The Housing Bubble

The Napa Valley Register reports from California. “For Francisco Zapien, the deal was too good to be true. In October of 2006, Zapien signed a contract for a home on Bryan Avenue in Napa. The $550,000 mortgage he was approved for required no down payment. Today Zapien, who has worked as a tractor driver and machinist for the past four years, is caught in a vise. His monthly mortgage is more than he can pay. His home has lost value.”

“‘I have put my home on the market,’ said Zapien. ‘It’s too much money to pay each month.’”

“Zapien knew his monthly costs would be high, so he rented two rooms in his home. The rooms yielded an extra $1,000 a month to help pay the $3,600 monthly mortgage. But with utility bills and other expenses, Zapien said he still was scrambling to pay $2,900 a month.”

“‘If the home doesn’t sell, I will have to turn it in to the bank,’ he said.”

“Evodio Perez, of Napa, is playing a waiting game; in January 2009, he will find out if he has to sell his house or keep it. After refinancing a condo he owned in Napa and making a $60,000 down payment, Perez moved into his El Capitan Way home in 2006.”

“After a few months of barely making the $1,800 mortgage, Perez realized that his adjustable-rate loan was too much. He considered refinancing, but the terms of his loan required him to make regular mortgage payments for three years before refinancing or selling the property. Otherwise, he’d face hefty penalties.”

“In January, Perez said he will find out how much his house is worth. If it’s gone down in value, he will have to sell — if not, he will look to refinance.”

“‘I feel frustrated,’ he said. ‘I bought my home with the intent to progress.’”

“The number of Napa County homes sold in February 2008 dipped substantially compared to February of last year, while the number of homes on the Napa County market has grown.”

“The median price for a Napa County home was $573,000 in February, compared to $670,000 a year earlier. The median for April 2004 was $540,000, meaning home values remain higher than they were before the market reached a dizzying peak.”

“‘Buyers (are) waiting for ‘the bottom,’ circling but not landing,’ wrote Karen Cherniss, with Windermere Real Estate, in an e-mail.”

“According to Trendgraphix Inc., 38 Napa county homes were sold in February 2008, compared to 72 in February 2007. The number of homes for sale in Napa County rose to 720, compared to 605 a year ago.”

“Of the 38 Napa County homes sold in February, Randy Gularte of Heritage Sotheby’s International Realty, estimates 25 percent of those were in distress, either so-called short sales or pre-foreclosures.”

“Over the last six months in American Canyon, the median price has dropped from $600,000 to $400,000. But so has inventory, and that will help what has been a quiet market. Only three homes were sold in February in the south county city, according to TrendGraphix.”

The Sacramento Bee. “Julia and Gary Draper are in escrow for a house where the lawn is overgrown, the carpet needs replacing and the fence blew down in a January storm. Not surprisingly, a bank has owned the place for months.”

“But at $170,000 for three bedrooms in Rio Linda, it is their dream come true.”

“Gary Draper, a public school safety officer with construction experience, did the home inspection himself.”

“In the Drapers’ case, the bank wanted $179,000. The couple offered $150,00 and asked the bank to cover closing costs, says Julia Draper. ‘They countered at $170,000 and said they would pay some closing costs. We accepted.’”

“It appears a good deal. The house last sold in May 2005 for $302,500. A home two blocks away and somewhat larger sold recently for $179,500.”

“For buyers like the Drapers, it means an affordable house – their first home in 24 years together. ‘We’ve been trying for so long,’ says Julia. ‘I didn’t think (the market) was ever coming down.’”

The Bakersfield Californian. “Ducks would glide on a shimmering lake, ads promised. But City in the Hills’ dusty surrounds don’t yet match dreamy scenarios touted in sales brochures.”

“Plans to house 11,500 people in the mostly empty area opened doors for a batch of developments now sprouting nearby. So far, however, permits for just 439 single-family homes have been pulled at City in the Hills, said Phil Burns, Bakersfield’s building director.”

“Construction has largely slowed — as it has at many sites around Kern — since the housing market’s fizzle. Parks and pockets of retail and commercial development meant to provide convenience for those living in the master-planned community have yet to materialize.”

“On Thursday afternoon, a few construction crews worked inside K. Hovnanian’s two project sites here. But signs of unfulfilled grander plans are everywhere at the development’s edges.”

“Construction has stopped in Juliana’s Garden, said Cindy Pollard, a local representative for the project’s Los Angeles-based master developer. ‘Cash flow is an issue,’ she said. In the mean time, the company is trying to sell off its existing inventory of eight empty homes.”

“In August, Sarah Cisneros and her family were the first to move into a $338,000 home in Juliana’s Garden, she said. Cisneros regularly pays a homeowners association fee, she said, but sidewalks are cracked, fences unfinished, central fountains dry and promised parks and retail centers still don’t exist.”

“A ‘for rent’ sign hangs in the yard down the street from her home and several other houses appear empty. ‘It’s a little discouraging,’ Cisneros said.”

The Pasadena Star News. “It’s the misfortune of others that may finally give Fernando Sanchez and his family the chance, after renting here for 21 years, to own their own home.”

“Their budget? $550,000. Two years ago, they would have been priced into the far reaches of the San Gabriel Valley or beyond. Now, they’re looking at foreclosed homes nearby in the $300,000-range.”

“On Saturday, they saw a 1910 beauty in a nice part of Monrovia - three bedrooms, hardwood floors, grassy front and back yards and a two-car garage. The owner left the house 19 days ago and now the bank-owned home, which sold for $664,000 in 2005, was going for $318,000.”

“But the Sanchezes weren’t alone in admiring the home - and it looked like they might have to elbow a few interested buyers aside if they wanted to make a bid. The family was on a weekly minibus tour of foreclosed homes in the region.”

“Pasadena-based LTV Real Estate appears to be the first Los Angeles County firm to embrace the concept of loading clients on to a bus.”

“The operation Saturday had a slapdash quality, with helpers hurriedly stapling together printouts for buyers at a table filled with coffee and doughnuts. More journalists and photographers had arrived by the time of the tour bus’s scheduled departure than had tour participants.”

“The company’s investment in the bus tour has yet to pay off, but LTV has seen three of the homes it’s shown go into escrow in the past three weeks, CEO Cesar Haro said. Prices haven’t dropped as dramatically here as they have in Stockton, where a few of Haro’s employees went to train a few weeks ago.”

“‘We picture that happening in two to three months,’ Haro said.”

The North County Times. “A pair of recent FBI raids in Murrieta illustrates caseloads that are growing as homeowners allege recent, and not-so-recent, incidents of real estate fraud, law-enforcement officials said in interviews.”

“It has been a year or more since Southern California’s most recent real estate wave began to ebb, and court dockets are still filling up with allegations of fraud from the boom. And reports of identity theft and bogus reverse mortgages continue to roll in.”

“The California Department of Real Estate, reported investigating about 9,100 complaints against real estate agents and mortgage brokers in its 2007 fiscal year. That number has risen steadily for four years.”

“And the FBI tallied 260 convictions on mortgage-related crimes in the year through October, more than double the 123 convictions in 2005-06, according to a bureau spokesman.”

“‘There’s a lot of fraud when the market is good that people don’t report,’ said San Diego County Deputy District Attorney Michael Groch, who oversees real estate fraud prosecutions. ‘It’s when the market goes down that these things are exposed.’”

“Poway real estate appraiser Todd Lackner said he’s beginning to notice new patterns of unethical buying and selling behavior taking the place of large cases of outright fraud.”

“One scenario involves a homeowner who is ‘underwater,’ owing, for example, $700,000 on a house that she could sell for only $500,000. She wants to remain a homeowner in the same neighborhood, so she buys a comparable house down the street for $500,000 and moves into it.”

“The lender typically doesn’t care, or even know, that she’s underwater on the first house, as long as she’s current on payments.”

“After moving, she stops paying off the mortgage on the first house. The resulting foreclosure ruins her credit score for the next few years, but she doesn’t worry because she doesn’t plan to buy a house anytime soon.”

“Recent unethical or fraudulent transactions are small compared with what was going on from 2004 to 2006, Lackner said. Since he began combing through records of home listings and sales a couple of years ago, he said, he has discovered several dozen transactions in North County that appeared to involve some sort of fraud, and 500 more in Riverside County.”

“The fact that so many turn up in a simple search of title records indicates that many lenders were lax in screening buyers for their ability and intention to repay, he said.”

“And those numbers don’t even include stated-income mortgage applications, which didn’t require borrowers to provide proof of income. A 2006 study by the Mortgage Asset Research Institute found that 95 percent of stated-income borrowers overstated their incomes by more than 5 percent; 60 percent of the borrowers in the study exaggerated their incomes by more than half.”

“The statistics underscored nicknames such as ‘liar loans’ and ‘overstated income loans’ that the product had taken on. ‘That was almost its intention,’ Lackner said.”

“A frequent red flag near the end of the boom involved last-minute changes to asking prices in the listing database. Lackner said his reviews of listing and transaction records have turned up hundreds of cases in which a house sat on the market for several months, then suddenly had its list price raised by $10,000 or more, and immediately went into escrow.”

“That’s a potential sign that the buyer’s agent conspired to collect an oversized and undeserved commission on the property.”

The Union Tribune. “Robert and Yvonne Cromer began investing in real estate in 2000, when they tapped the equity in their College Area home to buy a nearby rental property.”

“Over the next few years, the San Diego County couple repeated the pattern, accumulating 17 properties in five states. In 2004, they were featured in a CNN Money article headlined ‘Tycoon in the Making.’”

“But…since October, they have lost three homes in San Diego County to foreclosure – homes they bought for a combined $2.6 million, according to county deed records. They have lost three homes in other states to lenders, Yvonne Cromer said.”

“A review of county foreclosures over the past 18 months by The San Diego Union-Tribune found about 200 investors who had lost multiple properties. That number probably understates multiple-property foreclosures because people with common names were excluded from the survey and not all foreclosures were reviewed.”

“Just how big a role investors played in inflating San Diego’s real estate bubble is unclear. Experts have widely varied estimates – with some putting the number as low as 10 percent of overall buyers in the last couple years while others speculate that it was closer to 30 percent.”

“‘The only sure answer is: It was more than we knew about and more than we should have had,’ said Peter Dennehy, senior VP at the market research firm Sullivan Group Real Estate Advisors in San Diego.”

“Studies by the Mortgage Bankers Association of America estimate that about 16 percent of California foreclosures have involved investors. The real estate investors who are now in trouble have some things in common. Most bought at the peak of the market. Several worked in real estate themselves.”

“Pamela Khamo began a career as a real estate agent in 2002 after selling her La Mesa coffee shop. By 2005, her annual income swelled to $360,000, according to bankruptcy records.”

“Khamo had begun buying investment properties a year or so earlier. In all, Khamo ended up with 13 properties at the peak, she said. Income from renting the properties fell well short of covering the mortgages. But the commissions she earned on the purchases helped offset the rental shortfall, she said.”

“Things started to unravel early last year. The slumping real estate market cut her income in 2007 to $180,000, bankruptcy records show. She became ill for a time. Meanwhile, her adjustable mortgages started to reset…sometimes doubling her monthly payments.”

“Khamo scrambled to refinance. She sought loan modifications from banks. But lenders had tightened standards. They wanted more equity in the properties than Khamo had, she said.”

“‘I did buy at the height of the market, unfortunately,’ she said.”

“Khamo filed for bankruptcy in February. She has lost the bulk of the properties to lenders already, according to county deed and bankruptcy court records. She expects to lose all of them. The East County home in which she and her husband reside has been taken back by the bank – although the family still lives there for now, she said.”

“‘It took six years to build everything up and six months to lose it,’ she said.”