The Housing Bubble

The LA Times reports from California. “A record 10% of the nation’s mortgage-burdened homeowners fell behind on their loan payments or were in foreclosure during the third quarter, according to a survey released Friday by the Mortgage Bankers Assn., which said California and Florida were the biggest contributors to the worsening picture. California represents 13% of the loans in the country, said Jay Brinkmann, chief economist for the Association, but is recording 19% of all new foreclosures. ‘California has lost more than 100,000 jobs over the past year, compared to Michigan, the usual poster child for unemployment, which only lost 70,000,’ Brinkmann said.”

“At first glance, California’s troubles seem little different from those anywhere else, because just under 7% of borrowers in both California and the nation are behind on payments. But Brinkmann said a clearer picture emerges when you compare the number of newly delinquent loans in one quarter with the number of loans entering the foreclosure process the following quarter.”

“That foreclosure ‘roll rate’ was about 10% to 12% nationally in the 1990s and ran from 12% to 15% for most of this decade, Brinkmann said. The percentage is now 30% nationally but has reached 79% in California and 65% in Florida, he said.”

“‘This is nothing like anything we’ve ever seen before,’ Brinkmann said. ‘We were shocked when we saw the California roll rates.’”

The Sacramento Bee. “Evidence that the recession is feeding on itself grew Friday as the U.S. Labor Department reported the worst monthly job losses in a generation, and economists warned of a resulting wave of foreclosures from homeowners now out of work. The government said November unemployment reached its highest level in 15 years as 533,000 people lost jobs in a deepening recession. The biggest number of monthly layoffs in 34 years.”

“‘I see a growing delinquency problem among prime mortgages, among mortgages driven by these job loss factors,’ said Jay Brinkmann, chief economist for the Mortgage Bankers Association.”

“Brinkmann said Friday that ‘absent a recession’ it would have been easy to predict a leveling off of U.S. foreclosure activity next year. ‘We can pretty much throw that out the window now,’ he said in a conference call with reporters.”

“While job losses started with lower-skilled employees who don’t own homes, Brinkmann said layoffs are moving up the food chain. Jobless rates for people with technical backgrounds climbed from 3.3 percent to 5.5 percent the past year. For the college-educated, unemployment rose from 2.2 percent to 3.1 percent, he said. ‘Those are the groups most likely to be homeowners,’ Brinkmann said.”

“That phenomenon was on display Thursday in Sacramento when 2,050 struggling borrowers – four times more than expected – showed up for a foreclosure prevention workshop. Many attending said they were in trouble because they or members of their households had lost jobs or owned small businesses where revenue has fallen. Roxene Rice of Meadow Vista said her family’s loan troubles started ‘when disaster struck and my husband lost his job for nine months.’”

“Economist Sung Won Sohn of California State University, Channel Islands, said the layoffs will get worse. ‘The economy is headed downhill and the brakes are not working,’ he states in a report.”

The Gilroy Dispatch. “For 1,430 property owners in Gilroy, there is an upside to the downturn in the real estate market: the average of $2,000 they’ll save in taxes this year. But their gain is the city, county and school district’s loss, as the reduction in taxes means $3 million less in public coffers.”

“When the county reassessed the value of the Gilroy properties, the homes, as in the rest of the county, were reduced an average of $70,000 to $80,000 each. Commercial and industrial property values fell by more than twice that amount.”

“County Assessor Larry Stone said about 45,000 properties were assessed at a value lower than the purchase price and he doesn’t expect the trend to reverse itself anytime soon. Plummeting assessment values in Santa Clara County show that even the burgeoning Silicon Valley is not immune to the sub-prime mortgage mess and consequent economic meltdown.”

“‘The emergency is for people who bought at the top of the market,’ Stone said. ‘This is the most pervasive economic crisis that I have ever seen in my entire career. It’s going to last longer than most people hope. This is a global issue. It’s a crisis of proportions I haven’t seen in 38 years.’”

The Daily Bulletin. “Details remain scarce surrounding San Bernardino County’s latest program to stem the sweeping flood of foreclosures. The Board of Supervisors voted Monday to enter into a contract with the Inland Empire Economic Recovery Corp., which would use a public-private partnership to address the foreclosure problem.”

“The supervisors could approve committing $2.5 million to the corporation in the next two weeks, according to a county report. With the median home value in San Bernardino County having plummeted to about $200,000, that money would only be enough to purchase about 10 homes.”

“More than 42,000 houses in the county are in various stages of foreclosure.”

The Orange County Business Journal. “Irvine-based O’Donnell/Atkins, California’s largest and best known land brokerage for much of the past decade, is winding down most operations amid the ongoing real estate downturn. The company, which brokered more than $1 billion in yearly land sales at the peak of the housing market, is in the midst of ’significant downsizing’ and isn’t going after new business, according to CEO Mackey ‘Mac’ O’Donnell.”

“Other brokerages are expected to see more drops in business as fewer deals are getting done and those that are getting done are complicated by loan issues. ‘There’s constipation in the marketplace,’ said Paul Grover, managing partner of Irvine-based consulting firm Strategic Land Advisors.”

“There still are qualified buyers for land, according to Grover. But sellers—including lenders and Wall Street investment banks—often aren’t ready or able to get deals done, he said. Adding to the complexity, ‘the people in control of land today are not the same people who were in control’ a few years ago, said Grover, who left O’Donnell/Atkins after 12 years to start Strategic Land Advisors about a year ago.”

“2008 ‘was a year of homebuilders selling off inventory,’ said Norm Scheel, principal for Irvine-based land brokerage Hoffman Co. ‘For 2009, you will see banks selling off inventory.’”

“‘For almost any deal that closes these days, the lender is involved, whether it’s a short sale or (a foreclosed property),’ said Tom Reimers, president of Irvine’s Park Place Partners Inc.”

The Marin Independent Journal. “Mortgage finance giant Freddie Mac reported Thursday that average rates on 30-year fixed-rate mortgages dropped to 5.53 percent this week. That was down from 5.97 percent last week, and the lowest since hitting 5.48 percent the week of Jan. 24. Further drops could be on the way if the government launches an industry-backed plan to lower the rate on a 30-year mortgage to 4.5 percent by spending hundreds of billions of dollars to buy mortgage-backed securities issued by Fannie Mae and Freddie Mac.”

“That would follow an effort announced last week by the Federal Reserve, which is planning to purchase up to $600 billion of mortgage-backed securities and other debt issued by Fannie and Freddie and the Federal Home Loan Banks. Those institutions don’t make loans directly to consumers, but provide money to the mortgage market by packaging loans into investments.”

“Sean Maley, senior loan consultant with Guarantee Mortgage in Larkspur, said…he was worried the rush to reconfigure loans could be stymied by a stiffer set of loan requirements these days. ‘Stated income loans (without full documentation) are a thing of the past,’ Maley said. ‘Banks want 20 percent down, and credit scores above 700 are pretty typical now.’”

“Paul Hickman, president of California Land Title of Marin, reported an unexpected uptick in sales activity during the normally dormant holiday season, said other title companies across Northern California have noted a similar influx in refinance applications and sales. ‘Now there’s two things standing between us and getting paid,’ Hickman said. ‘Will the properties appraise and will the lenders make the loans. They’ve been hard to get in the past year.’”

“Bill Hoopes, who owns the Novato branch of Pacific Guarantee Mortgage, attributed slow movement on the refinancing front to timing. Hoopes, whose most recent activity has been investors and first-time buyers snapping up deeply discounted foreclosure properties, saw advantages to the current climate. ‘Now with the rates ramping down, that’s going to hopefully stimulate more people coming into the market to get the best of both worlds - low interest rates and pre-2003 prices on a lot of these properties,’ he said.”

“A Dominican University economics professor delivered a sobering message Friday: Don’t expect the nation’s economy to begin recovering until the second half of 2010. The prediction by economics professor Admassu Bezabeh was among a host of issues discussed in a forum at the university on the financial crisis.”

“Luis Calingo, dean of Dominican’s School of Business, said the recession will inflict the most pain on workers who lose their jobs and own homes. ‘Because of the housing crisis, laid-off workers will find it difficult to sell their homes and then move to another place for jobs,’ Calingo said.”

“Joseph Destein, a local private investor who has worked with several multinational corporations, participated in a similar forum that Dominican hosted in October soon after Congress allocated $700 billion to buy bad real estate loans from banks. He said the government has given up on that plan. ‘The banks are still sitting on all of that stuff, and they still have indigestion, and they’re still not able to lend,’ Destein said.”

“The problem of unwinding all of those loans, many of which were sliced and diced and resold as securities, sometimes more than once, just turned out to be too complex, he said. ‘It’s an overwhelming job. I don’t think they could find anybody who could do what they wanted to do,’ Destein said.”

“Instead, Destein said the government is using the money to recapitalize the banks it thinks have the best chance of survival and encouraging them to buy up the weaker banks. Even so, it is going to take time for the banks to write off losses from their bad loans, he said. ‘Quite frankly, we’re not at the end of that,’ Destein said. ‘We’re going to see a lot more bad loans.’”

“Several audience members expressed hope that the economic crisis will cause America to reevaluate its values. ‘There has been a ridiculous consumerism,’ said LeeAnn Bartolini of Mill Valley. ‘This crisis of confidence could be a wake-up call for people to be much more conservative and weigh what they need versus what they want.’”