March 20, 2009

An Upside To The Economic Downside

It’s Friday desk clearing time for this blogger. “None of the half-dozen bargain-hunters knew for sure how many homes would be auctioned off on the steps of Chesterfield County Courthouse last week. Of the nine that were advertised, only one went to bid — and it went back to the bank. It reflected the dying hopes of one family, the Bangs, who were never told of their home’s reprieve at the auction. Still facing big bills with little work available, they continued to move out of their home of eight years to a small apartment. No one had bothered to tell a defeated-looking Tae Sik Bang that he didn’t actually lose his home at the foreclosure auction. When notified of the development at his home off Huguenot Road, he just kept packing.”

“Bang has a $32,745 federal tax lien hanging over him. He has missed four or five months of payments on his house and doesn’t know what to do other than let the bank take it. Now, he’s resigned to losing a house worth $262,400 because he can’t make payments on a $159,000 loan that he and his wife have been making payments on since 2001. ‘My son, he’s 9, I show him the apartment’ that the family is moving to, Bang said. ‘He doesn’t like it. He says, ‘Why do we have to move?’ I say: ‘No job.’”

“As he sat in Stuart City Hall on Wednesday, Dorran Russell asked a panel of professionals to help him save his home. Russell told the panel that his White City home was foreclosed on in September, and he said he cannot find a rental because of his bad credit. ‘This isn’t the American way, I don’t think,’ Russell said.”

“When Rob and Debra Eyrich moved into their dream home in Elgin three years ago, they thought it would be their family home forever. Both of them have full-time, secure professional jobs. So what could go wrong? As Deb tells it: ‘We were supposed to have a 30-year, fixed-rate mortgage. But the mortgage broker told us that kind of loan was ‘for your grandmother.’ Instead, he gave them an adjustable-rate mortgage, which was fine — for a while.”

“Then the recession hit, reducing Rob’s salary as a residential architect, and eliminating his bonus. It seems their loan had PMI insurance, which would completely repay the lender in case of a foreclosure. So the bank, with nothing to lose, wouldn’t give them a modification!”

“As a realtor in the Phoenix area, Jullisa Kalish rode high on the property boom. But when the market crumbled over the past three years, she wound up her business, went through a divorce and walked away from her five-bedroom home. Her home value peaked at $674,000 but was recently revalued at $395,000. Saddled with hundreds of thousands of dollars in negative equity, she found a two-bedroom apartment to rent for herself and her two daughters.”

“‘It’s heartbreaking to lose $300,000 worth of equity, over $300,000 of my most valuable asset,’ she said. ‘It will be 10 years before it even gets back to its $600,000 value.’”

“In Arizona, Phoenix electrician Alvaro Palacios called it quits on the dream home he bought at the top of the market in late 2006 for $172,000. Palacios stopped making payments after he was laid off in December. He took a part-time job as a supermarket delivery driver to make ends meet and has been waiting for his lender, Countrywide, to foreclose. His two-bedroom home with a large yard recently was revalued at $124,000 by the city.”

“Until he hears from the bank, Palacios is staying put. ‘It is a difficult decision, but I don’t really see any other alternative,’ the father of two said. ‘The house is worth much less than I paid for it, and it is too much of a struggle. It will just take too long to recoup.’”

“The Baton Rouge housing market continued its downward slide in February as sales fell by 28 percent from a year ago. Local home sales have been falling steadily since 2007 as the post-Hurricane Katrina boom ended, followed by a combination of other factors.”

“Sandy Daly, Greater Baton Rouge Association of Realtors president, said that local demand for homes has remained strong. But some potential buyers who might have qualified just a few years ago are being turned down for loans, even if they fall just a few points below minimum credit scores. Like others critics, she blamed Fannie Mae and Freddie Mac. Daly blasted both companies, saying they’ve increased the cost of lending to recoup their own losses.”

“‘I can’t tell you the number of people who want to buy homes … and are being turned down by lenders,’ she said. ‘It’s not for want of a new home or buyers that aren’t well qualified. The requirements are just unreasonable.’”

“A Michigan retirement fund charges in a lawsuit that Thornburg Mortgage Inc. and other financial institutions misled investors into thinking they were buying securities based on high-quality mortgages. The complaint states that ‘Thornburg represented that it concentrated on only prime, high-quality mortgage loans … with features geared toward more sophisticated, affluent buyers.’”

“However, the suit claims that Thornburg used ‘false and misleading statements’ to hide that its mortgages were ‘risky’ so it could sell them to investors such as the Genesee County Employees’ Retirement Fund. ‘Nowhere in the Offering Documents did the Defendants disclose that the Certificates were not supported by high-quality loans, but instead were supported by risky, Alternative-A (’Alt-A’) mortgage loans,’ it says. “Although the borrowers behind these mortgages will typically have clean credit histories, the mortgage itself will generally have some issues that increase its risk profile.’”

“‘According to confidential witnesses with direct knowledge of Thornburg’s loan origination practices, Thornburg frequently originated large amounts of Alt-A loans. By disregarding its underwriting standards for high-quality prime loans, Thornburg was able to close more loans and earn more fees by issuing Alt-A mortgages. Then, by pooling and selling those mortgages to the Issuing Trusts, the Depositor Defendants shifted the undisclosed and increase risk of loss from mortgage defaults to Plaintiff and other unwitting members of the Class.’”

“Thornburg Mortgage common stock sold for nearly $30 a share a year ago before it began a precipitous slide to about 5 cents a share today. In October, the firm laid off 29 employees. In December, when its stock slipped below $1 a share, it was dropped from the New York Stock Exchange.”

“Thomas Dubss of the New York firm said the Genesee fund lost ‘many millions’ on its Thornburg Mortgage investments. ‘It’s typical of the way a lot of these sub-prime mortgages were packaged and then resold,’ he said. ‘It’s esoteric, but, unfortunately, it’s common and has led to the predicament were in, in no small part.’”

“At a recent Marion County Commission meeting, a bow-tie-clad, professorial-looking figure took to the podium. His high-energy, animated style and slick graphics, which unleashed a torrent of information on the board, contained a simple message: growth, particularly through new home construction, is good.”

“Yet Dr. Elliott Eisenberg’s lecture was not purely academic. The research he offered the board is designed to hand local builders a rhetorical hammer to drive home to the public, and to the elected officials who regulate their industry, how vital the construction sector is to Marion County’s economy and to beat back any push for higher impact fees - an issue likely to emerge in the next few months.”

“At that March 3 meeting, Eisenberg, senior economist with the National Association of Home Builders in Washington, D.C., assured commissioners that anti-sprawl forces who maintain growth does not pay for itself are wrong. Marion County can expect to recoup about $1.77 in taxes for each $1 it spends on services on those homes over that time.”

“New ‘homes pay for themselves pretty quickly around here,’ Eisenberg observed.”

“Mark Range is the general manager at famed Bermuda Dunes Country Club, and like managers at other private country clubs in the desert, Range is trying to navigate his club through a maze of shrinking memberships and dwindling revenues. ‘I think breaking even in the country club business right now is a great goal,’ Range said.”

“The Florida-based National Golf Foundation estimates that as many as 15 percent of private country clubs in the country, or about 500, are facing financial or membership crises. Aging membership rolls, a weak economy and high initiation fees and monthly dues are to blame for much of the trouble, the foundation reports. In the Coachella Valley, older clubs such as Bermuda Dunes also face competition from newer private clubs with flashy amenities and public courses that are dropping their own fees.”

“The goal is to keep clubs financially viable while avoiding the fate of Canyon Country Club in Palm Springs. That private club’s financial woes left it so far behind on its lease that it was abandoned as a private club last year and is now a public course. ‘This area gets hit hardest because when the economy is bad, the first thing that goes is people’s second homes, second memberships, things like that,’ said Jeff Davis, president of the Bermuda Dunes club. ‘I was on the board (in 2007) and we lost a lot of money and a lot of members. That’s about $800,000 in revenue. What this board has done is realize, OK, golf is down 10 percent. Clubs are in trouble.’”

“Springfield-area Realtors, like those in other parts of the country, are disappointed in the state of the housing economy, yet they also remain ‘cautiously optimistic’ about what the future holds. The average 2008 home sale price was $139,250, down 5.7 percent from 2007, according to data from the Greater Springfield Board of Realtors, which has a service area concentrated in Greene, Christian and Webster counties. ‘We’re disappointed, but we’re trying as an industry to remain positive and do everything we can (to come out of it),’ said Miles Noennig, president of the Greater Springfield Board of Realtors. ‘Housing is a great investment, and prices right now are very affordable. Credit has tightened, but if you have a good credit record there is money out there to be lent. Our industry is built on optimism, and right now we’re cautiously optimistic.’”

“‘Since five years ago, the (U.S.) market has greatly reduced in activity, but a lot of that was because prices increased to an unrealistic point,’ said Art Maxwell, sales manager for Coldwell Banker Vanguard Realtors. ‘What’s going on here is a normal correction from a super-hot market, which would have happened anyway.’”

“The bargain-basement properties are those that are in foreclosure ‘or other properties that need a lot of work,’ said Mark Berthelsen, an agent with Keller Williams Premier Realty. With them, it is a buyer’s market. They can be sold, but the seller has to be realistic about the price.”

“Travis Peltier, broker in Stillwater, agrees that homes are moving on the market. ‘They are selling at a fair pace,’ he said. ‘Not at the same pace as in 2004, but at a healthy clip. I think the general public is starting to see that real estate is local, and, yes, Minnesota has foreclosures, but nowhere near what California has.’”

“If there’s one thing the current economy has taught us, it’s that perceptions can be damning - even when you’re doing nothing wrong. And the negative perceptions surrounding recent abuses of corporate spending have prompted many companies to cancel meetings, conventions and other special events. The pull-back is hitting home for The Party Goddess, a high-end, Pasadena-based catering and planning company.”

“‘We are totally affected,’ said Marley Majcher, the company’s chief executive officer. ‘Even our clients who have money are prefacing all of our event meetings by saying, ‘We don’t want it to look like we’re spending much money. People are totally craving to get together, but at the same time … so many people are out of jobs and homes are in foreclosure.’”

“‘Why do people call me?’ she asked. ‘They call me because I’ve got 17 years of experience and our events are colorful. And really … my brain works in a crazy way.’”

“Short of putting Prozac in our water supply, I’m trying to think of some ‘upside’ to our ‘down’ economy. After all, no one thought California would survive the dot.com bubble burst years ago, but we proved to be resilient and innovative. In the spirit of not only survival but positive reframing, I offer my top ten reasons for recessionary appreciation.”

“Customer service is back! Gone are the ‘take it or leave it’ attitudes of surly sixteen year-old Circuit City store clerks, or obtuse and obstructive airline ‘reps’ answering in Bangladesh and determined to foul your flight plans. ‘Thank you,’ has re-entered the American dialect.”

“There are bargains galore! Today, you even threaten to cancel a gym membership, cable service, home delivery or day spa and they suddenly have more ‘unadvertised’ specials than Ron Blagojevich had for his Senate seat.”

“There’s less mess in the landfills! People are re-using plastic water bottles and turning over copy paper! This week, I saw a homeless guy wrestling with a City recycle collector over the one or two aluminum cans not already cashed in by the homeowner. Volunteerism is up! Seniors with time of their hands, recently out-of-work professionals, and forty year-old public safety ‘retirees’ with lifetime pensions are all willing to take on a cause.”

“Condoms are ‘2 for 1’ at Planned Parenthood! Actually they’ve always been free, but an economic downturn is the best time not to have an unplanned pregnancy.”

” A slowdown on building projects in Santa Barbara! We find we may not need those urban dweller megaplex condos, stuffed onto tiny plots of downtown, after all. No longer can threats by housing ‘advocates’ blackmail the Planning Department and Council into approving anything with an affordable unit or two. As the market prices fall by a third, rentals become plentiful, Habitat for Humanity continues its good works, and more condos are being converted into apartment buildings.”

“Finally, there’s a renewed appreciation of what is lasting and genuine. The ‘worn’ look is now trendy in clothing, thrift stores are thriving, and the era of septuagenarians getting hair plugs, wax jobs, perky boobs or penile enhancement may finally be behind us. Comedy is back, and reality TV is hopefully on the wane.”

“Maybe there’s an ‘upside’ to the economic ‘downside’ if we ask the growing pack of local political hopefuls to reflect the current mentality of savings and conservation and put a limit on campaign expenditures. A cap on fundraising would cut down on the amount of political advertising we have to suffer through. At best, it might level the playing field; forcing candidates to make more personal appearances where they have to think for themselves and answer tough questions, rather than read prepared speeches and campaign manager scripts.”

“Their ‘downside’ might well be our ‘upside,’ while we sort through the ruins of our local economy without relying on anti-depressants.”




Bits Bucket For March 20, 2009

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