The Housing Bubble

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The Los Angeles Business Journal reports from California. “FirstFed Financial Corp., one of L.A.’s oldest and largest financial institutions, was closed late Friday by federal and state regulators. FirstFed has been a fixture in the area since opening its doors in downtown Santa Monica in 1929, taking deposits and offering personal and home mortgage loans. In 1983, the institution began offering adjustable-rate mortgages, which would become a core product offering. Most of the thrift’s recent problems stem from 2005, when FirstFed originated $4.4 billion in single-family loans, primarily option-ARMs.”

“Uneasy with the rapidly growing loan portfolio, the thrift in late 2005 began requiring proof of income for all mortgages, and business dropped by half almost immediately. In an interview in June, Babette Heimbuch, then CEO of the thrift, said she hoped regulators would let the institution continue working out its problems, but she acknowledged the possibility of failure.”

“‘We really feel like we’re getting a handle on this – not to say that we’re not struggling and we don’t have to raise capital, but we feel like we’re getting our arms around the risk,’ she said. ‘I’d hate to see us get wiped out.’”

The Union Tribune. “Bank regulators took over struggling Imperial Capital Bank of La Jolla yesterday, making it the third local bank to fail during the economic downturn. During the housing boom, it gained attention of investors, posting big profits making loans to residential and commercial developers. In 2007, its shares traded above $50. CEO George Haligowski was among the highest-paid local bank executives that year, with a $3 million package that included $42,000 in housing payments, $66,720 for charter-jet travel and $104,000 for club memberships.”

“When the housing market imploded, Imperial Capital began to see spikes in delinquent loans and mounting losses. The bank’s stock price plunged and its shares ultimately traded for pennies on the over-the-counter market.”

The Marin Independent Journal. “Tamalpais Bank, which the Federal Deposit Insurance Corp. ordered in September to write down or sell many of its troubled loans, has sold $37.4 million worth of nonperforming loans, more than half of the $71 million in non-performing assets it reported at the end of the third quarter. The buyer paid $24.1 million for the loans.”

“The SEC filing said that all of the loans sold by the bank were commercial and multi-family loans secured by properties in San Francisco. That is significant since court documents show that Tamalpais Bank loaned $41 million to a San Francisco investment group reviled by San Francisco renters, well after the nation’s credit crunch had begun.”

“During the real-estate boom, the Lembis had no problem borrowing money to make their purchases. Many of the loans made to the Lembi Group were bundled and sold as asset-backed securities. By September 2009, the Lembis had defaulted on all but one of the Tamalpais Bank loans. Richard Newsom, a retired San Francisco bank regulator, said, ‘August of 2007 is when the credit crunch occurred in this country. After that point, the yellow warning signs should have been on for anybody in lending. It isn’t like the collapse in commercial real estate in down business cycles is a surprise,’ Newsom said.”

“Newsom said state-chartered banks typically don’t make loans to a single borrower that are larger than 25 percent of their total capital. ‘Piling up loans of that magnitude after the yellow warning light was on is incomprehensible,’ he said.”

“While the single-family home price in most Bay Area counties increased from a year ago - the average jump was 15.7 percent - Marin’s price dropped 12.1 percent in November. A total of 185 single-family homes were sold in Marin in November at a median price of $694,500; both figures represent drops from the previous month, according to MDA DataQuick. John Rusting, a real estate instructor at College of Marin and certified appraiser in the East Bay, said it’s hard to put much stock in such statistics given Marin’s variety of micro markets and generally higher prices.”

“‘I sincerely doubt the (home) values in Ross are dropping,’ Rusting said. ‘When you look at things countywide, for every 15 sales in Novato and one good sale in Ross or Kentfield, you average these out and it can be deceiving.’”

The Sacramento Bee. “Sacramento may see more foreclosures in 2010 than this year. ‘Clearly, foreclosures will be up next year versus 2009,’ a top Bank of America staffer said. ‘I think 2009 was somewhat of an artificially low number because of (foreclosure) moratoriums,’ said Jack Schakett, head of credit loss prevention.”

“That’s significant locally. Bank of America and its Countrywide affiliates were the region’s top mortgage lender during the most dangerous period of the market – 2005 to 2007. You might think it’s wonderful that banks appear to be – at least temporarily – canceling more foreclosures as they try to modify more home loans. But it only shows what lousy options exist to deal with California’s housing crisis, says Sean O’Toole, who tracks foreclosure statistics. His contention: A modified loan in which your monthly payments fall, but you still owe more than your house is worth, is just the lending industry’s newest form of exotic mortgage.”

“‘The loan modification is great for politicians,’ O’Toole says. ‘It pushes the problem to another day.’”

“That day is five years out, when payments will rise again. Home Front called O’Toole about his argument, asking: ‘So, what should the industry be doing?’”

“‘Pick your poison,’ he said.”

The Contra Costa Times. “As political pressure builds in Washington for the banking industry to do more to help struggling homeowners avoid foreclosure, the call in Eastern Contra Costa County is coming from church-based advocacy groups — and it’s getting louder. Miguel Sanchez is among those who have turned to Contra Costa Interfaith Supporting Community Organization. The 52-year-old father of three has been out of work since the construction industry tanked, just as the mortgage on his Antioch home skyrocketed by $2,400 a month.”

“His initial elation at a temporary mortgage modification offer faded when he realized he couldn’t even afford that figure, and that his payments could balloon in a few years — the same situation that had already pushed him to the brink of bankruptcy. ‘They told me that’s the only choice I got, the one they sent me,’ Sanchez said.”

“Now he is preparing to walk away from the house he worked all his life to buy — but holding out hope CCISCO will have more luck negotiating with his lender. Dustin Hobbs, a spokesman for the California Mortgage Bankers Association said modifying a loan isn’t as simple as signing off on a lower mortgage rate. Because most home loans are securitized — many investors own different parts of each loan — banks must get each one to sign off on any change to the terms. And that takes time.”

“‘There’s no simple solution,’ Hobbs added.”

The Mercury News. “In the third quarter of this year, buyers in the nine-county Bay Area purchased nearly 3,000 homes outside the region, up 58 percent from the same quarter last year, typically for prices well below 2008 levels. Purchasing suburban rental property is the hot ticket now, not buying vacation homes. Sales to Bay Area buyers are up from 2004 in Stockton and Tracy.”

The Record.net. “The Stockton area - still trying to recover from the nationwide foreclosure crisis - has joined two other San Joaquin Valley communities near the bottom of an annual list of the top 101 cities best for business. Real estate flipping and the housing downturn were cited as factors contributing to the low ranking of all three Valley cities.”

“MarketWatch said: ‘Stockton has taken it on the chin for a number of years now, and our survey delivers another blow to this city. Just as Bakersfield went through a building craze as home buyers sought solace away from pricey Los Angeles, Stockton provided refuge for those fleeing even costlier San Francisco. But it all caught up starting around 2005, and the region was devastated.’”

The Manteca Bulletin. “Nine hundred city residents lost their jobs in October and November to push Manteca unemployment up to a post Depression high of 14.8 percent. Of those, 400 lost their jobs in November. Among San Joaquin County cities, Manteca has the third highest unemployment rate behind Stockton at 20.3% and Escalon at 15.0%.”

“French Camp, while not a city, had the highest jobless rate in the county with 50.3 percent of its population or 800 people out of work.”

The Modesto Bee. “Shedding jobs that once reliably attracted new residents, California grew at a slower pace this year than all but two other years since 1900, according to state Department of Finance figures released Thursday. The number of new births dropped. The number of new immigrants dropped. And more residents left California for other states than came here from them.”

“California saw a net loss of 800,000 jobs from July 2008 to July 2009, according to the California Department of Labor. ‘What attracts people here is jobs,’ said Dennis Meyers, principal economist for the Department of Finance.”

“Elk Grove resident L.J. Smith is ditching California after 40 years here. He had major back surgery about a year ago, went on medical disability, and was laid off by an insurance company before he was able to come back to work. He spent several months looking for a new job, and finally found one — in Texas. So Smith and his wife told their two teenage children they would be moving. He’s now posting online classifieds trying to sell stuff before his family leaves in mid-January.”

“‘I’ve got a lot of mixed feelings,’ said Smith, who has relatives in Houston and will work a desk job for an oil company. ‘I love California. But we can’t do it here.’”

The Bay Area News Group. “Job losses mounted by the thousands in the Bay Area during November, and the reductions were so severe that they exceeded the employment cutbacks for the entire state of California. Why is the Bay Area still in a deep slump? Some of the root causes are linked to the nature of this recession, which was unleashed by the collapse of the housing and mortgage sectors and worsened by the meltdown of the financial markets and banking industries.”

“‘The East Bay was crushed by the housing downturn,’ said Jon Haveman, a partner and economist with Beacon Economics. Housing-linked woes rippled through the rest of the Bay Area. ‘San Francisco and Silicon Valley were left a little off the hook for that,’ Haveman said. ‘Those areas came into the downturn later.’”

The Desert Sun. “The state lost about 142,000 people to other states. California first began to lose people to other states this decade in 2005. ‘Those areas that benefited most from the housing bubble, when that went away, they’re the ones impacted the most,’ said Dennis Meyers, a principal economist with the state department of finance. ‘It’s hard to say when it’s going to go back to where it was during its peak.’”

The Press Enterprise. “‘The steep slowdown in housing construction is showing up in lower population growth,’ Inland economist John Husing said. ‘The economy rules in a case like this. Why would you come to California to get a job when the unemployment rate is 12 percent?’”

The Redlands Daily Facts. “In the Inland Empire, office vacancies will rise and rents will stay low, while most industrial markets will begin rebounding, according to a forecast released by USC’s Lusk Center for Real Estate. Rick Lazar, president of Redlands-based Coldwell Banker Commercial Lazar & Associates said he does not see the market for office space recovering until the job market, fueled by construction, revives. ‘Office has got the most of any type of product by far and I don’t see the office market picking up steam until the residential market really picks up steam,’ he said.”

The LA Downtown News. “Those searching for bright spots shouldn’t focus on the Downtown Los Angeles office market. Vacancy in Downtown high-rises inched up to 14.6% in the third quarter, compared to 13.1% during the same period in 2008, according to the 2009 Casden Forecast Industrial and Office Report, recently released by the USC Lusk Center for Real Estate. Expectations for the future are dark.”

“‘I think the next two years are going to be very tough for the office market,’ said Richard Green, director of the Lusk Center and a co-author of the study. ‘Downtown L.A. is doing a little better than other sub-regions but it’s not immune. You have things like law firms laying people off, so when their lease rolls over they’ll need less space.’”

“‘It’s the economy, then jobs, then office, in that order,’ Green said.”

“In Downtown in the third quarter, a net total of 94,000 square feet of space came on the market. Year-to-date, 319,000 square feet of office space has gone vacant, according to the USC report. As of the third quarter, there was more than 4.7 million square feet of available space.”

The Burbank Leader. “The sputtering economy is spurring some of the city’s largest downtown developments to explore new options to fill vacancies…as empty storefronts mushroom across the district. An analysis conducted by planners showed a peak parking demand of 952 spaces for the Entertainment Village and the Collection, leaving a surplus of 173 spaces.”

“Despite critics pointing to the 2004 parking study as outdated, board members characterized the amendment as a logical way to deal with the economic slowdown. ‘When the economy is doing great, we’re going to have to look around for some parking because everybody else is out there spending their wads of cash and having a great time,’ said Douglas Drake, Planning Board member. ‘We need to fill every single one of these parking spaces, and right now, we have a lot of empty ones.’”

The LA Times. “Dennis Myers, a state Finance Department economist, said the collapse of the housing market was also a major factor in the slowdown. San Bernardino County, saddled with one of the highest home foreclosure rates in the nation, lost 11,519 residents to out-migration in the last year. The county had been among the fastest-growing in the nation earlier in the decade, gaining 30,000 or more annually. Riverside County, also plagued with a foreclosure crisis, posted its slowest growth rate this decade.”

“‘There’s a sense that California has limited opportunities and a high cost of living,’ said Hans Johnson, associate director of the Public Policy Institute of California.”

The Salinas Californian. “When it comes to most people’s wallets, job security, home values or 401(k)s, 2009 wasn’t a good year. Jobs were shed. Those with jobs worked fewer hours, earned less money and paid for more of their benefits, such as health care. It’s enough to leave folks too exhausted to celebrate the end of the year that beat the region’s fiscal health so soundly.”

“Dan Eyde, featured by The Californian in June, felt the recession’s double whammy. After losing his job with Oracle this year, he and his wife discovered that their home was ‘under water’ — they owed more on it than it was worth.”

“They fought for months to have Bank of America, which became owner of their loans, modify the mortgage. The Salinas couple won a trial modification but is still waiting to find if — and when — the new loan terms may be made permanent. Eyde has had some nibbles on the job front, but, like many unemployed Californians, has yet to get an offer.”

“‘Here’s to a better 2010,’ he said.”

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