July 7, 2015

The Toxic Business Model Is Still Out There

WFAA reports from Texas. “In the past four years, homes in Dallas-Fort Worth have gone from a median sale price of $149,000 to $215,000. ‘If you do not want to pay top dollar or over top dollar, now is not the time to buy. You are going to pay a pretty penny to own a property in D-FW,’ said Leah Slaughter, owner of OmniKey Realty. She hasn’t seen values and demand like this at any other time since she started her business in 2006. ‘We surpassed 2006 prices a few years ago, so everything here is uncharted,’ she said.”

“Ashley Franson is ready to put her Wylie home up for sale… again. Originally she put it up last October, but then decided to wait. A little more than half a year later, realtors and appraisers are telling her its value has gone up substantially. ‘Probably about $20,000,’ Franson said. She plans to sell and then become a renter. ‘It’s almost like the stock market,’ she said. ‘You try to time it.’”

The Denver Post in Colorado. “Buyers purchased a record $2.15 billion worth of homes and condos in the metro Denver area last month, but the frenzied pace seen earlier in the year is fading, according to a report Monday from the Denver Metro Association of Realtors. One sign of tempering is that sellers are seeing fewer offers above list price for the hottest segment of the market, homes priced between $150,000 to $350,000. Whereas a seller might have waited knowing that four or five strong offers above the list price might come in, now they are motivated to seal the deal once one or two show up, said Anthony Rael, chairman of the market trends committee of the Denver Metro Association of Realtors.”

“‘There is a general feeling that things are cooling,’ said Rael. ‘Things have been at such a frenzied pace, any sort of slow down is noticeable.’”

KOUW in Washington. “The Seattle-area housing market could use an injection of inventory. It’s on a tear right now, fueled by high demand and low supply, and hooked on low-interest rates.And there is a potential supply of lower-priced homes in the region. Those are the 4,300 foreclosed homes from Everett to Tacoma that are now owned by banks. But these houses are just sitting around. ‘It’s not uncommon for us to see houses that have been in foreclosure for five, six years, where the banks haven’t done anything,’ said Jim Melgard, who works for a real estate company that buys houses at county auctions.”

“On a recent evening, investors met at Caliber Real Estate on the Eastside. There they scoured the market for cheap houses to flip. Zack Lazo was the agent in charge on this particular night. But Lazo said investors are running out of neighborhoods. ‘It’s getting really hard to buy something that’s low enough to justify buying it and still being able to eke out some sort of profit,’ he said.”

The Pryor Daily Times in Oklahoma. “The high-demand of housing in Pryor has been the subject of many conversations by city leaders in recent months. Mayor Jimmy Tramel said despite the high numbers, he doesn’t believe Pryor has a housing shortage. ‘This is just a bubble. People in transit are coming here for work, so they’ll live here until the work is done. In five or so years when the work is complete, if we’ve built apartment complexes, we’ll have a lot of vacancies,’ he said.”

“Tramel said some people have come to him with an interest in building apartment complexes, but nothing is in the works. ‘They aren’t inclined to do it because of a lack of permanency, it isn’t a good investment,’ he said. He said property in Pryor fills up fast but a recent housing survey didn’t indicate a problem. Tramel said, ‘That housing survey was very clear, there’s no shortage of housing in Pryor Creek.’”

The Intelligencer in Ohio. “Largely due to the housing demand created by oil and natural gas industry workers, new hotels and apartment complexes continue popping up in Belmont County. ‘People wonder what will happen five or six years from now when the gas rush is over. I don’t have the answer to that,’ Eugene Householder, director of tourism in Belmont County, said when asked if the county may find itself with a glut of abandoned buildings when the boom ends. ‘Clearly, Belmont County is changing rapidly.’”

The Daily Herald in Illinois. “A pair of suburban real estate developers are among six defendants indicted by a federal grand jury on allegations they devised and participated in scheme that cost banks and mortgage lenders $16 million and left condo buyers with loans they could not afford, authorities said. The scheme, federal prosecutors said, revolved around the marketing and sale of condominiums at the 50-acre The Woods at Countryside development in Palatine. The indictment says they enticed prospective condo buyers with unsustainable financial incentives, such as down payment refunds and up to three years’ worth of mortgage payments, maintenance costs and property tax payments.”

“As a result of the scheme, the indictment states, banks and mortgage lenders unwittingly funded risky, speculative property investment deals on unfavorable terms to unqualified borrowers who defaulted on their loans and were unable or unwilling to repay them. the first six months of 2010, 98 condos there fell into foreclosure — nearly half of all the units that had been sold and a quarter of all the foreclosures in Palatine during that time. ‘It’s been a very unfortunate situation for the people who bought in there, because of the dishonest way things had been done,’ said Village Manager Reid Ottesen. Finally this should allow people there to begin moving forward.’”

From Reveal News. “Five years after the financial crisis crested with the bankruptcy of Lehman Bros. Holdings Inc., top executives from the biggest subprime lenders are back in the game. Many are developing new loans that target borrowers with low credit scores and small down payments, pushing the limits of tighter lending standards that have prevailed since the crisis. Andy Pollock rode the last subprime mortgage wave to the top, then got out as the industry collapsed and took the U.S. economy with it. Today, he’s back in business.”

“Pollock was president and CEO of First Franklin, a subprime lender whose risky loans to vulnerable consumers hastened the downfall of Merrill Lynch. ‘Old habits die hard, especially when there’s no incentive to do things differently,’ says Rachel Steinmetz, a senior underwriter-turned-whistle-blower who worked at subprime lender GreenPoint Mortgage, later bought by Capital One, until June 2006. ‘The same shenanigans are going on again because the same people are controlling the industry,’ says Steinmetz, who stays in contact with former colleagues.”

“‘That toxic business model is still out there,’ says Susan Wachter, a real estate finance professor at the University of Pennsylvania’s Wharton School, and it’s being exploited by the same people who ‘were feeding toxic mortgages into the system’ during what she calls ‘the 2007 frenzy.’ The conclusion seems obvious to Brenda Fore, who is fighting to take back the house in which she spent her adult life. ‘If it’s being built by the fellows who screwed it up last time, you’re going to have the same result,’ she says. ‘The system was dysfunctional before, so its offspring are going to be dysfunctional as well.’”

Bits Bucket for July 7, 2015

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