The Housing Bubble

A report from the Idaho Statesman. “Fewer homes were sold in Ada and Canyon County in February than in any February in the last 10 years, according to the latest report from the Intermountain MLS. The median price of homes sold continued to decline — down 18 percent in Canyon County and 11 percent in Ada County from February 2008, the MLS reported. The local inventory of unsold homes remains high, putting downward pressure on prices, which are near 2005 levels. Shaun Tracy, associate broker in Boise…said fear is still stifling the market — especially the fear people have of losing their jobs.”

“‘People are essentially putting their lives on hold, even though prices haven’t been this good in years,’ he said.”

“The number of homes on the market is still too high and continues to be a drag on home prices, Tracy said. Under $200,000, there is an 8-14 month supply of homes, but in the $500,000 to $700,000 market there is a 45-month supply at current absorption rates.”

From KIFI in Idaho. “According to local realtors this is the best time in more than 40 years to buy a home, even if you haven’t owned one before. Wendy Selditz, the CEO of The Greater Idaho Falls Association of Realtors, says, ‘Although our home tends to be our largest investment, I believe a home is more than just a financial investment. It is an investment for you and your family’s future. If you plan to remain in your home for a number of years and you purchase within your means, I don’t believe you can go wrong.’”

The Mail Tribune from Oregon. “Betty Taylor’s five-year search is over. The single mom began looking for a home years ago, when Jackson County real estate prices were still climbing. Midway through her search, prices began to fall and…the pieces came together for the 43-year-old state worker. She was able to buy a home with 5 acres north of Central Point for $161,000.”

“The once-staggering price tags had kept Blaine Grace on the real estate sidelines. But the 30-year-old Lithia Motors accountant recently put in a short-sale bid on a three-bedroom, 1,600-square-foot house. ‘I could have come up with a down payment before, but it would have taken years and years longer,’ Grace said.”

“‘Housing prices have dropped so much since 2006,’ Grace said. ‘This house sold for almost $100,000 more. I feel extremely bad for the people who bought at the top of the market and have lost a house. Who could have foreseen what was going to happen?’”

“Newlyweds Amy Christy and Matthew Anderson began looking for a house shortly after they married last month. She’s 21 and a mammography technician at Providence Medford Medical Center. He’s 22 and attends college. ‘We didn’t want to keep paying rent, but we didn’t think we could afford anything we liked,’ Christy said. ‘But we found out there is a lot of stuff.’”

“‘We figured out what we could afford and how big of a mortgage and then went from there,’ she said. The list of homes to visit is long, but they aren’t in any rush. ‘We don’t need to be in a house next month,’ said Christy, ’so time is on our side.’”

The Register Guard from Oregon. “Oregon’s jobless rate increased to 10.8 percent in February, the highest in 26 years and a full percentage point higher than it was in January. Construction shed 3,000 jobs last month, when historically it would gain 500. A total of 82,500 people now work in construction, close to its levels during the boom times of 1997 to 2000, but well below its peak of 104,000 during most of 2007, when the national housing bubble was at its peak.”

“‘“We’re seeing pervasive job losses, widespread across private sector industries,’ said David Cooke, an economist with the state Employment Department.”

“Weather was not to blame for the decline in construction jobs, because rain was light in the Willamette Valley for most of the month and temperatures were only slightly below normal, Cooke said. Rather, the industry was hit by the falloff in demand for new housing and commercial space.”

The Statesman Journal from Oregon. “Weyerhaeuser announced Tuesday morning that it is closing its Dallas mill, effective immediately. Workers were notified as they arrived to work at 6 a.m. ‘Demand for wood products continues to decline due to a slowdown in the housing market,’ said Tom Gideon, Weyerhaeuser’s executive VP, Forest Products. ‘Unfortunately, extraordinarily weak market conditions in the homebuilding industry require that we take decisive action’”

The Oregonian. “The state government’s chief economist couldn’t comment on Monday, the day officials announced that Oregon’s unemployment rate hit double digits for the first time since 1984. He was, after all, on unpaid furlough.”

“Tom Potiowsky’s forced silence spoke louder than words about the extreme Oregon has reached as the recession seems to permeate every crevice of life in the state. While Potiowsky walked the beach with his wife, other economists expressed shock at the 775 jobs Oregon lost on average each day in February. The one-month loss of 21,700 jobs, seasonally adjusted, was the largest since the state began keeping records in 1977.”

“Among them is 81-year-old Portlander Nadine Cunningham. The widowed great grandmother, a breast cancer and heart surgery survivor, clutched her cane as she took a TriMet lift bus to work Monday answering phones at minimum wage. Cunningham, who answers phones to supplement social security, went two years without a paycheck after heart surgery disqualified her from caring for other senior citizens. She says she almost lost her house after paying some medical bills instead of the mortgage.”

“‘I could not let my home go into foreclosure,’ said Cunningham, explaining why she went through retraining to work at Fish Emergency Service.”

“Professionals linked to the housing industry have taken it especially hard. Portland architect Magda Gerencer has sought work since being laid off in October. She and her family have cut back on travel and restaurant meals. ‘I’m looking for some administrative jobs at this point, and I’ve even looked into driving a semi,’ Gerencer said. For now, the 40-year-old mom sticks to motorcycling on her 750 cc Ducati Monster.”

The Bellingham Herald from Washington. “Whatcom County’s unemployment rate, not seasonably adjusted, was 8.1 percent in February, up from January’s revised number of 7.9 percent, according to the Washington state Employment Security Department. February’s number is up significantly over the same period last year, when the rate was 5 percent.”

“The Seattle area was hit particularly hard. Snohomish County’s rate, not seasonably adjusted, rose to 9.9 percent in February (up from 8.5 percent in January). King County rose to 8 percent, from 6.7 percent in January. The month-to-month increase in the state unemployment rate is the biggest jump since 1980, said Mary Ayala, the state’s chief economist.”

“‘This is a serious situation,’ she said.”

The Seattle Times from Washington. “Unemployment in Snohomish County reached its highest rate in 25 years, according to the state Employment Security Department. The last time the jobless rate was that high was in April 1984, when Boeing, which has a huge plant in Everett, had lost 20,000 jobs the previous four years and the region was in the midst of a recession.”

“The unemployment news underlined the deepening financial crisis in the county, where more county and some city workers may face layoffs as sales-tax and real-estate excise-tax revenues continue to plummet. ‘We’ve got a crisis of historic proportions,’ said County Councilman Brian Sullivan, finance committee chairman. ‘We need to jump on this now.’”

The Columbian from Washington. “Two longtime Clark County housing industry professionals — one on the construction side of the business, the other on the selling side — see reasons why our housing market is poised for some sort of recovery. Builder Jon Girod of Quail Homes in Vancouver said last week that his company has seen an increase in first-time home buyer activity in the $180,000 to $280,000 price range.”

“‘Prices have come down enough that our research shows about 19 percent of area households can again afford to buy a home,’ Girod said.”

“‘Home prices here increased at an average rate of 8 percent a year from 2000 to 2008,’ he said. ‘That is twice as fast as the average increase of the 10 years from 1990 to 2000. The market had to have a correction of about 25 percent to get back to the average. That’s about what we’ve had.’”

The News Tribune from Washington. “Pierce County issued 32.5 percent fewer permits to build new homes and apartments in February than it did in January. Bill Riley, president-elect of Washington Realtors, said poor weather has contributed to the low numbers so far this year.”

“Compounding that, he said, financing for builders is ‘almost nonexistent’ in Pierce County, as banks struggle under the weight of poor performing loans. Before new homes can be built, he says, the market must be cleared of its six months of excess inventory. ‘We’ve got a sustainable market here,’ Riley said. ‘People that are buying are getting really good deals, either from short sales or foreclosures, or builders that have gotten back in with cheaper land, material and labor.’”

“Gary Pedersen, president of Pierce County Master Builders Association, said that despite the rising and falling numbers, he feels the industry is beginning to stabilize. ‘There’s a little bit more of an upbeat feeling amongst the builders and contractors that the worst is kind of behind us,’ he said. ‘I think we’re past the panic.’”

“Pedersen said 300 people attended a recent grand opening of two of their model homes at Point Ruston. The attendance, which would have been a pittance in February 2008 when the housing market was at the end of its run, is a jump from what he’s seen in recent months.”

“‘Last February was the height of everything. Everyone was building at numbers we’ve never seen before,’ Pedersen said. ‘We’re still below a comfortable number in construction, but we won’t see those same numbers as before.’”

The Puget Sound Business Journal from Washington. “The Puget Sound Business Journal tracked a week’s foreclosures to see a local family’s mortgage turned into a security — how the process worked, why it was so appealing to those in the business, and how it went wrong. The research also reveals how the conversion of loans into investments limited what homeowners could do to save their homes.”

“It’s August 2008, and Charlene Binfet and her husband, Joseph, just started missing mortgage payments on their five-bedroom Auburn home. She has no idea that her loan is subprime. Or that the banker she borrowed from no longer owns the loan. She doesn’t even remember the name of the bank she borrowed from initially. The family’s second, smaller mortgage goes to a California company.”

“Joe Binfet was working as a salesman in the lumber industry. They bought their house in late 2004 when Joe was pulling in $120,000 a year. They got a loan through Pierce Commercial Bank in Tacoma, even though they had recently emerged from Chapter 7 bankruptcy, their second such filing in about 10 years. But by July 2008, the month they missed that first payment, Joe’s salary had fallen by half, and $56,000 a year wasn’t enough to cover the $3,125 monthly mortgage bill and all the other expenses of a family with three teenage sons.”

“‘You drop half your income, you don’t recover,’ Charlene said recently, looking back. ‘We held out as long as we could.’”

“In 2007, the Binfets’ loan became one of 1,926 mortgages from across the country that were packaged into a mortgage-backed security. At the height of their popularity in 2003, roughly $3 trillion worth of mortgage-backed securities were hitting markets across the world, according to the Securities Industry and Financial Markets Association. Over more than a decade, thousands of these deals were completed and sold. Their total value since 1996: more than $20 trillion — or two times the annual output of the entire U.S. economy.”

“This particular package — known as C-BASS Series 2007-CB6 — consisted entirely of subprime loans. More than half the mortgages in the pool were valued at less than $300,000. Average credit score of the borrowers: 628 on an 850 scale. Average interest rate: 8.295 percent. One carried an interest rate of 19 percent. ‘God knows how those people got into those loans,’ said said Mike Gamsky, a securities attorney at Foster Pepper PLLC law firm in Seattle, who used to work on these transactions.”

“The mortgages in CB6 came from all over the country. But Washington state, with 78 loans, supplied the third-largest number, after California and Florida. What drove demand? Lenders wanted to make mortgage loans, not for the interest payments but for the money they earned in closing costs and fees they could make from selling them to investors.”

“‘The system was set up so everybody gets a little piece of the action along the way, including the bond raters, the insurers, the assessors and mortgage lenders,’ said economist Dick Conway, co-author of the Puget Sound Economic Forecaster newsletter. ‘The incentive is to just increase the action.’”

“At the time, the greatest risk to the pool was thought to be pre-payment. That’s not exactly what happened. In late 2008, as payments pile up, Charlene Binfet gets Litton Loan on the phone.
After some negotiating, she says, the servicing company offers to lower the monthly payment by $500…The problem for the Binfets is their second loan. While Litton is willing to work with the family, Charlene says, HomeEq won’t budge. And the two companies are not working together to solve the problem.”

“By February of 2009, CB6 was faring horribly. A chunk of the mortgages — 188 — were in foreclosure, including five in Washington. About 100 more had already been through the foreclosure process and were now owned by banks, including six mortgages in Washington. What’s more, 29 percent of the loans in CB6 were now delinquent, seven times the historic national average. ‘It’s an astronomically high rate,’ Gamsky said.”

“Litton Loan…said in 2008, it modified 41,500 loans nationwide, or about a third of its portfolio that was at least 60 days delinquent. Even with modifications, about half of mortgages are delinquent again within six months, a government study showed. ‘We were watching loans that we had modified previously start to default at current rates,’ said Donna Marie Jendritza, a Litton spokeswoman.”

“But the servicer’s responsibility is to the investor, not the homeowner. In many cases, the modifications actually increase the overall debt, and reduce payments only temporarily. In CB6, the majority of loans that were modified in one recent month had their principal balances increase, even as their monthly payments and interest rates were reduced. In one case, a homeowner saw the balance increase by $62,000.”

“Even investors disagree on whether to modify. Those first in line to be paid want to keep the original loan terms, because they are still likely to see their money. Those in the riskier tranches often want a modification, so at least something will be recouped for them.”

“‘It’s tranche warfare,’ Gamsky said. Loan servicers are very reluctant to make changes that aren’t spelled out in the original documents. ‘They do not want to be sued,’ he said. ‘They are caught right in the middle.’”

“Federal agents and prosecutors are interviewing former Washington Mutual officials and combing through a staggering number of documents as they investigate whether fraud played a role in the largest bank failure in U.S. history. A grand jury has been convened, and at least four of the most experienced complex-crime prosecutors in the U.S. Attorney’s Office have been assigned to the probe, according to multiple sources.”

“Like many other lenders, WaMu was seduced by the lure of huge profits from making subprime mortgages and other risky home loans. The bank sold many bundles of securities based on such loans to other financial institutions. If it turns out that company officials misled investors or federal regulators about those securities, that could be one basis for a criminal case.”

“The lawsuit runs to nearly 500 pages and quotes more than 90 unnamed ‘confidential witnesses’ — including some identified as mid- and upper-level WaMu managers — who allege Washington Mutual lacked risk management, demanded that appraisers inflate home values to justify larger loans, and used ‘dangerously lax’underwriting standards.”

“A former senior loan coordinator at Long Beach Mortgage — a WaMu subsidiary responsible for hundreds of millions of dollars in high-risk home loans — late last year pleaded guilty to lying to a grand jury in Sacramento, Calif., and admitted accepting more than $120,000 in kickbacks for approving loans that other lending institutions wouldn’t touch.”

“John Ngo has agreed to testify against others involved, and his lawyer states in a recent filing that he is ‘cooperating with the government in an ongoing investigation and prosecution.’”

“One other sign of the gathering criminal investigation is that potential targets are hiring criminal-defense attorneys. At least one WaMu official, former President Kerry Killinger, has hired a public-relations firm. A telephone call about the criminal probe to his Palo Alto, Calif., securities attorney was returned by public-relations executive Roger Nyhus, who said that neither Killinger nor his lawyers would be talking.”