“Waiting For The Market To Normalize” In Colorado
The Gazette reports from Colorado. “One Colorado Springs-area home builder is offering landscaping, a sprinkler system and special financing to woo buyers. Another builder is telephoning previous customers in hopes of attracting buyers.”
“And several builders have joined forces in a first-ever marketing blitz to promote a couple of hundred unsold homes.”
“Even as Pikes Peak region builders look for ways to spur sales, a report Wednesday provided fresh evidence that housing demand has slowed dramaticallys. The number of single-family home-building permits issued in El Paso County plunged 45.5 percent to 188 in October compared with the same month last year.”
“Building permits this year will fall short of records set in 2005 and 2004, when permits topped 5,000. The Springs slide has the potential to whack the local economy like a two-byfour upside the head. The home-building industry employs thousands, and some builders already have said they’ve laid off some employees.”
“So far this year, the total dollar value of permits for new single-family homes, townhomes and other residential construction has fallen by nearly $165 million, according to Regional Building.”
“The results aren’t in on last month’s marketing campaign by 16 home builders, to market about 250 already-built, unsold homes, marketing director Victoria Stone said. Some builders thought it went well, but others said it fell below their expectations, she said.”
The Denver Post. “A consumer advocate warned Colorado real-estate professionals Wednesday that homeowners nationally may be headed for a devastating round of foreclosures.”
“‘We are very concerned that we are going to see a foreclosure rate the likes of which we have never seen before,’ said David Berenbaum, executive VP of the National Community Reinvestment Coalition.”
“Berenbaum cited several factors: Pressures from lenders that have caused appraisers to overvalue homes, securing trillions of dollars of loans. Interest-only and other exotic loans that give home owners little or no equity. And the huge numbers of adjustable-rate loans whose monthly costs are about to jump.”
“‘That adjustable date is coming for many, many consumers,’ he said.”
“‘I’ll be honest with you,’ said Jan Zavislan, the Colorado attorney general’s consumer-protection chief. ‘The problem is bigger than all the law enforcement agencies in the state put together.’”
“Sonya Leonard, who owns a real-estate firm, said her own industry is guilty of various practices that can put a false value on a house, from counting basement space in the listed square feet to undercounting how long it has been for sale.”
“She told Zavislan she had complained to several state agencies and the FBI when the prospective buyers of one house wanted her to raise the price from $499,000 to $625,000 and kick back the difference to a third party.”
“Jon Goodman, a Boulder real-estate lawyer, suggested two ways that mortgage fraud could be reduced without new laws or regulations. Appraisers, who are forced to choose ‘between eating well and sleeping well,’ should be randomly selected, he said, not chosen by a lender.”
The Rocky Mountain News. “‘Mortgage fraud has reached epidemic proportions,’ said Ivor J. Hill, owner of Pueblo-based I.J. Hill Appraisal Services.”
“In many cases of mortgage fraud, appraisers, mortgage brokers and real estate agents work together, said Lou Garone, who reviews appraisals for a Lehman Brothers company. Often, they work with an investor who gets a loan for far more than the market value of the house and then lets the home go into foreclosure.”
“Denver attorney John Head, along with several Realtors and brokers in the audience, said the state isn’t doing enough to crack down on mortgage fraud. James Spray of America’s Mortgage LLC said bringing cases of mortgage fraud to the attorney general’s office ‘is like complaining to a black hole.’”
“(Realtor) Sonja Leonard said that in one case, a Denver home was purchased for $1.3 million in December, listed for $2.25 million in April, and the price was lowered to $2.15 million in June. Then in August, it was placed under contract for $3.1 million.”
“In another recent case, she said, a client was listing a home at $499,000 and an investor group offered $625,000. When Leonard Leonard suspected a scam and turned it down, she said the investor threatened her with a ‘drive-by shooting.’”
The Denver Business Journal. “Denver area third-quarter housing starts fell 22 percent from the same period last year, from 4,889 new homes to 3,830. The year-to-date rate through the third quarter declined 3 percent, from 19,568 in 2005 to 18,908 in 2006.”
“Inventory continues to climb, with 31,450 homes on the market at the end of September — an increase of 16 percent compared to the same time last year. Still, prices remain high, with 54 percent of new homes falling in the $200,000-to-$350,000 range. Homes priced above $500,000 made up 14 percent of the market.”
“‘Consumer financial stress has increased, and many potential home buyers are worried about high foreclosure rates or are waiting for the market to normalize,’ said John Covert, director of Metrostudy’s Denver division. ‘These factors have led to softening demand and increased levels of both existing and new home inventory.’”
‘Still, prices remain high, with 54 percent of new homes falling in the $200,000-to-$350,000 range. Homes priced above $500,000 made up 14 percent of the market.’
Do incomes in Colorado justify this number of high end homes? More related links:
‘A state regulatory panel is seeking record fines from two real-estate appraisers it accuses of inflating estimates of value on 20 homes in southern Colorado. Fajt is accused of inflating appraisals on 13 homes in or near Cañon City in 2004 and 2006. According to the complaint, he failed to disclose information that might have indicated a lower value’ such as listing history, prior sales and seller concessions of as much as $35,000.’
‘Esters is accused of inflating appraisals on seven homes in Pueblo. The appraisals were done in one day for one buyer. Esters allegedly omitted or misstated details about the homes that would have reduced their value - such as overstating square footage - while using inappropriate comparable houses and overstating their values. The Post reported in July that Esters appraised 22 homes in Pueblo for the same seller and buyer, and all the homes ended up in foreclosure. In one case, The Post reported, he used a photo of a different house for one of his comparables.’
‘Economist Patty Silverstein presented figures indicating Colorado’s ‘uncomfortably’ high number of foreclosures statewide and especially in Adams County. Silverstein said Colorado’s foreclosure numbers make for ‘kind of a nervous situation.’
‘One reason, although it doesn’t bear all the blame, Silverstein said, are ‘adjustable rate’ loans which became more prevalent in recent years. ‘We used those loans very heavily but now we’re starting to pay the price for those,’ Silverstein said.’
‘Residential real estate broker Sonja Leonard believes that a year-old rule that requires basements to be included in a home’s square footage is contributing to the Denver area’s record number of foreclosures and growing mortgage fraud. She argues that, under the new rule, buyers think they are getting a much bigger house than they really are.’
‘One home on Williams Street, for example, was recently listed as 3,200 square feet, but half the space was the basement. ‘What is so frustrating about this is that it leads us right into the path of fraud and sleazy appraisers,’ she said. ‘People are thinking they are buying homes for $150 per square foot, when it is really selling for double that. I’ve seen homes magically blossom from 2,000-square-foot homes to 4,000-square-foot homes because the basement is included.’
I have been reading this blog for quite a while and the topic of appraisers has come up quite a bit. There have been many on this blog that have said these crooked appraisers were going to start have legal reprocussions for their false appraisels. I think this is really just the tip of the ice berg. We are going to see many people in the mortgage industry spend some time hiring legal defense.
I have been an appraiser in Colorado since 1998, but did my last appraisal about a year ago. I threw in the towell because there isn’t enough work for appraisers who wouldn’t go along with inflating values or turning their heads when there are problems with a home that need to be disclosed, and it’s been that way for at least the last 3 years. I saw this coming a long time ago, and made the decision that since nobody really wanted an honest appraiser then it was time to move on to something else. I took the heat for being “too conservative”, for being too negative, for not doing what “other” appraisers were willing to do. I was even accused of not being good at business because I didn’t “accomodate the customers needs”. Now look at the mess we’re in. Do you think anyone will apologize and try to make it up to me? Yeah…right.
Trust me, Colorado isn’t the only state that has a massive fraud problem on its hands, it’s just one of the first to have the trouble exposed because the market here has been flat and the foreclosures are exposing some ugly secrets. It won’t take long before other states will start realizing that their once wonderful increasing markets were propelled by a bunch of speculative and risky investors and a lot of fraud. There are honest and ethical appraisers all over this country who have been trying to draw attention to obvious fraudulent behavior, but they get the same reaction in just about every single state as those who have been complaining in Colorado did. In so many words, they say, “Piss off…it’s not a problem HERE!”
Forget about “justice” being doled out to the worst offenders. There are far too many guilty parties to put them all in prison and thanks to indentity theft some of the brightest criminals will never be caught anyway. It wasn’t the appraisers that made the big bucks. If anything they’re just the stupid pawns in this game.
There is a part of me that is furious that I had to walk away from a career that I worked hard to build and do as ethically as possible, but at this point it’s almost impossible to discern which “comps” are legitimate and which ones are skewed by fraud, so I’ll just back away until the dust settles.
The Colorado Springs city council are totally in the pockets of the developers. Law enforcement here leaves a lot to be desired as well. There’s a huge and growing meth problem, yet the LE response has been lethargic to say the least. I think too many people are benefiting from the mortage fraud, and have political top cover, for the State to make a serious effort to combat the problem.
Discusted Appraiser . I feel bad that a good guy like yourself was driven out ,but you made the right choice my friend . Sometimes its the only choice you can make .
Thank you, HW. I’m just glad that I can do other things to make a living besides being an appraiser. Others do not have easy alternatives. The same holds true for honest mortgage lenders and real estate salespeople. I know there are good ones who really care about doing the right thing, but they’re losing work to the dishonest ones that have learned that it pays to tell the sheeple what they want to hear.
There just aren’t any easy solutions.
NO incomes in Colorado have nothing to do with current prices. Money from California has driven most of the new house building. Our state population has been so small that the CA flood has overwhelmed the markets. Of course the locals have been along for the ride, so if you owned a house in the ’80s or before then you have enough equity to do all right. I didn’t buy until ‘97, then moved out of state until 2001. I’m stuck in the “lower tier” of CO housing unless we get a real crash.
“‘We are very concerned that we are going to see a foreclosure rate the likes of which we have never seen before,’ said David Berenbaum, executive VP of the National Community Reinvestment Coalition.”
Likes of which we have never seen before.
Ummm… hopefully not like 1931.
Patience… the market will eventually revert to the mean. But it will undershoot on the way there.
Neil
“Do we have worm sign Stil?”
“No Maud’dib. We have foreclosure sign the likes of which we have never seen before,” replied Stilgar.
you nailed it! Man, it’s been a while since I’ve seen that movie
http://www.the-ocean.com/dune/sounds/godnvren.wav
And isn’t this community reinvestment coalition one of the “donated down payment” groups? One of the groups that fought so hard to get unqualified people into mortgages?
“Economist”. Silverstein said Colorado’s foreclosure numbers make for ‘kind of a nervous situation.’
What school teaches economist to report scientifically, based on the number of foreclosures, “kind of nervous situation” Really, is that like 50/50 chance we might have a really bad market in 2007?
My respect for this profession has really hit rock bottom, or can it go any lower. The David Learah syndrome is everywhere. At least my used car dealer knows he is shady, these clowns think they are GOD!!!
Genius is before the fall.
-john galbraith
‘Mortgage fraud has reached epidemic proportions,’ said Ivor J. Hill
This stuff ticks me off and I am tracking deals now and sending letters to the DRE and FBI offices on California trades that smack of being fraudulent. Appraisors, Realtors, Lenders and Flippers, do you want to go to jail? Bloggers, start joining me.
Federal Bureau of Investigation
White Collar Crime Supervisor
Mortgage Lending Fraud
4500 Orange Grove Avenue
Sacramento, California 95841-4205
(916) 481-9110
sacramento.fbi.gov
California Department of Real Estate
2201 Broadway
Sacramento, CA 95818-2500
916-227-0770 Phone
916-227-0777 Fax
http://www.dre.cahwnet.gov/
California Office of Real Estate Appraisers
Office of Real Estate Appraisers
1102 Q Street, Suite 4100
Sacramento, CA 95814
916-552-9000 Phone
http://www.orea.ca.gov/
Another intersting source is http://www.mortgagefraudblog.com/
This costs us all and until we demand our authorities stop it, they will not crack down on it with a vengence.
I am so glad to see people take action on this. I have seen people argue that we are just bitter because we are renters and have not cashed in on the easy money. No, we are honest hard working people who are tired of seeing our 100k+ incomes mean nothing because of the fraud and the specuvestors. If we can get rid of the fraud and these people looking for quick money we can start looking at a more normal housing market. A place we buy homes to live in and not flip in two months.
This “unprecedented” level of mortgage fraud is a direct result of the lack of accountability on the part of lenders. Just 10-15 years ago, when you applied for a mortgage, you worked with a loan officer at the local bank who’s butt was on the line if the loan went bad. That loan officer knew the local market well enough to know if you were trying to obtain a $400K mortgage for a $200K property. Many of them drove out to see the houses themselves before approving the loans.
These days it’s hedge funds buying CMOs with other people’s money. The “other people” (i.e. bagholders) are so far removed from the actual purchase transaction that it’s easy for scam artists to pull off a fraud like this. In fact, most of the bagholders probably have no idea what their hedge fund managers are doing with their money.
Or how this is going to hurt their pensions.
The rich get richer, the poor get poorer. I’ll never be able to swim with the sharks, but at least I’m smart enough to get out of the water.
The whole system is a mess. No wonder there are so many doom and gloomers. It’s time we start putting some of these assholes in jail.
True enough. The originator is safe because he isn’t holding the loan, and the hedge fund or clo originator buys cds or other derivatives to protect themselves, so noone really cares if the loans were prudent or not. So presto-chango, the risk has been eliminated, right? Nope.
It’s like Randall Forsyth said in Barron’s a week ago. CDS allow the illusion of less risk so people take more risk (like building more houses in harm’s way vis-a-vis hurricanes because they have insurance). The risk to the system has increased. What we’ve really got isn’t a housing bubble or even a credit bubble, but a risk bubble. Sooner or later the house of cards has to come down and return risk premiums to sensible levels. The laws of physics and rationality cannot have been permanently repealed, can they?
Yes ,the problem is the final bagholder isn’t the party that is the underwriter or the appraiser .
I think until this whole situation gets straighten out the lenders should not be allowed to pick the appraisers and the Lenders should not allow more than a minor increase on sales price in one year in any given area . To many sales on one property is also suspect and when a sale takes place shortly after another sale the deal should be checked out .
But as long as the original lenders don’t care about their duty to make good loans and prevent fraud than the secondary market needs to go on strike until they do .
There are many other ways to spot fraud ,( that I don’t want to mention ),but if the underwriters aren’t looking for this and they are not being told to look for this than the crooks will have a field day .
John! Good to “see” you posting. Based upon our M&M debates I was compelled to do a lot of reading on hedge funds. As usual, learning how much I don’t know. Fascinating, scary stuff — reinforced my bearishness many times over.
“In another recent case, she said, a client was listing a home at $499,000 and an investor group offered $625,000. When Leonard Leonard suspected a scam and turned it down, she said the investor threatened her with a ‘drive-by shooting.’”
Is this where the expression……..”dying to sell a house” comes from?
Some of these stories are very ugly.
These are just the trailers. The really ugly feature presentation is still to come.
Pass me some popcorn!
The saddest part of the story is she still refers to him as an “investor” …
But when you have lenders loaning on 20 to 40% increases in one year on a given property without anything to merit that increase ,(except that it’s a mania ),than it sets the stage for foul play .They just should of made the buyers take the risk on that rapid of appreciation by putting more down .
ZipRealty has 943,231 active homes Nationwide
above is less than it has been in months. And yes I know someone is going to say why go to zip for any realistic numbers. Well I just wanted to say zip number is way down and no way going to hit a million by 11/23
I have noticed a lot of listings removed from the MLS in Northern NV and in Washington state. They are most likely waiting for the spring swoon…
Also, why list a house if the only way you can secure a sale is to go completely broke or declare bankruptcy when the deal closes? Plus, bankruptcy-by-closing won’t fly - the lien(s) have to be removeable so you gotta have any cash you need to get out of the property.
Better-by-far to hang out and enjoy Christmas with the kids! You can hold off foreclosdure for a few more months. Who knows, maybe the market will come back in the Spring? Hey, that’s the ticket! Now that I think about it, everything is going to be fine! Honey, I’ve figured it out - we’re taking the house off the market!
OT, they actually have a name for people w/two mortgages now, “tweeners” (I thought that was for 8-12 year olds):
Slow-market crisis: Stuck with two homes
“Since then the seemingly ideal move has devastated their finances. The Peelers’ Chicago condo has generated little interest, even after they dropped the price - twice - to its current $389,000. And it has been four months since they relocated, which means they’ve been carrying two mortgages and a home-equity line of credit at a cost of $4,000 a month.
“Having depleted their savings to pay for this, they’ve had to seriously cut back on spending. They went without air conditioning this past summer, despite sweltering heat and the fact that Judy was eight months pregnant.
“They’ve also put off fixing the brakes of their second car, which the mechanic says should be replaced soon. ‘We don’t spend money on anything that isn’t critical,” says Judy. ‘Everything goes toward the mortgages.’”
Sounds like spoending money on a BK lawyer is going to become critical really soon.
Not to mention the divorce lawyer.
How did something like this even get to become a rule? It looks like the sole intent is to squeeze more money out of the buyer.
Wow - housing deals and drive-bys. Now that’s something I never saw coming.
I looked at a house recently and could not believe that it really had the stated sq footage (1700). The house was just too small. I probed further and discovered that the square footage included a very wide enclosed stairwell to the basement that only had access from the garage (about 75 sq ft) and an enclosed patio (about 120 sq ft). So the house was really only 1500 sq ft. Which was OK for me, big enough, but the price was WAY out of line for that size of house (or even for the 1700 sq ft house). I passed and I am waiting for the “spring fire sale” as the owners had to move (new job).
This is by-far the most evil thing I have seen in a long time regarding housing fraud . Just unbelievable and only possible in a easy money ,lack of accountability of original lenders environment .
On the subject of Mortgage fraud.
I found out that one of my neighbor’s, who happens to be a sub-prime mortgage broker, sold his codo to his wife (but under her maiden name) in May and now has just sold the same condo back to himself.
Two years ago he paid $750K for the codo, the highest paid at the time, since then one other codo sold at $790K in Jan of this year.
His sale in May to his wife was for $950K.
His sale at the end of Oct back to himself was $1300K.
He said the sale wil boost the value of all homes in our area.
I think this is clear fraud. How high can he take this?
[Sorry, I should read these before sending!!!]
On the subject of Mortgage fraud.
I found out that one of my neighbors’s, who happens to be a sub-prime mortgage broker, sold his condo to his wife (but under her maiden name) in May and now has just sold the same condo back to himself.
Two years ago he paid $750K for the condo, the highest paid at the time, since then one other condo sold at $790K in Jan of this year.
His sale in May to his wife was for $950K.
His sale at the end of Oct back to himself was $1300K.
He said the sale will boost the value of all homes in our area.
I think this is clear fraud. How high can he take this?
might also boost his property taxes, insurance, loan payments and how quickly he has to sell it to pay attorney’s too keep him out of a 6 by 8 jail cell.
Your neighbor is going to jail bud. Look here to find out why: http://tinyurl.com/g3xrh
Even ignoring the obvious fraud, the IRS might be interested in talking to him about the $550k in capital gains that I’m guessing he isn’t reporting.
Proceeds from refinancing are not taxable. However, deducting mortgage interest beyond 110% (I think) of the original purchase price is a no-no. You must forego that interest expense deduction above that level.
Call the police. This bastard has inflated prices for everyone.
If you know who the dude is report him to the IRS also .This crook is affecting everybody in the neighborhood .
Also if you know his wife was a straw buyer report him to the lender if you know who the lender is .
You’ve GOT to go down to the recorder of deeds and see if you can actually see what the financing on this place is and let us know !!!
(OK - you probably actually have a life - so I guess we’ll give you a pass if you don’t)
Some realtor in my town is doing this same SCAM - IMO. I looked up several of his properties he owns and EVERY SINGLE ONE has a chain of title with several back and forths to him and his wife. The scam artist, er… realtor has his own mortgage company also and his own title company. So I am sure he is keeping these transactions in house.
My guess is the scam is simply a way to generate cash flow with refinances by earning loan points, real estate commissions and other fees. He probably could care less that the loan balances are higher than the houses he owns. One day this scam will end!
CC,
While I was putting this post together, it dawned on me that the entire state of California may be in a similar boat, in a few short years.
My wife had lunch with an attorney friend who brought up this same realtor and said “Something is going on here, I looked up the chain of title (atty was working for another client ) and all these back and forth look strange. Also, they use the same buyers on some of the chain of titles. They might be using straw buyers or something.”
Note to self - remove this law school from the list of “genuis schools”!
Why is my local news media not doing some reporting? I think they are too busy kissing the local REIC’s a$$.
After I suspected something was up, I pulled the public title and tax records for my neigbor’s property. There are a total of 8 parties listed in the chain of ownership over the 2 year period. His name, his wifes maiden name, and several LLC’s.
I have the time to start the ball rolling on this crook. Would you be interested in giving me the info in order to contact everyone that needs to be contacted?
Oh Ben, there is so much wrong with California, it’s hard to know where to start. and I live there….I’m even a Bay Area native! Love the place, glad I own my smallish 70’s home in a peaceful neighborhood, close-in location, good schools, people don’t paint their houses pink, and all the houses are occupied. There is not a square inch of granite, slate, or stainless steel in my house. I guess my dream home is the one that I own. The rest is just dressing.
“In many cases of mortgage fraud, appraisers, mortgage brokers and real estate agents work together, said Lou Garone
Now how on earth could that happen? I just can’t believe that all these stand up guys would stoop so low!
I have some many thoughts about this overall mess, that I don’t know where to start. This is a one big mofo of a mania.
Surprise!..Surprise! The housing Cat is Out of the Bag and homeslaves and RE Industry Have a TIGER by the Tail !
when was CO good ?
1998 to 2002?
Colorado had a tiny burst in the late 1990s, but it was never, ever anything like California.
Heh, heh! Colorado Springs, and the whole front range of CO, has turned into one of the larger cesspools in AmeriKa. Its going to be fun watching Focus On the Family and other such C.Springs based cheerleaders for theocratic fascism get beaten down hard!
We saw this coming a few years ago and got completely out of debt, grow our own food, are getting more independent of the grid. And think the world deserves to see us smacked down a bit!
Rah Rah RAH!
Pulte Homes down 2 ponts since Friday. It was up earlier in the day, Nov 2, but down at the end. This is the moment of truth for Home Builder stocks. My prediction, no more Plunge Protection Team to the rescue. As the ship sinks, it’s every man for himself.
Let’s see Cramer spin this one!
Can’t prove it , but I heard a rumor that Pulte the Builder is stopping construction on some of his tracts rather than to continue to build out .
Just recently I’ve started to see foreclosures start popping up in the “yuppie” Denver neighborhoods, for example:
http://www.recolorado.com/Search/propertyDetail.asp?mls_number=440444
I’ve been searching Craigslist for Denver real estate ads with the words ‘ bank owned’. I noticed a 980 sq ft, 2 bedroom, 1 bath, 1st floor condo in a 17 story hi rise near U of C Med Center (not a bad neighborhood) for $64,900. ‘Needs some TLC.’
The cheapest other 2 bedroom in the building is $110k with others higher. Gee, maybe the deals ARE starting to appear…
From what I am hearing the resale condo market in Denver is dead, dead, dead…with no price appreciation since 2001. Five years…no price appreciation.
You need to look at the county database. Most MLS listings aviod saying anything about ownership. The best thing to search for is “as is”. Nearly all bank owned property has that in the comments of the MLS listing.
I’m in Fort Collins and I’m seeing a huge uptick in foreclosure listings.
I had posted this in a different thread a while back, not sure if I got any responses…
any clues on how the central Denver market might do for foreclosures? I can understand how the suburbs are crashing so quickly (lots of overbuilding). But I’ve seen few (reasonably priced) foreclosure examples downtown. With the exception of that condo around the hospitals, that is.
My theory so far has been: right now, all the truely FB’s, who bought the absolute crappiest housing ever, are starting to get their butts kicked. Next year, and maybe the year after, we’ll hopefully see more and more examples of nicer , more reasonably-priced stuff coming on the market. Lots more to pick and choose from. God I hope so.
F’ing flippers and speculators. The more I read about them, the more I feel like kicking them. Hard.
I’m not seeing many, if any, price declines in Central Denver. People seem to really want to live close to the central business/cultural/sports district, and will pay up to live there. The amount of new $300-$500/sq ft construction, mostly condos, is astounding. And the stuff seems to sell quickly! I’ll be very interested to see what happens to these units when they start appearing on the resale market in a year or so.
Give it another year…the ‘rent/cost to own’ ratio is still completely out of whack.
“‘We are very concerned that we are going to see a foreclosure rate the likes of which we have never seen before,’ said David Berenbaum, executive VP of the National Community Reinvestment Coalition.”
I looked these guys up, and it sure looks like they were one of the organizations that encouraged unqualified people into houses/mortages they couldn’t afford.