The Housing Bubble

The News Press reports from Florida. “The old Lochmoor Country Club in North Fort Myers will be auctioned April 14 on the courthouse steps for more than $94 million - the biggest foreclosure in Lee County history, according to local real estate experts. Minneapolis-based Marshall Investments Corp. lent the developer, Paradise Preserve LLC, $79 million in 2005 for the ambitious redevelopment of the golf course and marina. Paradise Preserve paid $54 million for the bulk of the land but never built the three 26-story condominiums, revamped marina and $22 million golf course that developers had envisioned.”

“The auction won’t bring close to the $94 million, which consists of $79.1 million in loans plus interest and fees, said Fort Myers real estate broker Ed Bonkowski, who handled the Sheraton’s sale in 1990. Essentially, he said, the property is ‘a nondescript golf course and the water views’ for homes that could be built there. It probably would go for about $7 million, Bonkowski said. ‘It has limited value in today’s market,’ Bonkowski said. ‘It’s unfinanceable.’”

“The project was started months before the local real estate market started to collapse, but the developer, Darin Smith, said ‘bad timing is a scapegoat we could all use.’”

“Until Lochmoor, the biggest foreclosure was the 24-story Sheraton Hotel in downtown Fort Myers. It’s been closed since October. That property sold for $6.7 million although it had $43 million in debts.”

“It’s more useful, he said, to look at the bad government policies that led to loose lending policies by banks and ultimately caused the crash. ‘We’re just one tiny component of that,’ Smith said. Three years ago, ‘we had our project; the first leg of it was virtually sold out,’ said Smith.”

The Daily Business Review. “Many high-end South Florida communities — especially in Boca Raton, Delray Beach and Boynton Beach — have imposed mandatory club fees in recent years. The cost can range from a few thousand dollars to more than $20,000 per year. Buyers also face a one-time fee of up to $50,000 to join. They help pay for maintenance and activities at the clubs. Several lawsuits were filed by homeowners who thought the requirement was unfair and some of these legal battles have lingered for years.”

“Stevi Nichols is one of the residents suing the Hamlet association. ‘It’s a terrible situation,’ said Nichols, who allowed a lender to foreclose on the house after unsuccessfully trying to sell it. ‘The assessments got ridiculous after we bought it. There was one for some $40,000. My husband is retired military. We didn’t have that kind of money.’”

“Nichols said she paid $365,000 for the home in 2004 and invested another $100,000 in upgrades. ‘I couldn’t even find a buyer that would pay $200,000 so I walked from it and we moved back to Colorado,’ she said.”

The Associated Press. “Money is already tight at The Wilshire Condominium, and new lending rules threaten to make life even more difficult for it and other condos around the country. Arthur Barr, a board member of the Wilshire homeowners association, estimates 30 percent of the owners in the 378-unit building in North Miami Beach are behind on their fees. That makes it difficult to pay for things like elevator repairs and gardening.”

“Now, Fannie Mae — the biggest player in the mortgage market — wants to ensure that if it’s backing a loan for a condominium, the building is in good shape. If the building is brand new, Fannie Mae wants to be certain there are enough owners to pay for maintenance and preserve the value of the property.”

“‘By setting the higher threshold they’ve reduced their risk of making these loans, but they’ve also virtually killed the potential for many projects to be successful,’ said developer Jeff Spear, owner of The Spear Group in Fort Lauderdale, Fla. ‘It’s going to make it extremely difficult for this inventory to get absorbed.’”

“The riskiest market in the country is Miami, which saw a building boom beginning in 2002. Since then, about 38,000 condo units have been built or are under construction in Miami-Dade County, with more than 22,000 of those concentrated in or near Miami, said Jack McCabe, president of McCabe Research & Consulting. ‘It’s not surprising that developers are talking about a death spiral,’ McCabe said. ‘There are so many units that are unsold and they are unable to pay off construction loans.’”

“He estimated that as much as 40 percent of the 16,000 completed units in Miami remain unoccupied. More than a half-dozen condo projects in the Miami area are stalled because sales have slowed to a crawl and the credit needed to build them has disappeared, said Jennifer Drake, real estate attorney with Becker & Poliakoff.”

“The excess condo development and subsequent financial problems were fueled in part by speculators like Izad Djahanshahi, who invested in 41 units during the real estate frenzy that gripped Miami from 2002 to 2005. Now, he has eight condos in foreclosure. He has filed for bankruptcy protection from creditors and estimates he owes about $500,000 in back mortgage payments.”

“‘We just bought and sold and bought and sold,’ said Djahanshahi. ‘We kept the money in the company and we invested more and more. Suddenly, everything stopped.’”

The Orlando Sentinel. “The flood of foreclosed properties on the market in the Orlando area has given a lift to existing-home sales in recent months, but it’s also drowning builders’ hopes of speedily selling their backlog of finished-but-vacant houses. As a result, builders in three counties are pooling their resources for an unprecedented, new-homes-only auction, in an attempt to unload as many of their unsold houses as they can, as fast as they can.”

“A half-dozen finished-but-vacant homes in the Oakland Park subdivision of west Orange County, for example, are among at least 25 in the region scheduled to go to auction March 28. Oakland Park, developed by California-based Castle & Cooke Inc., has been marketing its homes since mid-2007 but, nearly two years later, has sold only three.”

“One 3,735-square-foot home in the community went for $454,000 in October, according to county land records, yet nearby on the same street, four vacant homes are scheduled to be auctioned with starting bids as low as $175,000.

“‘It’s not uncommon for me to look at a market and see builders trying to sell below replacement cost,’ said housing analyst Anthony Crocco. ‘They have to go below cost, to fight the foreclosure situation.’”

“The number of Metro Orlando homes in some stage of bank repossession continued to rise last month. The four-county metro area had 7,690 homes with a foreclosure filing, notice of foreclosure sale or repossession by a lender — more than twice as many as in February 2008, according to RealtyTrac Inc. Meanwhile, there were 3,309 finished-but-unsold homes in Metro Orlando subdivisions at year’s end, according to Metrostudy’s most recent survey, and many of them are surrounded by houses in some stage of foreclosure.”

“In the same Winter Garden-area ZIP code where the all-new Oakland Park development is located, for example, there are more than 1,560 foreclosure properties, according to RealtyTrac. ‘There’s just a lot of foreclosures at the bottom of the pile,’ Crocco said. ‘My sense is that there’s more pressure [on new-home prices] from foreclosures than anything at this point, and job losses are going to have an [additional] impact.’”

The Herald Tribune. “Newly released statistics from the Florida Department of Revenue show that no single area was immune as sales on almost everything from aircraft to food and beverages fell 2 percent statewide. But those counties most strongly tied to the housing boom saw even steeper declines.”

“‘No place is immune from the downturn in the economy, but certainly the housing boom and bust played themselves out unevenly,’ said Sean Snaith, an economist at the University of Central Florida. ‘Some areas have been crushed by it.’”

“Early in 2008, pawn shops in Sarasota County were averaging about $500,000 a month. That started changing in March as foreclosures intensified. Sales jumped to $1.8 million in March and $2.6 million in May, and again in September when the stock market plummeted and local pawn shops did a brisk $2.3 million. Since then, though, pawn shop sales have slid to well below $1 million per month, perhaps suggesting that many people have pawned what they had to offer.”

“Desperation has made for great bargains for those still spending, said Nancy Dunn, who handles estate sales in the region. Dunn, who has been in business for 15 years, started getting a lot of business from foreclosure sales early last year. Last week, Dunn had a sale in Palm Aire for a British couple selling everything they owned in Sarasota. Some of the furniture had only been in use for 12 weeks, she said.”

“Like others that tend to see better sales in bad times, Goodwill Industries of Manasota Inc. is seeing a rise in demand. But that is being tempered by a big drop in donations, said marketing director LuAnne Kirschner. ‘With so many women losing their jobs, we have people coming in and saying ‘I never shopped at Goodwill, but now you are my Dillard’s,’ Kirschner said.”

“Pummeled by the real estate market crash and the national recession, Florida’s growth fizzled to less than 1 percent last year, according to new U.S. census data. Nowhere in the state felt as big a blow from the slowdown as Charlotte County, where the population dropped by 2,400 residents — or 16 people for every 1,000, Florida’s largest per capita decline.”

“‘Charlotte County has tended to be reliant on construction and given the current state of the construction industry in Florida and the country at large, those jobs have been lost,’ said Charlotte County planner Matt Trepal.”

“Adding to the job losses pushing Floridians to other states, the recession and housing slump kept people from moving in, said Scott Cody, a population expert at the University of Florida. ‘With people unable to sell their houses it’s harder for a lot of people to move to Florida,’ Cody said. ‘All the other states ought to have a similar problem, but I think we relied on a lot of retirees.’”

“Cody said Florida’s already substantial population of 18.3 million could be encouraging the retirees who can afford to move to seek less expensive properties in Georgia, North Carolina and Arizona. ‘As Florida has gotten more expensive, people are looking at those other alternatives,’ he said.”

The Wall Street Journal. “Demographers say the dropoff in migration, shown in Census data to be released Thursday, is among the sharpest since the Great Depression. It marks the end of what Brookings Institution demographer William Frey calls a ‘migration bubble.’”

“In many cases, people living in higher-cost housing markets such as San Francisco and New York cashed in their real-estate winnings and moved to outlying counties, or to states like Florida and Nevada, hoping to find a cheaper house and pocket the difference. Now, ‘people are hanging tight; they’re too scared to do anything,’ said Mr. Frey.”

“Jeff Fallon, a managing partner at a private-equity firm in Cleveland, made two trips to Florida last year looking to buy a home in the Sarasota area. But with the stock market down and real-estate prices still falling, Mr. Fallon decided to hold off for a bit. ‘I was looking at a substantial amount of our personal wealth disappear as the stock market spiraled down,’ he said. ‘It certainly had a lot of bearing on whether or not I was willing to invest in a second home.’”

The Sun Sentinel. “Major lenders — Bank of America, Wells Fargo and others — say they’re working under the new Department of Treasury program that began this month to change the terms of a mortgage such as reducing the interest rate to make them more affordable. But readers and consumer advocates say few people are getting approved for a new loan. Rules seem to keep changing on who lenders want — people in default or not, for example. Some loan modifications aren’t resulting in lower payments for troubled borrowers.”

“‘I am not seeing a lot of loan modifications succeed,’ said attorney Jeffrey Tromberg of the Florida Debt Relief Center in Fort Lauderdale.”

From ABC News. “The big, bright, four-bedroom Florida dream house was proof for Dr. Dan Howard and his fiance, Nickie Struthers, that they had finally made it. ‘I think of being proud and showing her ‘Look, I can provide this, you know, for our family,’ said Howard, a surgeon. ‘That was a good moment in life.’”

“Howard, who is beginning to establish his medical career, and Struthers, a real estate agent and mom, stretched their budget to buy at the top of the housing bubble. Then their own bubble burst, with a one-two punch of illness and economic downturn. ‘We, we had planned on two incomes,’ said Howard. He and his fiance both dismissed the notion that someone in the medical field might be immune to economic hardship.”

“‘Things happen to doctors’ families too,’ Struthers said. ‘Yeah, the same way it happens to Joe the Plumber,’ added Howard.”

“Falling behind in their payments, the couple asked their bank for a loan modification — a lowered interest rate that would bring their monthly obligation way down. The bank said no, but then Struthers received a phone call from an acquaintance. The couple wrote the man a check for almost $3,500. What they didn’t know was that they were being sucked into a whole new industry, often staffed by former mortgage brokers who helped fuel the crisis and are now making their living off troubled homeowners.”

“Last year, Jay Nichols was employed as a salesman at what he describes as an aggressive loan modification company, People’s First Financial in San Diego. He said the mantra was: ‘Sell — sell hard … trying to get as much money as they could, as quickly as they could.’ He said the sales staff was revved up at training sessions that included such movies as ‘Boiler Room,’ which glamorized a hard sell.”

“A current People’s First Financial employee who asked not to be identified said customers were signed up even when they had almost no chance of qualifying for bank renegotiation. ‘And sometimes the salesperson just didn’t care to check if they even could,’ the employee said.”

“Debbie Dillon and her husband, Don Dillon, live 2,000 miles from San Diego, in tiny Boyceville, Wisconsin, and they, too, were facing the loss of their home. The Dillons said People’s First told them to stop making mortgage payments and avoid talking to their bank. Howard and Struthers said the independent broker they dealt with gave the same advice. ‘Six months went by and I thought, what in the world have we just done,’ Howard said. ‘Here we are now six months down the road having not paid any payments on our mortgages. And nothing’s going on.’”

“Meanwhile, after months of waiting, Howard and Struthers’ independent broker left them with no modification and no help in reducing their mortgage. ‘We are going to have to pay, and I’m not sure how we’re going to do that,’ Howard said. ‘This has gone from something bad to something really bad. Just never in a million years would [we] have dreamed to be in this position,’ said Struthers. ‘It’s embarrassing.’”

“The Dillons will say goodbye to the home where Dan Dillon said they have ‘a lot of memories.’ ‘It was good while it lasted,’ said Debi Dillon. ‘Someone will enjoy it,’ said her husband. ‘Won’t be us.’”

From WPTV. “Dozens of people packed into Stuart City Hall today, hoping to get some advice that will spare their homes from foreclosure. Dorran Russell, a Ft. Pierce resident, says he came out of ‘desperation.’ He says following hurricane damage in 2004, his home insurance premiums rose from $900 to $7000 a year. He says his mortgage lender requires the insurance, and he began to fall behind on payments. ‘Finally, I failed to keep up with what they were demanding,’ said Russell.”

‘He says his lender refused to renegotiate the terms of his mortgage, even though he and his wife are employed and are willing to make good on their debts. The lender foreclosed on his home. ‘I want my home back. I just want my home back,’ he said”