“Getting Ready To See The Consequences” In Texas
The Star Telegram reports from Texas. “Having more than 1,000 homes posted for foreclosure each month is becoming the new norm in Tarrant County. The total for the March 6 auction is 1,029, and it’s the seventh month in a row that foreclosures have topped 1,000. There are now almost twice as many foreclosures as there were the same month five years ago, according to the Foreclosure Listing Service in Addison.”
“It’s 10 percent more than the number of postings a year ago. ‘There’s really no end in sight,’ said George Roddy, president of the agency.”
“The Summerfields is like many neighborhoods that have cropped up across Tarrant County in recent years. And like many neighborhoods in Tarrant County, the Summerfields has had its share of foreclosures.”
“Kim Rider, whose house is directly in front of a foreclosed home, wonders when the house will be sold and the hole in her neighborhood filled. ‘If it doesn’t soon, we wonder what will happen,’ she said.”
“One effect is evident already. Nearby housing prices are eroding. The four houses immediately next to the foreclosed property had their appraised values sink in the past year. The same situation is playing out along Rhoades Street in Azle, Mayflower Court in South Arlington, Fossil Butte Drive in the Arcadia Park area of north Fort Worth and too many other streets to name.”
“February saw another record in Tarrant County for the number of homes posted for foreclosure. There were 1,274 postings, the most since the real-estate crash of the late 1980s.”
“‘Generally, they price them to move right off the bat,’ said Joe Peterson, broker in charge of reselling foreclosed properties for lenders in Bartonville. Foreclosed homes sold by the Department of Housing and Urban Development go down in price 10 percent if they don’t sell in the first 30 days, Peterson said. The price keeps going down until the house sells, he said.”
“Dale Erwin, broker in Fort Worth, said his own neighborhood of 200 homes in west Fort Worth has been affected by foreclosures. Erwin said he and his neighbors have seen about 15 foreclosures in the past year. He figures that the less than 8-year-old homes had appreciated by 10 percent to 15 percent at one point. ‘Now they’re back to where they were,’ he said.”
“The economy in the Metroplex has been steady since the 2001-2002 slump, and the rates of illness and divorce have not changed enough to explain why foreclosures have tripled.”
“David O’Brien Jr., executive director of the nonprofit Housing Opportunities of Fort Worth said the market has seen a stratospheric rise in mortgage fraud and in the default rate of subprime loans, typically written at a higher interest rate for people with the lowest credit scores.”
“‘Someone will loan you money for anything in this country,’ O’Brien said. ‘The thing is finding out how much that money will cost you.’”
“Appraisers get pressure from lenders and homeowners to meet a certain price so that the loan will go through. ‘It happens daily, hourly,’ said Greg Stephens of LandSafe Appraisal Services. ‘It’s rampant.’ He said he has seen mortgages taken out for $100,000 more than the recorded sales price.”
The Dallas Morning News. “Dallas-Fort Worth area foreclosure postings are up again. More than 3,200 North Texas homes are facing forced sale – a 7 percent gain from the filings for March 2006 filings, the Foreclosure Listing Service reported Thursday.”
“During the first quarter, D-FW area foreclosure postings were up 15 percent from the same period of 2006.”
“‘We saw a pretty good decline in postings from February to March, but we’ve seen that before, and it goes right back up,’ said George Roddy. ‘I think these high foreclosures are here to stay.’”
“In the D-FW area, Collin County had the biggest increase in foreclosure postings for March, up 21 percent from a year ago. Texas has been one of the country’s top home foreclosure markets during the last three years.”
“A recent report by the Texas A&M University Real Estate Center predicts a sharp increase in nationwide home foreclosures this year. ‘Foreclosures are up 27 percent in the last 12 months,’ A&M economist Mark Dotzour said. ‘But that’s still low in my books. I’m betting 2007 U.S. foreclosures will double last year’s total.’”
The North Texas E-News. “‘In recent years, investor thirst for the higher yields of mortgage-backed bonds has allowed lenders to relax credit standards,’ Dotzour said. ‘Many people who have bought homes in the past five years would never have been able to buy a home at any other time in our country’s history. It stands to reason that you are going to have more foreclosures.’”
“So who will lose when the expected tsunami of foreclosures washes through the system? Dotzour said…hedge funds, pension funds and endowment associations that have been chasing yield by accepting more risk, or large commercial banks offering complex derivatives to allow traders to hedge their risk in mortgage bonds are likely to feel the pinch.”
“‘It’s safe to say that nobody knows exactly where the ultimate risk really lies in the financial markets,’ Dotzour said. ‘Look at how long it is taking Fannie Mae to get their accounting straightened out. There is no way a layperson will ever be able to understand the risk they take when they buy stocks in large financial institutions.’”
“Dotzour said price pressures on foreclosure sales could retard equity growth for other neighborhood homeowners, many of whom have bought homes with a small down payment. With negative equity, these homeowners may not be able to sell their homes if they need to.”
“‘We have seen the good parts of the social experiment in expanding the credit risk of mortgage borrowers,’ he said. ‘We may be getting ready to see the consequences.’”
‘It’s 10 percent more than the number of postings a year ago. ‘There’s really no end in sight,’ said George Roddy’
Long-time readers will remember that defaults a year ago in Texas were already near the record levels from the 1980’s. But at that time, we heard the usual brush-offs, like ‘we have so many more houses now,’ etc.
‘ Mortgage fraud is being called the new white-collar crime. The FBI, the IRS and the Harris County District Attorney’s Office all said they’ve been overwhelmed with complaints. Blizzard is the division chief over major fraud in the DA’s. Four months ago he led an investigation that landed Houstonian Doris Chen and seven others in jail.’
‘But now his division is taking a new huge step to combat this prevalent crime: They are going undercover. ‘If you are involved in this type of crime, you just might be dealing with a Houston police officer,’ Blizzard said.’
‘How does this fraud work? Criminals find a house for sale, let’s say for $200,000. Then they get a phony appraisal from someone usually in on the scheme – let’s say for double the home’s value: $400,000. Then they start looking for an investor, someone to actually put the house in their name, using their good credit for the closing and title. The bank gives them a $400,000 loan. The crooks pay the $200,000 to the seller and make off with $100,000 profit.’
‘The housing shakeout has temporarily put the brakes on growth in residential remodeling. The dollars spent on home fix-up projects have more than doubled since the mid-1990s. Rapidly rising residential values encouraged homeowners to make costly improvements and pay for them by tapping into the equity in their property. But now home appreciation has slowed or is even negative in many parts of the country.’
‘The years 2000 to 2005 were probably the best five years ever in the home improvement industry,’ said Kermit Baker, a senior researcher with Harvard’s Joint Center for Housing Studies.’
‘Lenders report fewer homeowners borrowing to take equity out of their homes – a top source of funds for remodeling. ‘The cash-out refinancings have dramatically slowed,’ said Larry Kelley of Richardson’s Southwest Mortgage. He said some homeowners are concerned about falling residential values and don’t want to put more debt on their houses.’
Mortgage fraud is being called the new white-collar crime.
The FBI, the IRS and the Harris County District Attorney’s Office all said they’ve been overwhelmed with complaints.
HCSO
Floyd Minger
“We are attacking this crime head on,” Lester Blizzard said.
Blizzard is the division chief over major fraud in the DA’s.
Ok, it’s official. The collective noun for mortgage frauds is “a Blizzard of frauds”.
Ben, a little off topic but an interesting advertisement in todays Fresno Bee. Page E14 Office and Business Equipment , Closing down Wells Fargo Office. Furn 10k or a set of 4 cubicles, complete 2k 439-6967. It’s Coming Now, just like my fellow bloggers have said.
“‘Generally, they price them to move right off the bat,’ said Joe Peterson, broker in charge of reselling foreclosed properties for lenders in Bartonville. Foreclosed homes sold by the Department of Housing and Urban Development go down in price 10 percent if they don’t sell in the first 30 days, Peterson said. The price keeps going down until the house sells, he said.”
It would be interesting to track the size of the foreclosure “pool” of houses available. You have a stream of new houses coming in and a certain amount of stream going out. My bet is that the influx will overwhelm the outgo for a good while (until those prices drop WAY down there)….
“Foreclosed homes sold by the Department of Housing and Urban Development go down in price 10 percent if they don’t sell in the first 30 days, Peterson said.”
Yeah, and since everybody knows this, I wonder how many people are dumb enough to buy a foreclosed property within the first 30 days?
Not a bad method.
Its a Dutch auction, a very fair style of auction. So the homes drop in pricing until someone bids and then its off the market.
Quick… fair… and will show the pricing trend.
Expect this to be a national phenomenon. (OK, HUD housing in some areas is rare… But I’m all for a massive Dutch auction to restore sanity in pricing.)
Got popcorn?
Neil
“Expect this to be a national phenomenon.”
Eventually, yes, I agree Neil. Initially, though … all those young turks in the bank REO divisions were sucking their thumbs during the last bust. I’ll bet they initially rely more on computer models than common sense.
In the case of fraud, where a $200k house is “sold” for $400k, it would take HUD about 6 months to drop an initial $400k asking down to about $200k, but prolly well more than 6 months to hit true post-peak prices. Unless, of course, they start the listing at something lower than $400k.
‘Many people who have bought homes in the past five years would never have been able to buy a home at any other time in our country’s history.
When the dust clears in about 3 years the term ‘historic’ will be the only description large enough to define the crash / correction.
“When the dust clears in about 3 years the term ‘historic’ will be the only description large enough to define the crash / correction.”
Amen. If banks had kept the old lending standards in place, even the lower interest rates of 2001-2004 wouldn’t have made the mess we’re in. Banks saw people as spenders or savers. If you couldn’t prove you were a saver, you couldn’t get a mortgage. Period.
Those days may be around the corner again…
We all agree these loans the banks are making are downright stupid. In the private sector, most companies want to MAKE money, not lose it, so I have to think that some sort of government interference must be at work to cause this irrational behavior. Aren’t home loans guaranteed by Fannie Mae up to a certain $$ amount? If so, isn’t it the case that the lenders are rationally taking as much risk as possible, for maximum profit, as their losses will be picked up by Fannie? I don’t know for sure how this works, maybe someone else can enlighten us.
Lenders packaged their loans and sold them to Fannie Mae and Freddie Mac, which many people allege are backed by the taxpayers. The lenders get the profits and passed the risk on to taxpayers. Isn’t American capitalism a great thing?
We really, really don’t spend enough time exploring this angle, I think this is the crux of the problem. Get rid of Fannie, no more bubble, no more problem.
Would *love* to see Fannie go away completely.
Am getting to the point where, if any politician said they were going to make sure to kick Fannie to the curb, I just might vote for them - no matter what else was on their agenda.
Pretty sad statement, but that organization has been a train wreck in the making for everybody by driving up home costs and has now contributed to the possible financial blow out of the whole country.
Good riddance, the sooner the better.
Has ANYBODY in politics even hinted that Fannie might be more of a problem than a help as far as home affordability goes?
Fanny and Freddie buy mostly “conforming” mortgages, meaning more conservative that the subprime toxic waste. Of course Fan and Fred execs wished they could go crazy to juice up their (temporary) earnings so they could get bigger bonuses but they weren’t allowed.
It’s amazing how fast people blame Big Gubermint with Fan & Fred when it is really mostly private sector greed and unrestrained hypercapitalism that’s to blame.
There are plenty of mortgage ‘backed’ securities sold and insured entirely outside of Fan/Fred overview, all private sector OTC.
I’m guessing that when the crap really hits the fan the economic Talibanists will also blame the government instead of the right people.
The stock market is more honest (not saying much) because of “socialist” regulation like the 1933 Securities Act.
Why does the REIC think it’s a good thing to put people in homes they can’t afford just so they can lose them in a short amount of time ? How can they call this sort of unqualified buying home ownership ? I can’t believe how stupid this concept was .
I would like just one sub-prime lender to say how they expected this uqualified low down buyer to afford the adjusted up payment after the teaser rate was gone . I’m sure those lender expected these people to keep refinancing into new teaser rates time and time again . It’s really stupid to go on a loan based on the premise that you need to get out of that loan in a short time . Still ,if real estate continued to go up, it would of been really expensive for these people to refinance or sell and the REIC would of taken a big clip every time .
“Why does the REIC think it’s a good thing to put people in homes they can’t afford just so they can lose them in a short amount of time ? ”
Because that’s the REIC business model and complete and utter purpose…to have their members make money. They have no interest in what’s appropriate for people who want to buy a house. Commission gets paid in escrow and to hell with what happens next for buyers/sellers.
“I would like just one sub-prime lender to say how they expected this uqualified low down buyer to afford the adjusted up payment after the teaser rate was gone”
They would respond “it’s not my problem, it’s the borrowers’ problem”.
The FB’s pay 5-10 thousand dollars each time they have to refi. Of counrse the lenders tried to steer them that way. Imagine making $10,000 in fees off each FB client every 3 years. That’s a nice and steady source of revenues just for telling a sucker where to sign on each page.
Those lenders never thought about or cared about whether their clients could pay the higher interest rate.
It’s pretty obvious that that consideration was never part of the equation. If it had been, this would not be happening now.
All they cared about was the repeat business for fees as people had to refinance.
Too bad Americans were so dumb/gullible to fall for it.
“One effect is evident already. Nearby housing prices are eroding. The four houses immediately next to the foreclosed property had their appraised values sink in the past year.”
See the link to this Washington Post cartoon regarding the housing bubble and it’s effects on others - from July 2005:
http://www.washingtonpost.com/wp-srv/opinion/tolesv1.html?name=Toles&date=20050725
The funny thing about that cartoon is there’s one of those 500,000 mortgage for only 1500 a month!!! type ads with the little guys dancing on them on the page.
was it the guys that were doing the Temptations/
Four Tops type choreography, or was it that loner doing some sort of freestyle thang?
I don’t know if everyone already knows about this site; it made me laugh.
http://timothyellis.googlepages.com/nohousingbubble.html
A snippet:
Anonymous from California writes:
I be a realuhtor in san jose. I sell milliun dolor homes to janiters waitors and morgage brokers. I urn my 6% comision. I maid 1 milliun dolors last yeer selling homes. I urn my money. Tell people the trooth about homes allways going up in price. Its a fact. I no. I’m a realuhtor.
Wise words from someone who knows his industry. Who better to listen to than a highly trained real estate professional who knows the market and your home’s value? What sort of training do most of these “housing bubble” maniacs have? They are not trained real estate professionals. Rather they are bitter amateurs who are projecting their hopes and fears onto other people. They don’t understand why changing demographics, immigration, environmental, and other socio-economic factors have caused real estate to reach a permanently high plateau. People in the industry and educated home owners know the truth. They don’t need some outsider trying to confuse them with so-called facts. But I give you my pledge that as long as I have fingers to type I’ll proudly proclaim “there is no housing bubble!”
“The economy in the Metroplex has been steady since the 2001-2002 slump, and the rates of illness and divorce have not changed enough to explain why foreclosures have tripled.”
According to postings I’ve read on this blog, one thing that is probably causing the uptick in foreclosures is that certain types of refinancing were not available in Tx until a few years ago.
‘The economy in the Metroplex has been steady since the 2001-2002 slump’
And what came before the slump? Why a boom of course. And the Texas home prices never gave up the gains from that boom, especially in Austin and Dallas. Does anyone remember when we were told 4,000 people a month were moving to Austin?
Feh. All of this was easy to see coming.
Not to Mr. Roddy. He was one of those dismissing the seriousness of the DFW defaults a year ago. Come to think of it, so were the A&M RE economists.
That’s the Dallas way. Deny right up to the time the train runs over you.
I think these A & M RE economists are some of the first examples we’ve seen of University economists saying that perhaps things got out of hand with RE in this country.
Maybe now that one’s said it, others will follow?
As an aside, remember those CA. college econ. profs who did “research” last year to “prove” that their 900K POS was priced fairly?
What I want to know is where are all these foreclosures going. I dont see them piling up in auctions. If they are what are they selling for because they dont seem to be effecting prices. Something smells extremely fishy to me.
From what I have read, they are on the MLS. A huge percentage of the listings are REO, it just doesn’t get mentioned much.
Many of the foreclosures are listed on the MLS. In many cases, they won’t state that it’s a REO. You can usually tell if it’s an empty house that it is in distress. I did notice that many of the REO’s are actually listed above the comps for now. I think the lenders are afraid of creating a panic if they start discounting too much.
The dam has burst. Check this out!
http://www.news-journalonline.com/NewsJournalOnline/Business/Headlines/bizRE01BIZ021807.htm
From the piece linked to by Lazarus:
Mark Dougherty, executive director of the Daytona Beach Area Association of Realtors…Dougherty is confident about the future of the condo market. “It took the biggest hit,” he said. “But it absolutely will rebound.”
Camporese agrees. “We’re in a little transition period. It will bounce back,” he said.
You would think that a journalist would ask a follow-up question like, “WHY do you think it will rebound?” or “WHY do you think it will bounce back?”
For &%*^^ sake! But the worst part of it is that there are people stupid and naive enough to actually read that and take it for more than it’s worth.
The traditional media are becoming more irrelevant by the day. In their self=defense the media would argue that were they to challenge people like Donnelly above, they would lose access. Lose access to what? The opportunity to be lied to brazenly and constantly?!? WTF is wrong with these people?
Good find!
“Local Realtors continue to sound upbeat, stressing the drop in sales is simply a painful correction of the once-booming housing market.”
All I can say is, what???
I see that even SF properties in Ormond Beach are going to be auctioned. I know someone quite well who had been looking in that area in 2005. He stopped looking and I thought, “good for him.” I started sending him news articles about the area and slumping RE in general. That was before I discovered this blog. Then in Spring 2006 he announces he’s put a contract on a SF home in Ormond Beach. I was just stunned.
I think a lot of people in Texas used wacky loans the past few years that don’t require escrow for taxes and insurance. I can’t imagine a family scraping by with $40k income in their “affordable” house getting the county, ISD, city and MUD tax bills which total up to about 3% of the value. It must be a real eye-opener when they have to cut checks totalling $4500. Other than a few inner-loop areas, RE prices have been utterly flat here for 5 years, so that don’t have access to a housing ATM.
Those inner loop areas in West U, Bellaire, the Heights. I wonder how much mortgage fraud was involved.
Our family just sold a home in West U that had been in the family for 50 years as part of settling an estate. All I can say is that I was stunned that there had been little, if any, decrease in comps in that area. Something is holding them up.
Too bad Joe Sixpack doesn’t know what we know: Don’t mess with Texas… real estate, that is. Run, do not walk, from any thought about purchasing a house there.
The house we sold in far north Dallas (near Campbell and Hillcrest, for anyone who knows the area) in 1985 was on the market in 2002 for LESS than we sold it for seventeen years earlier! And it took us almost a year to sell.
I know someone near Dallas who just put his ’second house’ up for sale. He’s been mining the equity for years to support his failing business, so he can’t afford to drop the price. He’s toast.
Never invest in Texas RE. Just buy a house with a fixed rate to live in it for at least 10 years. There’s so much land that prices don’t appreciate. You only build equity by paying down the principle. The only reason that medians are increasing is because the new houses are getting bigger.
Once in a blue moon, prices pop 15% if you’re lucky. That’s when you better sell before it drops 20%. The other possibility is if you buy in the boonies and live there about 5 years before the surburban sprawl catche sup to you. The negative to that is you have to spend 5 years living with the people from Deliverance and driving down backwoods roads with no streetlights. Anyway, the soil in Texas is terrible, so expect to have foundation problems no matter what.
Spot on there. We learned our lesson back in 1985 with our first Texas real estate experience. Took a 20% haircut on the sale. Looked at the area recently just for amusement and the area had declined another 20% since then. All we own now is 2000 feet of frontage on a lake that we can retreat to if it gets to be “guns and gold” time.
http://put2.elpasoco.com/ptstatistics.asp
Foreclosures continuing a steady but accelerating rise El Paso County (Colorado Springs), home to about 400,000 people (1% of whom have realtor licenses). I’ve noticed that a disporportionate and growing majority of the local bankruptcies involve FBs who financed with ARMS since late 2004 - imagine that. HSBC, Deutchebank and Wells Fargo well-represented among the bagholding lenders. Also seeing more high-end homes, and multiple properties “owned” by a single individual, most likely CA flippers. We’re still a long way from the 1988-89 foreclosure bloodbath this area experienced, when something like 3% of all homeowners were foreclosed on.
http://put2.elpasoco.com/foreclosure/Default.aspx
Along with the rise in foreclosures here in Colorado Springs, there’s been a corresponding delta between what the FBs owed the bank, and what the lender was able to collect at the foreclosure sale. Lenders are eating a lot of uncollectable mortage debt - check out some of these Red Cross haircuts.