We’ve Never Been Down This Road Before
It’s Friday desk clearing time for this blogger. “Brisk home sales have made Sacramento the envy of real estate agents in 45 other states where sales are still declining. Yet analysts remain stubbornly cautious. They say there are still too many conflicting signals to accurately forecast a bottoming out of the real estate cycle. The year’s worth of increases, after all, follow 37 straight months of year-over-year declines. ‘Usually, after 12 months, you start looking for prices to stabilize,’ said Andrew LePage, an analyst with researcher MDA DataQuick. ‘But we’ve never been down this road before, and historical road maps haven’t done a good job of showing where we’re headed.’”
“Notices of default have spiked. Banks are holding a ’shadow inventory’ of repossessed homes off the market. The economy is still shedding jobs, a key contributor to people falling behind on mortgage payments. February unemployment hit 10.8 percent in El Dorado, Placer, Sacramento and Yolo counties, and is expected to get worse.”
“Still waiting to buy is Vince Maffeo. He and his family moved to the Serrano community in El Dorado Hills from Bradenton, Fla., in early 2008. They’ve been carefully following the market from a rental house. Maffeo said he can see three new ‘for sale’ signs from a window at home.”
“‘I continue to get e-mails from a Realtor who said there’s tremendous drops,’ Maffeo said. ‘I just don’t see an incentive right now. You just don’t know where the bottom is going to be. We don’t want to pay too much.’”
“The Legal Aid Society of Orange County – as well as the Public Law Center – report that more and more individuals like have spiraled into poverty and are now coming to their clinics seeking help. Dozens of other legal nonprofits statewide also attest to increased demand. ‘We have more foreclosures, we have more everything,’ said Bob Cohen, executive director of the Legal Aid Society. ‘We’ve never seen this need. Families are falling apart because they have no money.’”
“Haejung Hong of Fullerton turned to Legal Aid for help modifying her home loan so she could avoid foreclosure. Before the housing market collapse, the real estate agent was the family’s breadwinner, regularly earning more than six figures in commission. Now, she has not had a sale since last May. She and her husband, a high school teacher, struggle to make ends meet including supporting their three teen-age children.”
“‘I never thought this would be happening to me,’ Hong said. ‘All my sales just stopped.’”
“Foreclosure numbers are hitting record highs, up 24 percent in just three months. Multiple foreclosures on the same street can wreck property values for neighboring homes, and many homeowners are tracking housing costs in their neighborhoods. ‘I try not to look, but I still am aware that it’s going down,’ said Ed Vardiman, of Fort Thomas. ‘It’s gone down about 20 percent from when I bought the house about two years ago.’”
“‘Everyone’s struggling,’ Vardiman said. ‘I see more for sale signs and more properties on the market longer here in Fort Thomas than what I’ve seen before.’”
“A few forward-thinking financial experts began issuing dire warnings five, even 10 years ago about the growing threat from subprime mortgages. And nobody listened. The housing bubble eventually burst, and those toxic loans helped propel the country into the worst recession since the Great Depression.”
“Now, some experts warn of a new and growing danger: Federal Housing Administration mortgages, government-insured loans for people with shaky credit histories or little money for a down payment. ‘”I’m concerned,’ said Bill Faith, executive director of the Coalition on Homelessness and Housing in Ohio. ‘(FHA-approved lenders) are squeezing some people into loans they probably shouldn’t be in.’”
“In the end, said Brian Chappelle, a former FHA official, the performance of FHA-insured loans is tied to the economy’s overall state. ‘It all comes down to how bad the economy gets,’ he said. ‘And if home values decrease another 10 (percent) to 20 percent, (defaults) could get a lot worse than the FHA estimates. That’s the wild card.’”
“A $300 billion federal program that was supposed to help keep people in their homes, isn’t helping much at all. It was supposed to help 400,000 people keep their homes. So far, it’s helped one. Experts like Rick Harper say the program has been too confusing and too few lenders are willing to participate. ‘The Hope for Homeowners was not very helpful because there were just a handful of loans that had actually gone through that process. It was confusing it was difficult for us as counselors to try to figure out what’s up,’ said Harper.”
“‘There’s a lot of paperwork. I’ve got a couple more tubs in that room right there,’ said Nadine Scott, a homeowner.”
“Foreclosures ‘came back with a vengeance’ last month and are likely to keep rising, said Rick Sharga, RealtyTrac senior vice president. Efforts by the Obama administration to keep people in their homes with bolstered modification programs is having less of an effect in California, experts said. Borrowers here generally owe too much on their homes to have their loans modified, economists and Realtors said.”
“The increase in foreclosures in recent months reflects that last batch of borrowers who got adjustable mortgages, said John Husing, a regional economist who specializes in the Inland Empire. And unemployment, or the threat of losing a job, doesn’t help. ‘You can’t modify a loan for someone who doesn’t have a job,’ said Marty Rodriguez, a Realtor in Glendora.”
“Countrywide Financial stopped foreclosure proceedings last year in hopes of modifying the loan for a small Escondido condominium after a national settlement with several states’ attorneys general. But there’s one problem: The condo has been vacant for eight months.”
“The homeowner, Elba Coronado, received a notice of default in June last year and moved out in August because she didn’t want to go through the embarrassment of eviction. Since then, she has been renting a Vista apartment. At some point, Countrywide halted the foreclosure process. Coronado said Countrywide never told her she would be eligible for a modification of her loan. A Countrywide spokesman says Coronado never told them she had given up on the loan.”
“‘I don’t know, maybe they don’t have my number,’ said Coronado, who added that she would like to move back into the condo but didn’t think it was possible after being laid off from her second job in advertising sales.”
“Since she holds just one job, Coronado said the mortgage payment would need to come close to her rent payment of $845 per month. That’s a tall order. Even if Countrywide reduced the interest rate on her mortgage, which initially carried a balance of $275,000, to 2.5 percent —- the lowest level mentioned in the attorney general’s settlement —- Coronado’s payment would exceed $1,000 per month.”
“Plus, Coronado said she is late on her property taxes. ‘It would be great if we could work something out between the taxes and the house payment, but I don’t know how that can happen,’ she said.”
“Even more mystifying is why Coronado’s loan was selected for the modification process in the first place. Coronado’s modification has not reaped any benefits for her. Furthermore, it’s part of a settlement for predatory lending by Countrywide, but the lender in no way preyed on Coronado.”
“Coronado has worked with San Marcos real estate agent Donna Steward to try and save the home. Steward said she was told by Countrywide to sell the property. Such confusion and breakdown in communication is not the rarity, but the norm, said Steward, who regularly assists in loan modification requests for her clients.”
“‘It doesn’t surprise me because (the modifications) are all that way,’ Steward said. ‘They’re all so buried with no help that the communication sucks.’”
“When Jamie Welton sued First Magnus and its former directors and officers for a billion dollars back in February, he didn’t hold back. Not only did he allege that First Magnus’ officers and directors knowingly stripped the company of hundreds of millions of dollars in the form of bonuses and redemptions, but he laid the global financial crisis at their feet.”
“‘First Magnus was not the victim of the ‘credit crisis’ or ‘collapse of the secondary market’ … it was a significant cause,’ says the suit, which he filed on behalf of the trustee for First Magnus creditors.”
“Welton hammered First Magnus’ executives for alleged corporate excesses: private jets, fancy cars, an air-conditioned parking garage and a fountain featuring three flat screen TVs at the entrance of First Magnus’ former corporate headquarters on Tucson’s East Side. ‘They were paying themselves like the Phoenix Suns,’ Welton said in February when the complaint was filed.”
“It was absolutely ludicrous how easy it was for even third-rate scam artists to make money during the real estate boom. Buy a couple run-down triple deckers in Dorchester, do a quick paint job and then recruit a few dopes to act as straw buyers. With a little help from a crooked mortgage broker, make up some jobs and income, find a more than willing sucker among the herd of subprime mortgage companies eager to keep loans flowing.”
“It’s certainly interesting what state and federal investigators are turning up in other part of the country. For starters, there is a $50 million mortgage fraud scheme tied to a sex fetish studio on Manhattan. The owners of an S&M establishment recruited clients to act as straw buyers on phony sales, prosecutors contend. In San Diego, authorities have just busted up a $100 million fraud ring involving 220 properties led by a gang member.”
“And in New Jersey, a real estate developer just plead guilty to bilking $80 million from lenders and hapless investors in a spree of phony home sales and deals that stretched across dozens of states.”
“Don’t think for a minute this stuff wasn’t happening here in the Boston area as well.”
“Michael Tringali, a Manatee County developer who partnered with Neil Mohammad Husani and John Yanchek to pull off one of the largest mortgage fraud scams in Florida history, was sentenced Thursday to 41 months in prison and three years’ probation. Tringali was ordered to forfeit nearly $7 million and faces a restitution hearing within the next 30 days that is likely to result in his owing millions more to six banks for tricking them into making multimillion-dollar loans during the real estate boom.”
“Federal Judge James D. Whittemore denied the defense attorney’s request for Tringali to stay home until after Sept. 1 so that he could drive two of his children to their colleges. ‘The sooner you go down this road, the sooner you will be back with your family,’ Whittemore said.”
“If Whittemore had used more recent appraisals, the defendant would have been unjustly punished by the market decline. In one extreme case, a property that sold for $5 million during the boom is now on a lender’s books at $500,000.”
“For his part, Tringali apologized to the community and to his family. His voice trembling at times, he told Whittemore he had been overcome by his own desire to succeed. ‘All these things were caused by greed and my selfishness.’”
“Former Silverado Banking executive Michael Wise jumped from the ninth floor of a parking garage at the Tampa International Airport last week, ending his life. Wise rose from humble beginnings in Emporia, Kan., to run Silverado, one of Colorado’s largest financial institutions in the 1980s. Silverado’s collapse in 1988 saddled taxpayers with a $1 billion tab and tarnished the state’s reputation because of the attention drawn by high-profile board member Neil Bush, son of then-Vice President George H.W. Bush.”
“Wise misled investors, using their proceeds to pay off earlier investors and support his lifestyle, said Gary Schwartz, a principal with (a) bank-consulting firm in Denver. ‘We helped put the pieces together to show it was a Ponzi scheme,’ Schwartz said. ‘He did a lot of bad things that hurt a lot of good people.’”
“Wise pleaded guilty and served 3 1/2 years in prison, where he made connections that put him in the center of the mortgage-lending boom in Florida until 2007. ‘Colorado moved on from Michael Wise, but Michael Wise could never move on from that easy money of a hot real-estate market,’ said Henry Dubroff, a former Denver Post business editor who covered Silverado.”
“Some Las Vegas homebuilders, especially small private ones, are going the way of the dodo. And if they have not gone away forever, many have shuttered their operations until the housing market turns around. The numbers are telling. Home Builders Research reports only 38 builders pulled permits in 2008, down from 112 in 2004. Many of those 112 were smaller builders.”
“Pageantry finished its last homes at the end of 2008 and now has none under construction and has no sales office. Pageantry built 473 homes in 2005, but that declined to 273 in 2006, 154 in 2007 and 61 in 2008 — 12 percent of the business it had three years earlier.”
“Pageantry dropped condominium prices to $165,000 to $170,000 that two years ago sold for $235,000. Town houses that recently sold for $200,000 sold for $275,000 two years ago, said Bill Hoover, president of Southern Nevada Home Builders Association and the southwest region president of Pageantry Homes.”
“‘The construction loans have dried up completely,’ Hoover said. ‘Banks are simply not lending money. We all had good lender relations. It wasn’t like anybody made horrific mistakes. It was that our industry is one that doesn’t function right now.’”
“It’s going to take land owners and lenders who have foreclosed on property to realize that it is overpriced and must be revalued if they want to sell it, Hoover said. That will make it affordable for builders to start constructing homes again because they can sell them at prices that can compete with existing homes.”
“SalesTraq reported the median price of new homes in February was $216,334. That’s $60,000 more than the median price of existing homes sold in February.”
“Long term, builders know there will be a housing shortage because of the limited amount of land and expected population growth in the valley, but the question is can they hold out until then. ‘Who know how long that is going to take,’ Hoover said. ‘We have not seen the end of it yet, but it has been frustrating.’”
“Naples-Marco Island is moving up in the national rankings for its foreclosure activity. In February, Naples-Marco Island stood at No. 15 in the nation. There were a total of 1,834 filings, or one for every 105 households, in March. That was up more than 48 percent from 1,237 in February and up more than 145 percent from 748 a year ago.”
“‘I have definitely seen an increase in folks coming in for assistance,’ said Brandon Anthony Sciuto, a mortgage broker, legal assistant and real estate agent in Naples who specializes in the sale of distressed properties facing foreclosure.”
“He said the uptick could be the beginning of a second wave of foreclosures in Collier County. Many have tried to hold on to their homes, but can’t do it anymore after borrowing from their 401Ks and maxing out their credit cards, Sciuto said. ‘They’ve dug themselves a real deep hole,’ he said.”
“For those mortgage holders, foreclosure is the only option left. ‘I think a lot of people have come to realize that this market is not going to be turning around any time soon and that if it does it’s going to be a gradual thing,’ Sciuto said.”
“Owning your own roof, walls and fireplace, it is thought, is good for householders because it helps them accumulate wealth. It is good for the economy because it encourages people to save. And it is good for society because homeowners invest more in their neighbourhoods, engage more in civic activities and encourage their children to do better at school than do renters. Home ownership, in short, benefits everyone—not just the homeowner—and the more there is of it, the better. Which is why it is usually encouraged by the government.”
“Yet the worldwide crash was bound up in this supposed miracle of social policy. Attempts to expand home ownership have contributed to the wider economic crisis without succeeding in their own terms. How does that affect the arguments for supporting home ownership? Should it still be deemed a public good?”
“No, say several economists and commentators. ‘Given the way US policy favours owning over renting,’ writes Paul Krugman, 2008’s Nobel laureate in economics, ‘you can make a good case that America already has too many homeowners.’”
“Edward Glaeser, an economist at Harvard University, talks about ‘the madness of encouraging Americans to bet everything on housing.”
“So far, policymakers are unmoved. In mid-February Barack Obama proposed a $275 billion plan to support America’s housing market. Outside the Anglo-Saxon world Nicolas Sarkozy, who campaigned for the presidency to turn France into a property-owning democracy, has expanded zero-interest housing loans for the poor. ”
“The main economic argument for home ownership is that, in the words of Thomas Shapiro of Brandeis University, ‘it is by far the single most important way families accumulate wealth.’ This argument now looks as weak as house prices.”
“If owning were such a boon, you would expect neighbourhoods with lots of owners to have done better than those with lots of renters during the boom years. That does not seem to have happened. What has happened, though, is that above a certain level, foreclosures have done a lot of damage during the bad years.Ownership can sometimes be worse for a neighbourhood than renting.”
“Policymakers…efforts in the past few years seem to have weakened, though not destroyed, the best arguments for treating home ownership as something to be encouraged: that it increases people’s savings and creates better neighbourhoods for everyone. But perhaps you should not be surprised by that. As Adam Smith wrote in ‘The Wealth of Nations’ two centuries ago, ‘a dwelling-house, as such, contributes nothing to the revenue of its inhabitants.’”
