The Housing Bubble

The Sacramento Bee reports from California. “‘Welcome,’ says the letter dated May 20, 2005. ‘It is a pleasure to have you as a new loan customer of Fremont Investment & Loan.’ Mailed to Erin O’Hagan of Sacramento, and multiplied hundreds of thousands of times elsewhere in the United States, they launched a financial crisis that is now rocking the world. More than three years after getting that letter, O’Hagan said, ‘Who would have thought it all would crash and burn the way it did?’”

“In the spring of 2005, Erin O’Hagan worked at Chicago Title’s Roseville branch, helping close the thousands of escrows that were part of the region’s sizzling housing boom. ‘I was making a better salary than at any time in my life,’ she said. ‘I never thought it would end.’”

“Today, she can’t believe what they signed. ‘I had to have 100 percent financing no matter what,’ she said. ‘But we had a chance to get a hell of a lot better deal than that.’”

“On Jan. 15, 2008, the house went into foreclosure, one of 5,278 homes turned over to the bank during the first three months of 2008. O’Hagan and her family had missed eight payments. O’Hagan lives today in a rented town house in Woodland. But she still cringes when the phone rings. Collection agents are demanding payment for her $95,000 down payment – a tactic that’s illegal in California, said Elk Grove foreclosure attorney Jonathan Stein.”

“When she drives east on I-80 she can see the top of the duplex on Hamilton Street. ‘But I try not to even look,’ O’Hagan said. She hopes to buy another house someday.”

From Bloomberg. “For almost a year, Luis Flores has been lobbying mortgage lender IndyMac Federal Bank FSB to cut his house payments. They have doubled since he refinanced his home loan in 2005 and he can’t afford them, Flores says. ‘Every time I call them they say they can’t help,’ said Flores, a graphic designer and bartender in Contra Costa County, California. ‘They tell you the solution is that they take Visa or MasterCard.”’

“Flores refinanced his mortgage through IndyMac, the Pasadena, California-based company that was seized by the FDIC in July. Two months after his loan was issued near the end of 2005, it adjusted from 1.5 percent interest to about 9 percent, Flores said. That lifted his monthly payment to $3,700 from $1,700 and covered only the interest. He said his home is worth $255,000 today and he owes about $480,000.”

“‘I want a payment that I can afford, and I want to feel like I’m making payments toward the house,’ said Flores. He’s told the bank in e-mails and phone calls that he can pay $2,300 to $2,500 a month, he said.”

From ABC News. “Each day from July through September, more than 2,700 Americans lost their homes in foreclosure…up from 1,200 a day a year ago. Sophie Lapointe, a mortgage broker in Las Vegas, has found there’s little that can be done to help people who owe more than their homes are worth. ‘The biggest problem is negative equity,’ she said.”

“Plunging prices have had even more impact on investors than on homeowners because investors have less emotional attachment to a house. They’re even more likely to walk away, especially if they’ve put little money into a property. Investors purchased one of every five homes last year, and almost one of every three when the market peaked in 2005, according to the Realtors trade group.”

“Maria Martinez, an administrative worker at the county jail in Stockton, Calif., is typical of homeowners who have gotten help, but not enough. She is three months behind on her mortgage, even after receiving a loan modification earlier this year. Though Martinez bought the house more than a decade ago for only $76,000, she now owes about $230,000 because she refinanced her home loan several times.”

“‘I was trying to borrow some money to pay some bills,’ said Martinez, who is on leave from her job this month after being diagnosed with cancer. ‘I didn’t really think…that I would get into a bind like this.’”

From National Public Radio . “Over the past three months, a record number of Californians lost their homes to foreclosure. And some of those financial losses are turning into human tragedies, as reports of suicide and other desperate behavior emerge.”

“Scott Harden lives on a quiet street in North Pasadena. But before dawn one recent morning, Harder woke up and smelled smoke coming from the home of his 53-year-old neighbor. Harden called 911. When emergency personnel arrived, they found Dunn’s body in her rear bedroom. She’d apparently set her house afire and shot herself in the head. Dunn had been facing eviction from the only home she’d ever known.”

“Dunn had inherited her bungalow from her family and lost it after she stopped working because of a disability; she had also made some bad financial decisions. The new owner let Dunn rent the yellow stucco bungalow, but he lost the house when the subprime meltdown sent all of California’s real estate into a tailspin.”

“Beverly Hills psychologist Kenneth Siegel says Californians are especially attached to their residential real estate. ‘California represented for many of us the pinnacle of the effects of hard work,’ Siegel said, ‘of the ability to pull ourselves up by our bootstraps.’”

“Owning a home, Siegel said, ‘represented the physical manifestation of all we have done and how hard we have worked.’”

“But Californians’ dream of a modest detached home, Siegel says, often morphed into something far grander when the economic boom of the 1990s made home loans — many of them subprime — easier to come by. ‘So here, as much as anyplace else, people did overbuy, their houses were bigger than their egos,’ Siegel said, ‘and they in fact invested more of themselves and more of their savings in them.’”

“Middle-class status that once seemed a given isn’t anymore. Scott Harden says there are more and more signs reading ‘BANK OWNED’ popping up on his town’s lawns — something he never thought he’d see. ‘As this is happening in Pasadena — I think it’s sort of shaking people to their core,’ Harden said.”

The Glendale News Press. “The Glendale Pawn Shop, a Brand Boulevard store specializing in relatively inexpensive jewelry and easily acquired loans, has experienced a recent surge in business as the economy sinks south on continued fiscal concerns.”

“But the difference between now and a year ago, said manager Meredith Rosenberg, is that more well off customers are utilizing the pawn shop’s services to either secure loans or shop for jewelry that is comparatively cheaper. Lending and pawning items make up 90% of the company’s business as bank lending becomes more tepid, Rosenberg said.”

“‘Right now a lot of people are in destitute times,’ she said. ‘We’re seeing a lot of people that come in who don’t have the best credit or access to credit cards. People of all walks of life. And we’re making the most of it.’”

The Recordnet. “There may be a financial crisis on Wall Street and a housing crisis on Main Street, but it’s a busy time for jewelry buyers and pawnbrokers. That’s a mixed bag for Annette Hoag, co-owner of Annette’s North Stockton Jewelry and Loan. In terms of making small, short-term loans, she said, ‘We’re up 57 percent in the last six months, but what people don’t realize, the retail side of the business … is gone. People aren’t buying anything.’”

“While the business has many regular customers, it is also seeing more first-time customers, who often display a mixture of trepidation, fear, shame and sadness. Hoag said she’s had customers begin to cry in her shop.”

“The story’s much the same at Cassidy’s Jewelry & Loan in downtown Stockton, where Tim Cassidy recently showed a visitor a few of 64 drawers overflowing with envelopes containing jewelry on pawn. ‘The biggest reasons we used to make loans was PG&E,’ he said, noting that being disconnected and then hit by the utility’s heavy penalty and reconnection fees far exceed the cost of a pawnbroker’s loan. ‘The biggest reason we’re making loans now is gas.’”

“One day last week, while there was an ongoing string of customers visiting the pawnshop that faces south onto Clarane Avenue, no one stopped by the jewelry shop that fronts on Pacific Avenue. ‘Last year, Christmas was off. This year, I don’t know if there will even be a Christmas,’ Hoag fretted.”

The LA Daily News. “When her children were little, Tina Wisner used to read them the book about the Grinch who stole Christmas, but she never thought she would one day be living out the story. In Wisner’s real-life account, the Grinch is corporate. ‘We are canceling Christmas. We have no choice,’ said Wisner, who this week was laid off from her position as product manager at American International Group’s insurance division in Woodland Hills. ‘We joked about it a few weeks ago. But now it’s serious. It’s not figurative. It’s literal.’”

“The Wisners have annually hosted a big Christmas party for family and friends at their comfortable brick home that spills out to a spacious patio and pool. That’s canceled.”

“It has become a difficult time for her as she looks for a high-paying executive job for the first time in almost a decade and knows the nest egg is almost gone. ‘We used our savings for two years - a lot of our savings,’ she said. ‘We actually depleted our savings. We used some of our investment money. I borrowed from my retirement fund, and I’m still paying that.’”

The County Sun. “Tightened credit markets, layoffs and a meltdown in the nation’s housing and financial sectors have created a lot of uncertainty for consumers. But one thing’s certain - this holiday shopping season is not going to be pretty for retailers.”

“Belen Macias, staffing manager for CORESTAFF Services in West Covina, said her office has been getting fewer calls this year from companies seeking temporary workers. ‘The clothes are on the racks but people are not buying,’ she said. ‘I asked a gal who works at the mall what she was forecasting for Christmas and she said it would be very slow. People will be shopping the discount racks. I’ve been doing this for 14 years and this … is the worst I’ve ever seen.’”

The Manteca Bulletin. “It’s 32 days until Thanksgiving. But Gail Teunissen and the rest of the Turkeys R Us volunteers have just 20 days to raise $18,725 to make sure 1,250 struggling families in Manteca, Ripon and Lathrop have at least a turkey for the main course. They’ve collected just $90 so far.”

“Unlike in the past 10 years when the community has come through with $37,500 each holiday season to cover the main course for needy families for both Thanksgiving and Christmas this year is offering a more daunting challenge. In previous years, construction workers often would donate $100 a pop to the effort. This year, some of those previous donors are now struggling to make ends meet.”

“‘We’re not too worried,’ Teunissen said. ‘It’s still kind of early.’”