The Housing Bubble

The Desert Sun reports from California. “Theresa Sandoval sets statues of Jesus that relatives send from Mexico under a lit shrine to Our Lady of Guadalupe in an alcove of her home in La Morada on a regular basis. The mother of five, who paid $385,000 for her home in October 2006, signed a mortgage she says she didn’t completely understand that left her with higher-than-expected monthly payments and an uncertain future. She’s on the verge of seeing the home land in Notice of Default territory.”

“Sandoval, who signed a fixed, interest-only loan at 6.75 percent, had been meeting her $1,871 monthly payments until the economy worsened. The payments will jump to $2,530 after Nov. 30, 2016, and would total $831,830 through the life of the loan. When Sandoval’s hours as a server for a resort were pared to a few days, and her husband’s hours were cut as well, the monthly payments suffered. Sandoval has been working with associates of the Laborers’ International Union of North America to try to find solutions.”

“‘I’m now six months behind,’ she said, dabbing at the tears that formed in her eyes as their supper — macaroni — bubbled on the stove.”

“Sales of entry-level homes dominated the Coachella Valley real estate scene during the fourth quarter of 2008, while big-ticket properties turned in a disappointing performance, new data shows. Sales of property priced under $500,000 doubled compared to the fourth quarter of 2007. Real estate activity mushroomed in west Desert Hot Springs, where sales prices averaged $108,247.”

“Sales of mid-range homes dropped nearly 50 percent. Sales in the market between $750,000 and $1 million fell by one-third. Homes priced above $1 million declined nearly 56 percent. ‘I have never seen prices tumble so dramatically in such a short time,’ said Patrick Veling, president of Brea-based Real Data Strategies, which provides and analyzes real estate data for The Desert Sun. ‘There has never been such a clear indicator that price is driving this sales phenomenon.’”

“Greg Berkemer, executive director of the California Desert Association of Realtors in Palm Desert, has described the market as one that can be unfairly harsh and hugely rewarding at the same time. ‘It depends on what line you happen to be standing in,’ he said. ‘The line for buyers is better now than the line for sellers. Even so, the non-serious buyer or seller should get out of line to allow those that need and want to sell or buy to meet.’”

“There are some signs the lower-priced home sales are exerting pressure on the upper echelon, and creating some price erosion, Veling said. At this time, any price fluctuation is not substantial enough to be supported by conforming loan limits. ‘What I’m hearing is nonconforming loans are difficult to get,’ Veling said.”

The Mercury News. “When the latest unemployment figures released last week showed one in four people in Watsonville were out of work in January. Unemployment numbers haven’t been that high in Watsonville since the ’90s when a post-Loma Prieta earthquake recession combined with an exodus of food processors to drive up job losses.”

“What is behind the dramatic 4.2 percent spike in January unemployment numbers to 25.7 percent may be numerous dovetailing factors. Or, according to some people, it’s no worse in Watsonville than anywhere else and the numbers are not a true reflection of the local job market. ‘There’s no mass exodus, no massive layoffs, no mass company closings,’ said Carl Blanke, a commercial real estate developer who watches business vacancies closely in the Watsonville area.”

“While the housing market in South County has plummeted, there aren’t that many more commercial vacancies than usual, Blanke said. Small businesses are struggling, ‘but I could make the same statement about Cincinnati or San Diego. Everybody is hurting.’”

“April, after the berry season gets under way, will be the tell-tale month, said Emilio Martinez, Watsonville city councilman. ‘Then we’ll be able to say either, It isn’t as bad as we thought,’ or we’ll say, Uh-oh.’”

The Contra Costa Times. “PMI Group Inc. lost $178.8 million during the fourth quarter, sharply reducing the pool of red ink that stains the mortgage insurer’s balance sheet and offering a glimmer of hope that the company’s fortunes may be turning. In the fourth quarter of 2007, PMI lost $1.01 billion.”

“The company believes it narrowed its loss by reducing its exposure to loans potentially burdened by higher risks. For example, PMI has been cutting back on providing insurance for Alt-A loans, which generally refer to mortgages sold to borrowers with tarnished credit. ‘Our improvement was driven very much by a tightening of our underwriting standards that began quite some time ago,’ said Donald Lofe, chief financial officer for PMI.”

“PMI estimated that 5.3 percent of the new policies for mortgage insurance that it wrote in 2008 were for Alt-A loans, compared with 27.4 percent in 2007, the company said in a regulatory filing of its annual report on Monday. ”

“The company also has begun to shun writing insurance for interest-only mortgages, which typically cause an increase in loan balances because full interest payments are deferred until later years in the mortgage. ‘Due to the tightening of underwriting guidelines in late 2007 and early 2008, 5.2 percent of new insurance written in 2008 was comprised of interest-only loans, compared with 20.2 percent in 2007,’ PMI stated in the regulatory filing.”

“The California housing market remains in a dreadful condition, according to information in the regulatory filing. PMI said the default rate on mortgages it has insured was 24.7 percent at the end of 2008, up from 10.6 percent at the end of 2007. The default rate in Florida was 27.8 percent at the end of 2008, PMI reported.”

The Fresno Bee. “If Wes Tarvin and his wife, Muey, are any indication, a new $10,000 tax credit designed to spur new-home sales appears to be working. The credit, included in California’s new budget, helped persuade the couple to start looking for a house earlier than planned — and is why they opted to purchase a newly built home. ‘Something like this has to get people’s attention,’ said Wes Tarvin, who just signed loan documents for a Granville home in southeast Fresno. ‘Now is the time to buy.’”

“The $100 million is enough for 10,000 houses. No one knows how long that money will last, thus traffic and sales are up at subdivisions throughout the state as a result, said Tim Coyle, senior VP for government affairs of the California Building Industry Association. ‘There is definitely an urgency,’ added Tina De Rosa, community representative at The McCaffrey Group’s Madison Place neighborhood in northwest Fresno. ‘They are giving you money.’”

“Don Ernst and his wife, Yvonne, are buying a house from De Young Properties — and hoping it is finished before the $10,000 tax credit expires. ‘This is a once-in-a-lifetime opportunity,’ he said Saturday at a De Young subdivision in Fresno. ‘How long will interest rates and prices stay this low?’”

The Press Democrat. “Joe Smith was still in swim trunks when an HGTV film crew knocked on his Lakeland, Fla., door bearing balloons and news that he just won a Sonoma home worth more than $2 million. The Smiths, who have never been to California, will be flown to Sonoma on April 17 and presented with the keys to the three-bedroom, four-bath house.”

“The home faces busy Fifth Street East at the corner entrance to Armstrong Estates, a luxury subdivision of seven-figure mansions that developer Steve Ledson has been creating for some 20 years. If the Smiths can manage to financially swing the taxes and upkeep on the house, it will be a major upgrade. They now live in a 1,000-square-foot farm cottage, built in 1901. Property taxes alone on a home of similar value in that neighborhood would run more than $20,000 a year.”

“The Smiths said the likelihood of winning was so remote to them, they haven’t thought about whether they can afford to keep it. And if they can keep it, they don’t know if they will use it as a second home or pull up stakes and move to California. ‘We’re going to have to get financial advice,’ Joe Smith said. ‘I don’t know what the taxes are in California. But I understand they’re high. It might present a problem but I’d like to try and do it if at all possible. We’re going to come out and be neighbors.’”

“Ledson recently sold a similar house down the street for $2.35 million, dropping the price from $3 million after it had been on the market more than a year. He has said he’d be willing to buy the Dream Home back and ride out the downturned market if the Smiths can’t make a luxury second home pencil into their budget. All 13 previous winners wound up selling their Dream Homes.”

The Inland Daily Bulletin. “With Wall Street’s fallout, caution is Lauren Althaus’ game nowadays. The certified financial planner and senior financial consultant at the Ontario office of Thrivent Financial for Lutherans jokes about conversing with clients on their financial goals more in the last six months than he ever has his entire career.”

“While others predict the recession’s remedy is to get banks lending easy credit like they were five years ago, Althaus views things differently. Althaus: ‘We are transforming from a mass consumer economy to a much subdued version. We have too much supply and capacity for consumer services. How many shopping malls do we really need?’”

“‘The good news is we’re going to be giving up things we probably didn’t need in the first place, and we probably won’t even miss. Money was never able to buy happiness. For college grads and couples, develop respect for money. It’s a storehouse of your efforts. It shouldn’t be squandered. Some people don’t have respect for money, but it should represent your hours of work. It’s not given due reverence.’”

The Ventura County Star. “A new service that offers financial advice is a welcome addition for patients served by the free clinic, which serves the working poor and uninsured. At the Westminster Free Clinic in Thousand Oaks, patients discuss aches, pains and worries about foreclosure.”

“Lisa Safaeinili, the clinic’s executive director…said they are seeing more people who have been taken advantage of financially, who are losing their homes to foreclosure, or just don’t know who to trust because of all the scams out there. A lot of people are asking about foreclosures, with many worried about losing their homes after losing a job, said Carlos Delgado, a CLU graduate who has been overseeing the financial counseling table at the clinic.”

“He has met people like Mario Saavedra. He and his brother bought a house in Newbury Park about five years ago for nearly $600,000, with a 10 percent down payment. The interest rate on the mortgage has ratcheted up as the home value has plunged. They were making payments on time, but then Saavedra and his brother lost their jobs within a few months of each other. Now, the home payments have eaten through their savings and the bank is threatening foreclosure.”

“They talked about negotiating with the bank, though Saavedra said the bank hasn’t been willing to lower his interest rate. They also talked about the possibility of a short sale to avoid foreclosure and bankruptcy. Delgado said program volunteers would look into any assistance available with loan modification programs and share that with Saavedra. He also said they would provide Saavedra with information about the county’s job and career centers to help him with his job search.”

“‘They gave me good ideas,’ Saavedra said. ‘Right now, I’ve got a better idea of my situation.’”

“Beatriz Garcia, who lives in Simi Valley, has an option adjustable rate mortgage on her home. Garcia said she doesn’t feel she was told the truth about the loan when she received it and dealing with it has been frustrating.”

“She’s been current with her payments, but is starting to have trouble keeping up. At one point, the interest rate ballooned to 18 percent on the loan. She negotiated it back down to 5 percent, but that rate is also adjustable, so she could run into the same problem again, Delgado said. ‘It is really outrageous,’ he said.”

The Union Tribune. “Residential mortgage fraud soared to a record high in 2008, with incidents up 26 percent from the previous year, according to a report released Monday by the Mortgage Asset Research Institute. The institute reported that mortgage fraud is more prevalent today than it was during the height of the housing boom that occurred during the first half of the decade.”

“It blamed the financial pressures of the ongoing recession for prompting many borrowers, lenders, brokers to make false statements on loan applications during 2008. ‘As far as our calculations and research are concerned, this is an all-time high’ since the institute began keeping records in 1990, said Jennifer Butts, one of the report’s authors.”

“The top incident type nationally was application fraud, representing 61 percent of reported cases. It was the fifth year in a row that it topped the list. Next came frauds related to tax returns and financial statements, which increased from 17 percent of reported frauds in 2007 to 28 percent in 2008. In order of volume, other fraud types included appraisals or valuations, verifications of deposit, verifications of employment, escrow or closing costs and credit reports.”

“While home-loan standards have become tighter in recent months, in the years leading up to the mortgage market meltdown, underwriting was lax by historical standards. Most analysts tie these weak standards to the current surge in foreclosures and the sharp decline of home prices in formerly hot real estate markets like San Diego County.”

“John Courson, CEO of the bankers association, said loose underwriting didn’t make lenders responsible for the surge in fraud. Some people simply took the opportunity ‘to create fraud and take advantage of the system,’ he said.”

“Courson acknowledged that lenders were not as careful as they should have been about screening loan applications, however. ‘Clearly, some of the credit standards in the mortgage lending business and verification practices were not as robust as they should be,’ he said.”