The Housing Bubble

It’s Friday desk clearing time for this blogger. “The foreclosure crisis has mainly been a sideshow here in Massachusetts compared to hard-hit Sunbelt states like Florida, Nevada and Nevada. But…check out the latest Warren Group numbers - initial foreclosure petitions were up 20 percent in April, while foreclosure deeds, the final step, surged a whopping 80 percent. Even more to the point, the Warren Group’s Banker & Tradesman newspaper finds the days of banks letting troubled homeowners linger in limbo without pulling the trigger and selling the home at a foreclosure auction is long gone. The lag time between initial foreclosure filings and auction day has nearly dropped in half, down to 4.6 months, B&T reports. That’s down from roughly 8 months back in 2008.”

“It’s unlikely we will ever get to the complete meltdown seen in the Sunbelt states. But our own foreclosure mess is getting a lot harder to dismiss now.”

“A record number of Connecticut homeowners still are falling behind in their mortgage payments and facing foreclosure. The Connecticut Fair Housing Center in Hartford, which represents clients in foreclosure cases and runs foreclosure education classes, has not seen any lessening in the number of homeowners with troubled mortgages. Six months ago, enrollment in the housing center’s classes in Hartford might have numbered 12 to 15 homeowners. Now, the classes draw 25 to 35 from across the income spectrum — including “former six-figure” households — and from both urban and suburban communities.”

“‘We’re really not seeing a decrease in people calling us and signing up for our classes,’ said Erin Kemple, the housing center’s executive director. ‘My fear is that it’s just a lull, the eye of the storm.’”

“Brian Jacobsen, a Wisconsin Lutheran College economics professor, said the delinquency rates were nothing to get excited about as long as jobless rates remained high. ‘I’d like to say it’s getting better, but since there hasn’t really been any material improvement in labor markets or people’s household income, there’s really very little reason to assume we’re going to have improvements in the mortgage foreclosure situation,’ said Jacobsen, who is chief portfolio strategist at Wells Fargo Advantage Funds. ‘If you don’t have a job, how can you make your mortgage payment?’”

“Jacobsen said one positive sign was that early-stage delinquencies - those only 30 days behind on payments - decreased to 2.28% of mortgages in the quarter from 2.9% in the fourth quarter of last year. He called it a ‘glimmer of hope’ that there seemed to be fewer homeowners missing a payment for the first time. ‘It’s like a bathtub. If you want it to drain you should really stop filling it up,’ Jacobsen said.”

“As of March, 41,000 homeowners in Illinois had gotten trial mortgage reductions. But if they get rejected for a permanent one, they may be worse off than before. Last July, Robert Haag’s lender, Aurora Loan Services, gave him provisional approval to pay $1000 less a month while they analyzed his income and expenses. In April, they said he didn’t qualify for a permanent reduction. Now he and his family are preparing to say goodbye to their two-story house in south suburban Manhattan, Illinois.”

“Haag: If we had been denied upfront in say, June, and our principal balance on this home would still have been $220,000, I feel that we would have been able to sell it outright without having to do a short sale or foreclosure or anything of that nature and been able to walk away with at least our credit.’”

“Faith Schwartz heads the HOPE NOW Alliance. Schwartz says the reason banks send these lump-sum bills is cut and dried. The original mortgage contract is still in effect if someone doesn’t get a permanent modification. Schwartz: ‘Those moneys are still due, that note is still due to that investor. So that’s what happens.’”

“Haag: ‘I don’t understand what took so long for them to do simple calculations and tell me I didn’t qualify. I feel it might have been a tactic to generate as much income for themselves as they could before telling me I didn’t qualify.’”

“Aurora’s not getting any more income from him for for now. He says he plans to pay off family debt first. And the 13-thousand dollars he owes Aurora? He and his wife say they see no way out of that hole.”

“Facing foreclosure on their Shively home, Esther and Olugbemiga Afolabi were elated to get a lifeline from their bank in October. But the help turned out to be short-lived. Wells Fargo canceled the deal after five months and scheduled a June 8 foreclosure auction. Many are finding it only delays the reckoning for a few months. ‘For every borrower who avoided foreclosure through (the program) last year, another 10 families lost their homes,’ according to an April 14 report from the congressional panel that oversees the program.”

“A surge in bank foreclosures over the past two years has driven down median home prices in the Twin Cities. One of the key variables going forward for the housing market is the supply of newly foreclosed homes on the market. Tim Swierczek, president of the Minnesota Mortgage Association noted worrisome signals about many of the modifications. The government reported this week, for example, that half of the homeowners receiving government-backed modifications through a federal program still have monthly debt payments that swallow at least 64 percent of their monthly gross income.”

“‘Those are alarming numbers,’ Swierczek said. ‘Unless those folks have access to credit, they will fail.’”

“Southern Nevada vacant land values plunged during the first quarter as bank foreclosures and distressed sales drove prices downward, Applied Analysis reported. An estimated 137,500 Southern Nevadans are out of work. Banks aren’t likely to loosen lending criteria until there are eight months or more of sustained employment growth, observers say. ‘There is a tidal wave of vacant land foreclosures being processed, and 2010 will continue to see very high foreclosure levels for vacant land,’ Las Vegas-based land appraiser Charles Jack IV said.”

“New Treasury guidelines go into effect on June 1, which require loan servicers to collect upfront documentation from borrowers before letting them initiate new trial modification programs. The new requirements will ‘weed people’ out who would have not made it into the permanent program, and that is not necessarily a bad thing, said Zachary Urban, spokesman for the Adams County Housing Authority. ‘The last thing you want is to have someone spend all that time and effort at the front end, go through the trial, when there is no chance of them getting a permanent loan modification,’ Urban said. ‘That’s not doing the borrower any favor. When you think about it, really what the person needs to do is cut bait.’”

“Home sales and prices rose last month in Ventura County despite an overall sales decline across Southern California, but any celebration would be premature, housing experts said. ‘It would be premature to be enthusiastic. I don’t think people should start thinking their house price is going up,’ said Bill Watkins, executive director of the Center for Economic Research and Forecasting at California Lutheran University in Thousand Oaks.”

“‘We expect to see a rise in foreclosures this year compared with last year and among more homes in the higher-end market,’ Watkins said. ‘The recession has gone on long enough now that people who could afford their homes are losing their jobs and more people are walking away from their homes.’”

“Liz Dawn Donahue is angry that the townhouse and condominium project has disrupted the area southwest of the Arizona Canal and Chaparral Road for close to five years. Donahue and her neighbors are indirect victims of a housing bubble that burst, leaving them to cope on a daily basis with the developer’s failure and the uncertainty of what the lender will do.”

“‘I don’t want to look at this for the next five years,’ she said from her townhouse south of the stalled development.”

“Summit Properties LLC of Las Vegas started the $58 million Reflections project in late 2007. An investment banker was sure that buyers would snap up the urban condos even though the market was already starting to stall at the end of that summer. But sales never materialized and the property went into foreclosure, Donahue said.”

“Donahue said the condo buildings look good, but the undeveloped half of the site has attracted vagrants and partiers who were sneaking into a dilapidated building about 100 feet from her townhouse. Prices announced a year ago ranged from $695,000 to $1.3 million for the condos and $845,000 to $949,000 for the townhouses. When the market was hot, redevelopment pressure pushed north along the canal. Condo flippers descended and an apartment building across from Donahue’s Sarkis Manor townhouse complex was torn down. That property sits vacant now with one withering saguaro propped up by wooden stakes.”

“‘It used to be a beautiful neighborhood but now it looks awful,’ Donahue said.”

“Decorative Roman columns and plush furniture still adorn the silent marble-tiled entrance lobby at Bay Towers, where investors once snapped up condominiums to indulge in ‘luxury waterfront living.’ That was back before the fire. Today, the six-story building remains unrepaired and unoccupied. And the cash-strapped owner, South Florida developer Bay Towers Development, LLC, owes the city nearly $650,000 in delinquent fines and charges for code enforcement violations, unpaid water bills and false fire alarms, records show.”

“‘We’re not real hopeful that we’ll ever get any of that false-alarm money back. We’re just a drop in the bucket, compared to the whole picture,’ said Scott Gaenicke, spokesman for the Titusville Fire Department. ‘It’s kind of like getting blood from a turnip.’”

“(The) president of Bay Towers Developments, David Houri’s home is in foreclosure in Miami-Dade County Circuit Court, according to case files, and he is living with his wife and five children — ages 3 to 16 — in a Sunny Isles Beach apartment. Last month, his wife signed an affidavit stating the family is having a hard time purchasing groceries.”

“Meanwhile, his company continues leasing unsold units to tenants in the north tower.”

“Alpine Bank claimed 16 lots in the foundering Hidden Springs Ranch subdivision just west of Hayden on Wednesday morning when no third-party bidder appeared to exceed the bank’s own bid on the property during a foreclosure sale at the Routt County Courthouse. About seven people attended the sale, which involved three foreclosed properties, but none was there to place a bid. Routt County Public Trustee Jeanne Whiddon said it has been more than a year since she received a bid during a foreclosure sale.”

“Don Marostica, executive director of the Colorado Office of Economic Development and International Trade, kicked off Economic Summit 2010 with wide-ranging comments about global and national economies. He called the recession a ‘major transforming event’ that young people one day will tell their children about. Marostica said the recession’s impacts continue to unfold. ‘We’re going through a worldwide economy change, and it’s not over.’”

“Community bankers have to push back against the idea of ‘big bad bankers’ who have wrongfully been accused of causing the sub-prime mess, said Steve Brady, president and CEO of Ocean City Home Bank. Much to the chagrin of most bankers, Brady said, the ‘whole collapse’ was driven by speculators. ‘There were a number of people getting adjustable teasers rates buying five condos that had not been built,’ he said, adding that it could take five or six years to sell inventory in Florida, California and Arizona.”

“Urban theorist Richard Florida says so many people are trapped in homeownership today that it’s harming our economy. He’s written a new book, ‘The Great Reset,’ arguing that we need less homeownership and more mobility to rev up the nation’s economy. A new CoreLogic report says 45 percent of mortgaged houses in El Dorado, Placer, Sacramento and Yolo are worth less than the amount owed on them.’

“Home Front gets phone calls from people stuck professionally and personally because they’re in this condition. A young working couple want to return to India for a year or more to care for elderly parents. Will they have to ‘walk away’from the mortgage and their sizable down payment? A laid-off engineering professional in a region where no one builds eyes available jobs in other states. But neighborhood foreclosures have driven the family’s home values $100,000 or more below the 2003 purchase price. ”

“A 50-something construction industry worker wonders if it’s time to leave town. But how to sell a house in Natomas when the neighborhood listings are all bank-owned?’

“More happily, area renter Leslie Madsen-Brooks, 34, says: ‘My lack of a mortgage has allowed me to take a job in Boise.’ She’s leaving Davis – quite easily – in July to teach history at Boise State.”