The Housing Bubble

The Sacramento Bee reports from California. “First the banks took away C.C. Myers’ pride and joy. Then they moved to take away nearly everything else. The result was bankruptcy. Stripped of his beloved Winchester Country Club housing development and facing the potential seizure of numerous personal assets, Myers filed for Chapter 7 personal bankruptcy protection last month.”

“The bankruptcy puts a halt, for now, to any effort to seize Myers’ assets, although a Chapter 7 bankruptcy generally results in the liquidation of many of a debtor’s assets to pay creditors. And in some ways much of the damage has already been done: Although Winchester will go on, it will do so without the man who brought it to life.”

“‘I think this was his baby,’ said Donna Lucas, a retired Winchester homeowner whose living room overlooks the Sierra. ‘I just can’t imagine the pain of putting your heart and soul into something at his age and losing it all. It’s just tragic; it really is.’”

The Union Democrat. “Developers of Calypso Bay on the shores of Lake Tulloch in Copperopolis left an ocean of debt, shoddy workmanship and phony occupancy permits in their wake when they moved to the Sacramento area to do more of the same. That’s what volumes of official paperwork and individual complaints concerning Volodymyr and Leonid Dubinsky reveal as Calypso Bay residents seek redress of a host of grievances and Calaveras County building officials probe the depths of the problem.”

“‘I was lucky,’ Ron Cloward, a lieutenant in the Modesto Police Department who bought a vacation home in Calypso Bay, told The Union Democrat. ‘My house was built in the first phase of construction in the development, but when the Dubinsky brothers began to run out of money they apparently started cutting corners and the rest of the project is a mess.’”

“At last report, only 60 of the Homeowner Association’s 125 members were paying dues, according to a real estate agent in the area who had arranged mortgages for the Dubinskys over the past few years. Assurances that the Dubinskys won’t return for another phase of development weren’t forthcoming at the Planning Commission meeting. The commission denied a long-pending application ‘without prejudice’ on the advice of Planning Director Bob Sellman.”

“‘If anyone tries to revive the project they’ll have to deal with a lot of dusty paperwork,’ Sellman told the Planning Commission. ‘They’d have to start near the beginning.’”

The Press Democrat. “Exchange Bank survived the Great Depression, eight wars and six recessions by taking a conservative approach to lending. The strategy helped make it the biggest bank in Sonoma County, an icon of stability in a fast-changing world.”

“Now Exchange Bank finds itself atop a different list. The Santa Rosa bank has more bad loans than any other local financial institution, the result of a risky bet on builders in the Sacramento region near the peak of the housing boom.”

“The root causes of Exchange Bank’s difficulty are its level of construction lending and its decision to expand into the Sacramento region to aggressively seek new loans in the then-booming area, analysts said.”

“‘They were proven developers with proven market success. They went to a market with very attractive performance. It was what we perceived as an intelligent risk,’ said William Schrader, the bank’s chief operating officer. ‘If you look back now, you might call that an aggressive move. We certainly didn’t see the full magnitude and I don’t think any of the major players there saw a correction coming like this one.’”

The San Francisco Chronicle. “Bluetooth devices clamped to their ears and computer printouts in their hands, a dozen real estate investors clustered on the Alameda County Courthouse steps. They were there for the day’s foreclosure auctions, called trustee sales, the moment when houses cease belonging to the homeowner who fell behind on a mortgage.”

“‘At the auctions, (many) properties’ (minimum bid amounts) now are being dropped substantially. That’s the best-kept secret,’ said Robert Kramer, an Oakland investor who buys both for himself and on behalf of clients who pay him a commission of 15 to 20 percent of their net equity in a property.”

“In August, 1,360 properties sold at California trustee sales were bought by investors, up from 432 in January, according to ForeclosureRadar. But that represents just 4 percent of the 34,000 properties that went on the block. The other 96 percent reverted to the lenders.”

“When auctioneer Marc Ramsland got to the big house off Skyline, one man whispered urgently into his cell phone and then bid - exactly one penny more than the $517,500 minimum. The man, who declined to give his name, was the winning bidder at $517,500.01 and handed over a series of cashiers checks to pay.”

“Kramer approved of that 1-cent strategy. ‘Why bid $1 over when you can save 99 cents?’ he said.”

The Ventura County Star. “Many people might be afraid to move during what some are calling the worst housing market since the Great Depression. But not Steve Yewell, who is eager to take advantage of the slumping market.”

“‘I think we’ve got quite a number of folks … taking advantage of the massive inventory right now and are able to downsize into something a little more comfortable,’ said Sunny Strait, Yewell’s Realtor.”

“‘In years past, we didn’t have surplus in the market for folks to choose from,’ Strait said. And the fact that home values have dropped by as much as 50 percent in some areas ‘makes it that much more affordable.’”

“Yewell said he is confident the market has bottomed out because he’s seen some listings come onto the market and last just four or five days. ‘I think we’ve flattened out,’ he said. ‘All the cheap and good houses are flying off the market.’”

The Recordnet. “The analogy to Hurricane Katrina that struck the nation’s Gulf Coast three years ago was heard numerous times Saturday afternoon during a congressional field hearing on the foreclosure crisis that drew four members of Congress, nine key witnesses and about 100 interested onlookers to a meeting room at the Stockton Arena.”

“‘The only difference is that Katrina was an act of nature, while our housing crisis was man-made,’ Visionary Home Builders of California CEO Carol Ornelas testified before the House Committee on Financial Services.”

“During the hearing, Reps. Dennis Cardoza, D-Merced, expressed disdain for those critics who say that everyone involved in the mortgage meltdown shares in the blame.”

“‘There are a whole lot of good people who have been devastated by this’ through no fault of their own, either because of language or cultural barriers or because they bought into a mortgage presented by an unscrupulous broker or lender.”

The Bakersfield Californian. “One thousand properties foreclosed in Kern County during August, county figures show, the most ever among records going back to 1995. Default notices also hit a new all-time high.”

“Tony Ansolabehere, the county’s assistant assessor-recorder, estimates there are currently about 5,600 foreclosed properties still owned by lenders in the county. Most are homes, he said. ‘There’s a lot of inventory out there that needs to be absorbed,’ Ansolabehere said.”

“Bakersfield appraiser Gary Crabtree figures in the past 12 months, some 4,538 single-family homes have foreclosed in the metro area. Crabtree estimates roughly one out of every 24 homes in metropolitan Bakersfield foreclosed during that time.”

The LA Daily News. “A down-payment assistance program for aspiring homebuyers could end on Oct. 1 for what seems like an unusual reason. That’s the day the Housing and Economic Recovery Act of 2008, designed to help pull the nation out of an epic housing market meltdown, takes effect.”

“Those who offer down-payment assistance say it helps get people into homes that they otherwise could not afford. FHA spokesman Brian Sullivan says that’s true. Of course there is a caveat.”

“‘It doesn’t help keep them there,’ Sullivan says.”

“‘Loans that are assisted with seller-funded down-payment assistance fail at two or three times the rate of other loans,’ Sullivan said. ‘Common sense tells us we’ve got to end this practice.’”

“In 2000, loans with nonprofit seller-assisted down payments accounted for about 2 percent of the FHA portfolio, Sullivan said. By 2006 they accounted for 32 percent. Now the FHA has a growing portfolio of foreclosures to deal with.”

“‘We’ve got to stop this process,’ Sullivan said. ‘It’s killing us.’”

“At the end of June, Rep. Maxine Waters, D-Los Angeles, joined three others in backing a bill that would reinstate the down-payment assistance. She returns to Washington on Monday and hopes for some quick action.”

“‘We have addressed some of the concerns raised by HUD (the Department of Housing and Urban Development) and the FHA,’ she said.”

“One concern is making sure future borrowers receiving down-payment assistance have good credit scores. And in addition to hope, Waters has confidence. ‘We have a lot of support for this,’ she said.”

The Orange County Register. “There are foreclosures in San Clemente - the week of Aug. 18, there were 24 properties that had gone through the foreclosure process and were owned by the lenders. I visited seven that had been built in the past five years. Nothing rundown about these. In fact, one ’short sale’ was included because it’s being sold half-built. The framing and roof are up, but nothing else - no drywall, flooring or even a front yard.”

“Real estate agent Mike Cotter said foreclosures and short sales are relatively new in San Clemente. ‘Five years ago was a hot market, so people could sell their house with no problem,’ he said. ‘That all stopped when the market stopped going up.’”

“For the week of Aug. 12, there were 92 properties listed in San Clemente as short sales . ‘Five years ago there were no short sales,’ Cotter said. ‘No one (in the public) even knew what that meant.’”

The Seattle Times. “As chairman and the former CEO of Wells Fargo, Richard Kovacevich led the nation’s fifth-largest bank during the run-up to the mortgage and housing crisis. The San Francisco-based bank hasn’t been immune to the impact of the crisis on the financial-services industry. It recently set aside $3 billion to cover loan losses.”

“Q: In the run-up to the mortgage-lending crisis, what did banks do well and what did they do poorly?”

“A: We don’t have to take much time on what they did well. The problem was just excess. It started doing the right thing, trying to get more people into homes. And then it reached levels that were, quite frankly, totally inappropriate.”

“Q: What’s your forecast? A: If I had to pick a date, I would pick that home prices will bottom out by the middle of 2009, with equal probability that it could happen three or four months earlier or later. We’re already seeing some early signs we’re moving in the right direction.”

“The sales of foreclosed homes were at an all-time high last month. The point is it started to move the merchandise. In a very well-priced house today, at least in California, you could have eight or nine buyers as you auction these things off. People are seeing these are prices they may never see again.”