Obvious Signs Of The Bubble
The Denver Post reports from Colorado. “Prompted by changes in the real estate finance environment, two of northern Colorado’s biggest residential developers are combining their assets into one package being marketed for $177 million. Windsor developers Martin Lind and Jon Turner are shedding 5,000 acres of residential and commercial properties. The properties are in Fort Collins, Loveland, Greeley, Windsor, Timnath, Berthoud, Johnstown, Mead and Severance. Lind said he’s liquidating non-core assets because federal regulators have crippled the ability of small community banks to finance development projects. ‘I’m reading the tea leaves, and it’s going to be a different game for developers,’ he said. ‘I think us small guys are toast. This economy is horrible, and it’s creating defaults all around, and I don’t want to be that guy.’”
The Greeley Tribune in Colorado. “On the surface, the banking picture by the end of the year looked rather grim for five area banks that have been struggling all year. Four of those are now under agreements with regulators to improve their practices. Working through problem assets, or bad loans and real estate the banks wind up with after loans are foreclosed, will be the tenor of 2010, bankers said.”
“All banks ended the year with millions in other real estate owned and loans that were so late they no longer accrued interest, as they’d been building all year. ‘You just keep moving it through the pipeline,’ said Bank of Choice president Darrell McAllister. ‘You take that bite on the front end, it goes to nonaccrual and eventually goes to OREO. They just keep moving on through. Everyone’s working through problems.’”
“While loans that were 30 to 89 days late have been dropping, it’s likely because fewer bankable customers are getting loans. ‘Qualified loan requests are just down, just so dramatically,’ said Byron Bateman, president of Cache Bank and Trust. ‘We don’t have the answer. Our calling programs are more aggressive than ever. So we’re talking to more prospects and more people. A lot are qualified prospects, just there’s still that apprehension out there about banks, the economy, and all those things.’”
From AZ Biz. “The incoming CEO of the Tucson Association of Realtors (is) already thinking about the tough times still ahead as the Tucson real estate market copes with foreclosure-related barriers. ‘The term we all should become very familiar with, that we’re going to see more of this year, is strategic default. People who are able to pay are handing the keys over to the banks because they are so far underwater. They are actually making the decision to walk away from the house,’ said Philip Tedesco, who takes office March 1.”
“No one knows how to truly fix the housing crisis, he explained, ‘because there is too much still to be played out on the foreclosure front.’”
The East Valley Tribune in Arizona. “A growing trend among homeowners with upside-down mortgages is simply walking away from their homes without even trying to get a loan modification, according to local mortgage brokers.”
“‘People have gone from buying a house to raise their family in to buying a house as an investment,’ said Eric Bowlby, president of Amerifirst Financial in Mesa. ‘We see customers all the time who come in and they’re letting their home go on purpose to the bank, and they act like the bank screwed them because it’s now upside down in value. But they pulled a line of credit out. They bought themselves an RV, a new truck, a new boat, and they think that it’s the bank’s fault that their house is upside down.’”
“‘Experts’ tell people ‘well, if you’re upside down in your house $100,000 and you make $40,000 a year, you should walk away from your house,’ Bowlby said. ‘When you feel like it’s OK to walk away from something you committed to, the banks, because of the losses, have to start walking away from things that they committed to … and the company that you work for may lose the ability to fund their own business, which means you’re now out of a job.’”
“The consumer sits back and says ‘OK, let’s look at it this way: I owe $400,000 on a $300,000 home. If my credit (score) was perfect, they’re not loaning me any more money, so what difference does that perfect credit mean,’ said Kevin Hardin, director of the Mortgage Mediation Group at Valley-based law firm Thomson Conant.”
“When purchasing their east Mesa home nearly four years ago, Justin Albrant said he rushed into signing a loan agreement that ended up allowing both the monthly payment and balance to escalate over time, and the monthly payment already has increased from about $1,100 to $1,450. ‘When the mortgage reaches $1,600, I have no choice,’ he said. ‘It could be next month or it could be in six months. This is my dream home and I don’t want to walk away. It’s not something I can do and just shrug it off. It would make me very upset.’”
“A year ago this week, President Barack Obama was at Dobson High School in Mesa to announce federal initiatives to help distressed homeowners and reduce foreclosures. Albrant hoped the program would help him but was told he isn’t qualified for a modification. ‘I don’t qualify under their specifications, which means I haven’t had a hardship like losing my job or stuff like that,’ he said. ‘The hardship I have, and it is a hardship, is my monthly payment gets bigger … it’s an unsustainable loan and I’m going to lose my home if they don’t do anything.’”
“Kevin Hardin, director of the Mortgage Mediation Group, said the modification program is simply a failure. ‘There isn’t anything working,’ he said. ‘Out of several million eligible homeowners … they only finalized 66,465 modifications,’ Hardin said, adding the growth rate of foreclosures in 2009 continued to far exceed modifications.”
“A reasonable person starts to say ‘obviously the government is talking, but really doesn’t want to help homeowners. They’re just trying to squeeze every payment out of the homeowner they can before default occurs,’ he said.”
“‘I think there’s been progress,’ said Dan Huss, president-elect of the Arizona Association of Mortgage Brokers. ‘I think you’d probably say the government statistics maybe don’t bear that out, but I think that’s more of a bearing of there was just so many loans done for people who absolutely could not afford it in the first place and so you can’t even get them qualified (for a Home Affordable Modification) versus banks just not wanting to keep people from foreclosure.’”
“Huss said principal reduction may help more homeowners stay in their homes, but it could be a hard sell. ‘Four years ago when you owed $300,000 and the house was supposedly worth $600,000, had the bank come to you and said ‘OK, let’s split this equity, let’s make your note now $450,000 and we get some of that equity’, people would have said, of course, ‘no way,’ he said. ‘And in the future when properties appreciate, these same people who are saying they want banks to write down the principal balances are going to be saying ‘look at all this equity I have in the house’, and if the bank came and said, ‘let us have a piece of that equity’, they never would.’”
The Salt Lake Tribune. “Are FHA lending standards — tightened in recent weeks because of increases in problem loans — still too loose? Has FHA become the new subprime lender of record? Some predict coming loan losses are going to reach alarming levels. Although the number of homebuyers taking out mortgages insured by the Federal Housing Administration had been on the decline as recently as 2006, ‘today, FHA is pretty much the only game in town,’ said Salt Lake City real estate agent Scott Colemere. ‘It’s the loan most people qualify for.’”
“Paul and Jennifer Anaya of West Valley City, who have three children, wanted to buy a home in 2008. But not until last year had they saved up the minimum 3 percent down payment the FHA required at the time. The $8,000 tax credit for first-time buyers and a low mortgage rate tipped the scales further in the Anaya’s favor. ‘We wouldn’t be in our house if we would have had to put 5 percent or more down,’ Jennifer Anaya said. ‘It’s hard to save up $10,000 to put down on a house.’”
“Loans with small down payments are especially risky in housing markets where prices are falling because it doesn’t take much for a homeowner to be ‘underwater,’ owing more on their mortgage than they can get by selling their home. Generally, the more underwater a borrower, the more likely a default.”
“Home values in the Salt Lake area have fallen about 13 percent from a peak about three years ago and are expected to decline another 3 to 5 percent in the next year or so. That could effectively wipe out the down payment of those who bought homes in the past year and put down only 3 to 5 percent, raising the risk of more defaults.”
“But others want to see the FHA tighten up even more. In addition to Congressman Scott Garrett’s call for larger minimum down payments, former Fannie Mae executive Edward Pinto, a mortgage industry consultant, has floated the idea of a 10 percent minimum. Certainly, fewer loans would be made under those scenarios. And although no one can say with certainty whether that might be a disastrous move for the already fragile economy, some in the industry are fearful.”
“‘If we go even to a 5 percent down payment, it will really hurt, the effect on our economy and jobs would be tremendous,’ said mortgage lender Julia Borst, president of the Utah Mortgage Lenders Association. Utah would be especially hurt because ‘we have a large first-time homebuyer population that is younger and doesn’t have as much of a down payment.’”
“Utah homebuilder Clark Ivory agrees, arguing that raising the required down payment ‘would slow down the time frame for purchasing, which is something you don’t want to do when you’re trying to stimulate the economy.’”
The Las Vegas Sun in Nevada. “During his visit to Las Vegas on Friday, Obama noted Nevada’s foreclosure rate, which has been the highest per capita in the nation, and said there were ‘too many brown lawns and for-sale signs.’”
“The president said there was plenty of blame to go around for the housing market collapse, pointing to lenders who were ‘focused on making a quick buck instead of acting responsibly,’ borrowers who took on mortgages they couldn’t afford and regulators and lawmakers who ‘turned a blind eye’ to the actions of Wall Street.”
“During a town-hall meeting at Green Valley High School on Friday, he said the goal of his plan is to ‘help families who’ve done everything right stay in their houses.’ ‘During these difficult economic times, we will work to help responsible homeowners stay in their homes and stabilize the housing market so home values can rise,’ Obama said.”
