It Seemed A Safe Gamble
The Denver Post reports from Colorado. “It’s not pretty in the 80013 ZIP code that’s second-hardest-hit along the Front Range for unemployment claims. Last October, with the kids grown, their house paid off and a few bucks in the bank, Kathy and Herb Myers set in motion the economic plan that would propel them to retirement. They bought a modest ranch home on a cul-de-sac in southeast Aurora and took on another mortgage — albeit a small one — largely because the convenient workshop dovetailed with 56-year-old Herb’s passion: the woodworking that would launch his second career. He quit his auto-repair job and sank some retirement money into a small business. Kathy, also 56, had already finished classes to earn certification as a nursing assistant. Finding a job to cover the mortgage seemed only a matter of time.’
“She never counted on an employment drought that would drag on for two years and counting. The Myerses don’t live on the brink of economic desperation, but Kathy’s difficulty finding work has drastically changed not just their financial outlook but the can-do attitude she once brought to the workplace. ‘I clean the house and do laundry, but I don’t make a difference to anybody anymore, outside of Herb,’ Kathy said. ‘You lose faith in yourself. Society loses faith in you, and you start to believe it. That’s an ugly thing.’”
“Last year, Rita and Michael Pugh brought home enough income to consider themselves firmly entrenched in the middle class, living with their youngest son, 13-year-old Jonathan, in a nice condo. Two lost jobs and one foreclosure later, they were on the verge of living out of their car. Rita opened the refrigerator one day and found only a half-gallon of milk, some ketchup, mustard and butter and then did something she’d never done before. She visited a food bank.”
“‘It hurts to see yourself at that level because we’ve never been there before,’ said Pugh, whose family of four now shares a tiny apartment. ‘I looked at my husband and said, ‘How can people live like this?’”
“The last time the state was hit this hard by unemployment was in the 1980s with the real estate, oil and gas, and savings and loan collapses, said Gary Horvath, managing director for the research division at the Leeds School of Business at the University of Colorado at Boulder. Back then, the downturn was centered in Colorado, and people left the state to find work. ‘With the current recession, there has been no place to hide,’ Horvath said.”
The Arizona Daily Sun. “Investment properties were the bulk of Jacquie Kellogg’s rental portfolio when she got into property management here in Flagstaff five years ago. Today, roughly half of the homes she represents are now owned by former residents who have left the community for one reason or another but have not sold their homes. In particular, many seek out Kellogg’s services because they have lost their jobs.”
“‘There weren’t a lot of distressed properties (five years ago), there weren’t a lot of renting instead of selling,’ Kellogg said. ‘It wasn’t like it is now, where people are losing their jobs and having to leave Flagstaff and wondering what do you do with a house you just bought two years ago.’”
“Kellogg said some mortgages, especially on homes bought during the peak of the market, simply cannot bring in enough revenue to make a full payment to the bank. She offers an example of a home in Ponderosa Trails that might have a $2,000 monthly mortgage. Kellogg might be able to rent the home out for $1,800 to a family. Minus the $180 monthly fee for Kellogg, the homeowner could get $1,620 to pay toward the mortgage.”
“Many turn to her believing it is a temporary solution by bringing in some form of revenue while waiting for the real estate market to recover. ‘That is the key word: until the market turns around. Everyone wants to rent out their house until the market turns around,’ she said.”
The Arizona Republic. “For a financially struggling homeowner, the decision to pursue a short sale does not come easily. Homeowners who make that choice generally do so after months of searching and pleading for an alternative that would have kept them in the home. Even when it goes smoothly, the short-sale process is painful for sellers. When it’s bumpy and slow, the pain is far worse, said experts who met in Tempe this month for an educational conference on short sales.”
“Phoenix-area short-sellers’ many encounters with insult upon injury stem from a combination of problems, including sellers’ lack of experience with the process and lenders’ initial reluctance to adopt on a mass scale what they had long considered an obscure means of resolving bad mortgage debts.
Scottsdale resident Mary Purvis, 57, said Bank of America finally approved her short-sale application after 10 months of frustration and uncertainty. But the pain didn’t stop there.”
“‘The sale finally went through last September, but now BofA reported my short sale as a foreclosure on my credit reports, which I have no idea how to fix,’ Purvis said.”
“The bank approved 18,000 short-sale applications in April, said Bank of America’s Matt Vernon, the bank’s top executive in charge of foreclosures and short sales. Unfortunately, it received more than 50,000 short-sale applications that month. ‘Our system was never designed to handle this kind of volume,’ said Rick Sharga, chief economist at RealtyTrac. ‘Short sales were never intended to be a mass-market product.’”
The Salt Lake Tribune in Utah. “More than 22,000 homeowners in Utah found themselves in some stage of foreclosure between July 2008 and April 2010, according to a Salt Lake Tribune computer analysis based on data from RealtyTrac. And having lagged behind other hard-hit regions where housing markets are now slowly improving, Utah has yet to reach the peak of its crisis.”
“In Salt Lake City, foreclosure filings doubled in the first three months of 2010 compared with the same time last year, the highest rate of increase for all U.S. cities. ‘I truly believe that we have not seen the worst of this,’ said Julia Borst, president of the Utah Mortgage Lenders Association. ‘I can’t even explain to you the gravity of it.’”
“Alisa Madill and her husband moved into their dream home in Riverton four years ago. But the recession devastated the family’s concrete business as the value of their home plummeted. They’ve borrowed against her husband’s life insurance policy and wiped out their 401(k) to pay bills. Now seven months behind on their mortgage and with two failed attempts to modify their loan, Madill faces stark uncertainties. Concrete work is picking up again, which might help with the latest loan modification plans, but they still may not be able to keep the house.’
“‘At any point, they could say we’re out,’ Madill said. ‘It’s not a home we really want to walk away from. All of our eggs are in one basket.’”
“The Tribune’s analysis found that nearly 12,100 foreclosed properties have languished unsold across Utah, often for months, held by banks or lenders after auctions failed to bring a buyer. These real-estate owned, or REO, properties exert a downward pull on property markets and overall home values, especially when empty houses are allowed to deteriorate. This burgeoning stock of REOs is straining the ability of lenders and loan servicers to keep up, Borst said. ‘They had no idea it would happen like this,’ she said.”
“The list of top banks and lenders now filing foreclosures in Utah includes some of the largest institutions bailed out by the federal government because of the recession, such as Wells Fargo and Bank of America, as well as the government-backed lenders Fannie Mae and Freddie Mac. Thousands more Utah foreclosures are being filed by loan servicers and companies fronting for banks, such as BAC Home, Aurora Loan Services and Mortgage Electronic Registration Systems, or MERS, a controversial mortgage registry set up by lenders in the 1990s whose name is now on millions of foreclosure actions across the country.”
“In the mid-2000s, lenders in Utah and nationally wrote large numbers of subprime, adjustable-rate mortgages (ARMs) and homebuyers — of high, moderate and low incomes alike — snapped them up. Credit was so fluid, many banks and private lenders gave only passing scrutiny to a borrower’s ability to repay. In some cases, lending practices bordered on predatory.”
“‘We’re seeing a lot of bad mortgages out there,’ said Jeremy Roberts, a mortgage consultant in Draper. ‘It was the real estate people. It was the appraisers. It was the mortgage officers. They were flipping pages faster than you could read them. It really was a real estate bubble that was about to burst. It was just so unregulated and nobody cared.”’
“With the economy starting to boom in 2003, Steve Newton of Kearns leveraged his home to boost his growing industrial manufacturing business, and it seemed a safe gamble. He had paid the mortgage off several years before. With $5 million annually in sales, Newton never imagined taking loans against the property might put his home and family at risk.”
“But problems surrounding the construction of a new facility eventually led to corporate and personal bankruptcy. After applying for more than 125 jobs from laborer to chief executive, Newton remains unemployed. Now he uses his unemployment dollars to make monthly payments on his debt, cover the utilities and buy a little food.”
“With help from family, he’s caught up some, but the bank is demanding cash he doesn’t have. ‘My plan is to do the best I can to keep these two banks from repossessing this home and kicking my family out in the street,’ said Newton, the father of two small children. ‘What everybody needs is time, and what these banks don’t need are more repossessed homes.”’
“‘The point is for anyone who thinks there’s a recovery or jobs out there,’ the 49-year-old said, ‘there isn’t.”’
The Deseret News in Utah. “Speaking at the Mid-Year 2010 Real Estate Summit at the Grand America, Zions Bank executive vice president Michael Morris said the Utah commercial real estate market may not even begin to recover until next year. ‘This year I don’t see much reason for optimism that we’re going to have a big rebound in commercial property,’ he told the Deseret News.’
“Morris said the amount of debt used to finance projects prior to the economic meltdown has caused major problems for the commercial sector and there are no simple solutions that will resolve them anytime soon. ‘It’s more that we over-leveraged then we overbuilt,’ he said. ‘Over-financing and over-leveraging and over-engineering financial products is really what has led to an artificially highly valued market to begin with.’”
“‘On the residential side, declining home values have pushed housing prices back to much more affordable levels, according to Zions Bank senior vice president Lee Carter. ‘The lower end of the market (under $300,000) … is recovering,’ he said. Carter described the middle part of the market as ‘a little bumpy’ with the higher end ‘going to remain a mess for some time to come.’”
“He said prices on the more expensive unsold inventory are falling more dramatically — on a percentage basis — than any other segment of the housing market. Eventually, the market could see more foreclosures or short sales as those properties are no longer financially viable for their owners. ‘We’ve just got too much high-end real estate in the state … and we just don’t have people with the incomes and fundamentals that can support those higher payments,’ he said.”
The Las Vegas Business Press in Nevada. “Southern Nevada’s apartment market had a surprise uptick in activity during the first quarter. Vacancies dropped to 10.2 percent, while average asking rents increased for the first time in a year and a half, CB Richard Ellis reports. ‘Vacancies have gone down for the last five months, which is a pleasant surprise,’ CB Richard Ellis Senior Vice President Spencer Ballif said. ‘It still isn’t a healthy market, but it’s better than what it was. There are a lot of renters that have been burned by investment homes.’”
“Nevada had the nation’s highest state foreclosure rate for the 40th straight month in April, with one in every 69 housing units receiving a foreclosure filing last month or more than five times the national average, RealtyTrac reports. In April, 16,217 properties statewide received a foreclosure filing, up 10 percent from the previous month.”
“‘We are getting a lot of renters who have lost or sold their homes, and are now moving into apartments,” said Rondetta Troutman, senior vice president of Picerne Development Corp., which manages 5,680 apartment units across 16 properties valleywide. ‘We’re seeing an increase in people who are having trouble qualifying for home or are nervous about a home purchase.’”
“‘Some of the rents were well below where they needed to be,’ Bentley Group President Christopher Bentley said. ‘We still have some catching up to do with jobs and getting people back to work. It’s going to get better, but we are going to see a new normal. We are going to get back to normal underwriting and rent growth of 2 to 5 percent a year, and not the dramatic spike we saw a few years ago.’”
‘Roughly three-quarters of apartment properties still offered rent concessions during the first quarter, CB Richard Ellis reports, with move-in specials among the top incentives. ‘The latest quarter represents a slowdown in the decline of the apartment market, but economic recovery has yet to clearly show its face,’ Applied Analysis principal Brian Gordon said. ‘The depth of Southern Nevada’s recession has property managers and lenders adjusting their financial pro formas to mirror an extended recovery period, which may reach into 2011. The ability for rents and occupies to return to prerecession level will span an even longer period of time.’”
The Reno Gazette Journal in Nevada. “Northern Nevada’s housing collapse didn’t just cost Randall Hoover his equity in two homes, it cost him an opportunity for job advancement. An area manager for Amazon, Hoover was offered an opportunity to transfer to Pennsylvania for an Amazon startup venture. But as the owner of two underwater homes that he can’t sell, Hoover didn’t want to risk the potential hit to his credit and finances by moving to a different area.”
“‘I did an assessment of my properties, and I just said, ‘I can’t do this,’ Hoover said. ‘Even with the company paying for my moving costs, I would still be behind financially.’”
“Although walking away is an option, Hoover said he spent a lot of time getting his credit back on track. After doing a short sale on a California home several years ago, it took Hoover a decade to get good terms on home loans once again. ‘I feel the damage (from walking away) would result in bigger penalties for longer periods of time. And if more people bail … it will just continue to pull the economy downward,’ Hoover said.”
