in many different ways. Employees may be ushered to meetings in conference rooms that seem starved of oxygen. A Ventura woman learned the news when she tried to use her health insurance and was told the benefits were canceled. Alfred Dowd’s 32-year career in construction ended, at least temporarily, in a Ventura office at sunrise the first week of November. He was having coffee with co-workers when the company’s owner came into the room looking grim. All other conversations stopped.”

“‘He said, ‘I have to close the doors, boys,’ said Dowd, 53, of Moorpark, who made about $1,500 a week as a construction supervisor. ‘We just sat there in stunned silence. Things ran through my mind — about my kids and Christmas, about paying bills, about putting food on the table for the next couple of months.’”

“A state list that includes only a fraction of layoffs shows 14 companies in Ventura County let 2,020 workers go in 2008.”

“Dowd…wonders if he’ll have to start a new career at the age of 53. ‘It scares the hell out of me,’ he said. ‘I went from $1,500 a week to nothing. I’m living day to day.’”

The Press Enterprise. “After retreating in fear from housing’s sudden collapse, those who buy homes as an investment are reappearing in Inland Southern California’s beaten down marketplace. Sharply discounted foreclosed properties are luring back the first wave of professional investors and amateurs, both those hoping to ‘flip’ for a quick buck and those wanting to buy and hold for a future rebound.”

“The process of ‘flipping’ is still risky, many experts warn, since the investor has to take into account that home values continue to fall, which could erode anticipated profits from a resale. ‘When values are going up, everybody looks like Einstein. But to make money in a declining market is extremely hard. It is very dangerous to flip houses,’ said Lee Medlin, a real estate agent in Corona.”

“John Salvatore, a Corona real estate broker, said he frequently buys houses so badly vandalized that ‘the only thing left is the paint on the walls. The bathtubs and toilets are ripped out as well as the sinks and kitchen cabinets.’”

“Salvatore said he bought such a house in Riverside for $239,000 that once was worth $900,000. He said after he fixes it up he plans to resell it for between $325,000 and $350,000.”

“Bruce Norris, a veteran Riverside investor who finances and trains other investors, said his group is revamping enough fixer-upper houses to keep four construction crews busy. He said they routinely install new kitchens and bathrooms with granite countertops and tile flooring. Norris said his investment group buys houses so shoddy they would not qualify for the FHA financing that most first-time buyers need.”

“‘We are buying them for $50,000 to $75,000 left and right,’ Norris said. He said he just bought a three-bedroom Moreno Valley house for $50,000 that previously had a $350,000 mortgage on it. He said after fixing it up he plans to sell it for $130,000.”

“Susan Beaver, owner of a Corona firm that manages homeowners associations, said earlier this year she bought two foreclosure properties in Corona, paying $300,000 for a four-bedroom house with a golf course view and $170,000 for a condominium. Beaver said she had no trouble finding tenants to rent the homes for enough to cover the mortgages and she plans to keep the houses at least 10 years to help her build a retirement nest egg.”

“‘I definitely just jumped in,’ Beaver said. ‘I don’t want to be sitting on the sidelines saying I should’ve, I could’ve.’”




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