The Housing Bubble

The Union Tribune reports from California. “Bank of America CEO Kenneth D. Lewis yesterday called on the lending industry to avoid foreclosure whenever possible ‘to help borrowers manage through the current crisis.’ Now it’s time for the lending industry to ‘return to a more disciplined view of risk standards that will protect everyone from a repetition of what we are going through today,’ Lewis said.”

“Lewis said he understood that San Diego area residents have suffered during the housing slump.”

“‘As a city that has experienced some of the most rapid declines in housing prices over the past 10 years, homeowners and neighborhoods are feeling the impact of this downturn more than most,’ he said.”

“‘If borrowers can afford to pay market rates and want to stay in their homes we can and do work with them to make that happen, even when it means modifying the terms of a loan they can no longer afford,’ Lewis said during his presentation. ‘Fortunately, this covers the majority of financially distressed borrowers.’”

“Real estate experts say that suspicious deals helped inflate property values during the boom and that the foreclosures are fueling a faster fall in values in today’s market.”

“One example occurred in Mission Hills. In October 2005, a roughly 1,400-square-foot home was listed for $1 million. It didn’t sell. In early April 2006, it was relisted for $989,000. A month later, the price was raised to $1.3 million.”

“It went into escrow for $1.25 million two days after the price increase. The buyer purchased it with zero-down financing, according to deed records. The lender foreclosed on the home in October. The bank resold it in April. The price: $640,000.”

“‘As an appraiser, I’m asked if properties in Mission Hills have decreased 50 percent in value like this one,’ said Todd Lackner, a real estate appraiser in San Diego. ‘My answer is no. This property was never worth $1.25 million. Many people just assume these foreclosures are part of the subprime meltdown. This is not true. These properties were purchased with the intention of being foreclosed on.’”

“‘Looking back to 2004 when we got into it, it was seen as a pretty small problem’ by the mortgage industry, said Frank McKenna, chief fraud strategist with BasePoint. ‘But at $6 billion a year, you’re looking at something that’s three times the size of credit card fraud.’”

The Press Telegram. “Officials said many homes bought in the past are not assessed anywhere near their market value, which has plunged recently. That means total assessments keep rising, even though some homes are dropping in value.”

“‘In a rising market, because of the 2percent increase cap included in Prop. 13, assessed values do not keep pace with market values,’ said Los Angeles County Assessor Rick Auerbach. ‘On the other hand, in a market such as we now have, the cap keeps us from experiencing a dramatic decrease in assessed value.’”

“Jack Kyser, chief economist for the Los Angeles County Economic Development Corp, said he believes most of the sales activity involves home foreclosures.”

“‘What you are seeing could be called the ‘dead cat bounce,’ Kyser said. ‘What we are seeing is unit sales are up, but prices are still declining and financial institutions are trying to get foreclosed properties off their books.’”

“Most of the new housing developments in the county in the past few years have been built in the Antelope Valley, where problems with subprime loans were more likely, Auerbach said. Amid the housing slowdown, Auerbach’s office recently reviewed 318,000 homes and condos and lowered assessments on 130,000 by an average of $73,000 each.”

The San Gabriel Valley Tribune. “At its peak, IndyMac employed about 3,000 people in the Pasadena area , according to the Pasadena Chamber of Commerce and previous statements from bank executives. The Pasadena staff will be slashed to about 500.”

“The company would like to raise money by selling the bank’s loans but has been unable to get anything close to its asking prices, according to Michael W. Perry, the bank’s CEO. The only way to stay afloat, he said, is to lay off workers and quit funding most home loans.”

“The layoffs will affect Pasadena’s economy, said Paul Little, CEO of the Pasadena Chamber of Commerce.”

“‘The subprime crisis has hit some of our employers pretty hard,’ he said, referring to Countrywide Financial, which also laid off employees from Pasadena offices. ‘That is going to have an impact on the businesses that support them nearby. People who sold them everything from paper clips to lunch would be somewhat concerned.’”

“‘With even less lenders out there, it will make life more miserable for the consumer for a while,’ said Jay Cervenka of Pasadena-based Cervenka & Lukes Mortgage Brokers. ‘It will make it even more difficult to get financing.’”

The Desert Sun. “Fred Bell, executive director of the California Building Industry Association’s Desert Chapter, said construction spending has come to a ’screeching halt.’”

“Single-family home permit activity is off 90 percent year-over-year from 2007 to 2008, he said. The lion’s share of jobs tied to construction is ‘nonexistent’ at this point. That’s significant because one-third of the jobs here are linked to construction activity.”

“‘Land values have declined by about 50 percent, and we’ve also seen a 20 to 25 percent drop in sales price,’ Bell said. ‘People are looking at the numbers on land value and they’re asking, ‘How far is it going to drop?’ It’s pushed a lot of people to the fence.’”

“‘I think we have yet to see the full impact,’ he added. ‘It’s still flowing down.’”

“‘We know prices are coming down in general across the board,’ said Greg Berkemer of the California Desert Association of Realtors.”

“‘The majority of the sales volume at this point is foreclosures,” said Ray Smith, public information officer for Riverside County. ‘They’re selling lower than they had been assessed.’”

The Bakersfield Californian. “Defaulted residential projects continue to pile up in Wasco, the rose-growing town of about 24,300, located 25 miles northwest of Bakersfield. Wasco Village LLC, a 380-unit development planned for the southeast corner of Highway 46 and Magnolia Avenue, defaulted on a $3.2 million loan July 3, county records show.”

“The filing brings Wasco’s tally of defaulted and foreclosed sites to at least nine. All were projects of out-of-town developers.”

“Buyers are in limbo while the bank that repossessed the property figures out what to do, said the spokeswoman for the auction house. When asked what the bank planned to do with the property, a spokeswoman for Indymac Bank, Katie McFadzean, said in an e-mail: ‘Indymac’s company policy states that it cannot comment on specific properties or transactions.’”

The Merced Sun Star. “The fallout from a slumped housing market provoked sharp debate at the Merced City Council’s Monday night meeting, as the council wrestled with whether to give a developer more time to build a bike path and other improvements at a stalled subdivision.”

“The council eventually voted unanimously to send the matter back to staff and consider it again at an August meeting.”

“Resident Tom Grave said he opposed postponing the path because developers in other parts of Merced have been given similar extensions — a pattern that he said hurts citizens. People bought houses in both Moraga and Bellevue Ranch because they thought amenities such as bike paths would soon appear, said Grave.”

“Lakemont’s VP of Land Development Brian Kesler said Lakemont hasn’t sold a house at the Moraga subdivision in eight months, and he doesn’t foresee selling another house for at least a year or 18 months. Kesler said he’s trying ‘desperately hard’ not to shutter the struggling subdivision, put a fence around it and let it become a pile of weeds.”

“‘We’re not trying to get away from building the path, but the machine that drives the building of these improvements is selling houses, and we’re not selling any,’ said Kesler.”

From News 10.net. “The stories of one foreclosure, or a street full of foreclosures have been told. This foreclosure involves nearly an entire development. It’s happening at Oakwood Shores in Manteca. Although a few homes are occupied, nearby models and empty lots are in the foreclosure process.”

“Oakwood Shores is a project by Beck Properties of Stockton. A company spokesman didn’t return calls to News 10. Two other Beck projects in Lathrop are also in foreclosure but the Manteca development is more noticeable because of its location just south of Highway 120.”

“‘This was our dream house. We thought this was our last move. We like the neighborhood. It’s quiet,’ said Ria Cesante, one of the few residents.”

“But she never counted on this kind of quiet. Hundreds of empty lots are covered with weeds. Only a few models and a cul-de-sac have been constructed. The clubhouse is well-decorated but locked up. The pool in back contains a few inches of dark brown water. Miles of shoreline sit empty.”

“Manteca realtor Steve Roland isn’t critical of the decision to build the neighborhood. ‘The timing was terrible, critical. They built a great product. Five years ago it would have been wonderful property to buy,’ he said.”

The Morgan Hill Times. “An initiative to reduce affordable housing from 33 to 20 percent of new homes in Morgan Hill, which residents will vote on in November, would lower the number of home-buying options for the middle and lower classes.”

“The initiative would consider a $725,000 home as affordable to moderate-income earners. The Morgan Hill City Council voted unanimously to place the measure, brought forth by a group of developers and real estate agents, on the November ballot and to write the argument against it.”

“‘(Below market rate units) are not a purchase,’ Santa Clara County Association of Realtors member Shanna Boigon said, referring to liens and stipulations on below market rate homes required by the city. ‘We, Realtors, call that sort of glorified renting. Some of the income (levels I’m seeing), I’m thinking, wait a minute - I could put that person in their own home.’”

The Fresno Bee. “Workers displaced from the real estate industry are finding new jobs in all kinds of places. For Kelly Fitzpatrick, it was in the big-hair business.”

“The former mortgage broker invented a plastic insert designed to give women’s hair volume usually achieved by teasing. She dubbed her business Big Happie Hair and has a patent pending.”

“Fitzpatrick said she sat on the idea for years. She got out of hairdressing and eventually opened a mortgage business called The Loan Broker, which at one point employed 20 people. But business dropped off when house sales dropped and prices plummeted.”

“Fitzpatrick used her savings to start Big Happie Hair about four months ago. She has sold 5,000 of her inserts to the Home Shopping Network and another 2,200 to the Australian home shopping channel.”

“‘We’re not in the black yet, but we’re doing awesome,’ Fitzpatrick said.”

The Marin Independent Journal. “Though his primary job is selling homes, Mill Valley Realtor Peter Richmond saw the mounting foreclosure crisis as a call to help people keep their homes as well.”

“Richmond, who spent 25 years in the lending industry before moving into real estate, documented his wealth of knowledge in his recent book, ‘Save Your House from Foreclosure!’”

“Richmond, who previously wrote ‘The Unofficial Guide to Flipping Properties,’ said banks are open to altering mortgage and loan terms, but it’s not easy to find the right bank official who can help.”

“‘You’ve got to keep banging and banging on the banks; just be persistent until you break down that wall,’ he said.”

“Marin’s foreclosure rate has doubled in the past year, and property defaults continue to grow. Statistics from ForeclosureRadar indicated 705 properties were in various stages of foreclosure within the past 120 days, compared with 676 distressed homes one week earlier. Nearly half of the properties - 334 - were in Novato, with San Rafael accounting for another 200.”

“Richmond said though roughly three of every eight marketed homes in Novato are either short sales or REOs, the crisis touches all corners of the county and includes homes of all prices.”

“Asked how Novato became Marin’s ground zero for foreclosures, Smith said his town likely appealed to first-time buyers who took advantage of loans ‘that aren’t available anymore.’”

“‘If you wanted to live in Marin, Novato is one of the first cities or neighborhoods you would consider because housing prices were more affordable there than anywhere else,’ he said.”