The Housing Bubble

A report from the Idaho Statesman. “Legal advertisements announcing foreclosure auctions fill page after page of the Idaho Statesman and other newspapers. And advertisers hawk sure-fire methods to make money at the auctions. But very few auctions actually take place in the Treasure Valley. Most that do usually result in repossession of the home by the lender - not a purchase by a savvy investor or a lucky home-buyer. Branch manager Jared Larsen…of Alliance Title Co. in Caldwell said he often reads his legal notices to an empty room. Of the 342 trustee’s deeds (documents used to transfer ownership from a trustee, usually a title company) recorded in Ada County so far this year, only 23 have been transferred to third-party purchasers, according to Bobbi Oldfield, trust officer at Alliance Title. A third party is anyone other than the lender or homeowner.”

“In Canyon County, only eight of 282 trustee’s deeds have transferred to third parties this year. When no third party submits a winning bid, the deed is transferred from the trustee to the lender. Some foreclosures have been postponed by large national lenders because relief programs are coming out that may help borrowers stay in their homes by modifying or refinancing existing loans. ‘They’re hedging their bets as they try to find ways to avoid giving the properties away,’ said Jeremy Bordner, VP of residential lending at Idaho First Bank in Boise.”

“Daniel Starke got a reprieve when his mortgage servicer postponed the foreclosure auction of his neatly kept three-bedroom home in Northwest Boise last week. Now he has a few more weeks to try to find a buyer and arrange a short sale. The Iraq War veteran lost his job as a heating and air-conditioning repairman. He fell behind on his house payments last year. Starke said he has cashed out his retirement plan and looked into loan-modification programs offered by the federal government, but without a job he doesn’t qualify.”

“He expects he’ll re-enlist. ‘All I have to do is put my butt on the line, save my money and I’ll come back with a clean slate,’ he said.”

The Bend Bulletin from Oregon. “Only 268 building permits were issued in Bend in 2008, down roughly 60 percent from 2007 when 676 were issued and down 80 percent from 2006, when 1,348 were issued, according to the Bend-based Bratton Appraisal Group’s monthly Bratton Report. 2009 also has gotten off to a slow start.”

“It’s not stopping the Central Oregon Builders Association from proceeding with its annual Tour of Homes in July. The show is providing hope for local builders, including Mike and Cindy O’Neil, who own and operate SolAire Homebuilders in Bend. This summer, it’s all the more important, according to O’Neil. She believes people will be paying more attention than in years past, as pent-up demand and low prices will motivate would-be homebuyers to jump back into the market.”

“‘Last year, I was optimistic we were heading toward the end of the downturn in terms of pricing pressure, but I was wrong,’ O’Neil said. ‘Now, I definitely think we are scraping the bottom because it’s all anyone talks about. When all you see is how bad this is, I’m pretty sure we’re at the bottom. Short of a national disaster, I can’t see any other shoe to drop. The bank part is unwinding, the pricing problems with overinflated prices for homes and land in Central Or-egon has unwound substantially, so I’m pretty optimistic.’”

“O’Neil said the couple almost built a spec home for the 2006 Tour of Homes but chose not to. If they had, O’Neil guesses they would likely still be holding it. ‘We’re still standing now because we didn’t build it, so we’re proud to still be standing but feel bad for the builders that got blindsided by the market,’ O’Neil said.”

The Oregonian. “Since converting from condos to rentals last fall, as the housing market collapsed, Cyan PDX has aggressively reached out to young professionals. But this is a tough time to fill an apartment building. At first, unraveling home sales appeared to be good news for rentals. But as the recession deepens and unemployment rates climb, so do vacancy rates as more renters double-up or move in with family.”

“Cyan had lots of company when it abandoned plans to sell its 354 units as condos. Between 2008 and 2010, central Portland is gaining an unprecedented 3,100 luxury apartments, according to a new report by analyst Greg LeBlanc. Nearly 1,300 luxury rentals will open in the next five months, according to the LeBlanc report. Many are throwing in perks, from free rent and parking to a get-out-of-your-lease clause for tenants who lose jobs.”

“‘The problem with the market right now is, it’s getting more crowded,’ LeBlanc says. ‘They have no choice but to be aggressive.’”

“At peak construction pace in recent years, Lane County home builders finished about 1,500 houses per year and that sustained as many as 6,000 jobs while it lasted — more than the University of Oregon and more than PeaceHealth employ, said Elliot Eisenberg, the Washington, D.C.-based senior economist with the National Association of Home Builders.”

“‘When you build 1,500 homes, you are the largest employer in town, bigger than health care,’ he recently told a gathering sponsored by the Home Builders Association of Lane County. Now the annual house production has plunged to about 400, and the loss of employment locally has been devastating, he said. ‘It’s a two-thirds decline. You’re losing tons of jobs.’”

“‘Construction — both residential and commercial — has really carried our state’s economy for many years. When we collapsed, the state’s economy collapsed,’ said John Chandler, executive director of the Oregon Home Builders Association.”

“Eisenberg said he has witnessed the effect in Eugene. ‘I walk downtown and this restaurant is closed, and that restaurant closed and that restaurant closed. I bet half the restaurant closures are due to this lack of money floating around,’ he said.”

The News Tribune from Washington. “As a rookie broker at a mom-and-pop mortgage company in Federal Way, Rob Collins had a killer month writing loans in the frothy, frenzied 2005 housing market. He made $37,000. So he took $5,000 in cash and his fiancée, Heidi, to Bellevue Square. ‘I told her, ‘We’re not leaving here until we spend it all,’ Rob recalled this week.”

“Over the following 18 plentiful months, Rob bought a used BMW M3 high-performance sports car, upgraded to a better mortgage company, bought a Hilltop house in Tacoma with Heidi, then married her. Last June, Rob, 29, lost his job writing mortgages for U.S. Bank because he couldn’t write enough approved loans to reach the $1 million minimum his bosses set for him. He sold the M3 immediately and hasn’t owned a car since. He and Heidi, 26, have fallen four months behind paying Countrywide, which owns the loan on their home. Countrywide calls every day asking for its money.”

“By chance, on a trip to Starbucks in Federal Way last month, I found Collins sweeping the floor before his turn taking orders at the drive-through window. He rides the bus to and from work. ‘Starbucks is a great place to work,’ Rob said. ‘I make $8.65 an hour. But I’m up for a raise here shortly.’”

“Heidi…just took a third job. Rob calls the job ’swimsuit model.’ The wisp of a woman walks the edge of the boxing ring at the Tulalip Casino Resort in Marysville between rounds holding up a placard with the number of the next round. How are you doing with all this? I asked her. ‘Not well,’ Heidi said. She choked up. She doesn’t like to talk about it much. The mental and emotional strain, at times, becomes unbearable.”

“‘We are doing everything we can to save this house,’ Rob said. ‘That’s our focus. We want to keep our home.’”

“Rob…wants to share the story because he has become an evangelist of sorts preaching against deceptive practices of some in his former industry…Rob takes out a notepad and draws me a picture that shows how lending companies provide kickbacks to mortgage brokers who write loans at higher interest rates for less-than-ideal borrowers. ‘The more rebate the broker could obtain is directly related to the higher (interest) rates he charges the customer,’ Rob said. ‘And the amount grows exponentially.’”

“When they bought the house in April 2006, they opted for an exotic loan. Countrywide didn’t ask how much the Collinses made. Why not a simple 30-year, fixed-rate mortgage? They would have qualified. Rob alone made $76,000 that year. But the exotic mortgage saved them $54 a month.”

“The problem? Their home has a market value today at closer to $150,000 than the $260,000 they paid for it or the $320,000 at its peak value. They can’t refinance. ‘It was a high-risk loan. I know it was, because I was a loan officer,’ Rob said. ‘It was widely accepted at the time. In retrospect, the types of loans such as Heidi and I got are directly responsible, in part, for the widespread depreciation we’ve seen in home values.’”

The Seattle Times in Washington. “Federal agents say they have dismantled the largest mortgage-fraud conspiracy in state history by indicting seven people on charges they bilked banks and other financial institutions out of $48 million, pocketing more than $9 million to fund lavish lifestyles that included matching Lamborghini sports cars.’

“In one instance, according to U.S. Attorney Jeff Sullivan, a house cleaner who made no more than $20,000 a year qualified for a $1.2 million loan for a house in Medina because her application said she made $45,000 a month — which was news to her when asked by federal agents, according to court documents.”

“In one instance, David Sobol purchased a home in Newcastle in August 2007 for $669,950. A month later, Sobol ‘flipped’ the property, selling it to Camie Byron, 32, a Federal Way mortgage broker, for $1 million. Using falsified loan applications that misrepresented her income and assets, Byron obtained two loans on the property totaling about $900,000.”

“Byron then ‘flipped’ the property again to another straw buyer in November 2007 for a purchase price of $1.4 million. According to the application, the buyer claimed earnings of more than $324,000 in 2005 and $385,000 in 2006. In fact, the buyer reported income to the IRS of $13,245 in 2005 and $16,600 in 2006.’

“The indictment also seeks forfeiture of items purchased with money allegedly obtained through the fraud, including two 2004 Lamborghini Gallardo sports cars registered to Kobzar and Vladislav Baydovskiy, who also stands to lose a pair of BMWs, a 31-foot Bayliner and more than $2.4 million in cash.”

The News Tribune in Washington. “U.S. Attorney Jeffrey Sullivan said 50 federal agents armed with search warrants raided the offices of the businesses, hoping to collect documents and information that might give them a better understanding of the alleged fraud. The agents rushed to make the arrests, Sullivan said, because they realized the activity was ongoing and they worried the defendants might flee or transfer assets following a federal racketeering suit brought by ING against Nationwide and Emerald City earlier this month.”

“‘Some of this could be prevented by banks doing a little more due diligence,’ Sullivan said. ‘Nobody was doing that.’”

The Olympian from Washington. “Some South Sound residents are taking a serious look at buying a home for the first time, enticed by a potential $8,000 tax credit. As soon as Olympia residents Michael Carey and his wife, Stephanie, learned about the program, they made a ’spur-of-the-moment’ decision to start shopping for a house, he said. ‘We definitely plan to buy this year,’ he said.”

“An additional factor helping first-time buyers is the changing landscape of the Thurston County housing market, real estate agent Blake Knoblauch said. A recent check of the Northwest MLS showed 39 properties for sale for less than $200,000 in the county. Two years ago, that market did not exist, Knoblauch said. ‘We’re talking decent houses.’”

The Columbian in Washington. “Wanted: Buyers to ante up for Clark County’s vacant subdivisions at rock-bottom prices. Wait a minute, hold your bets. With home building near all-time lows, why would anyone wager on all those empty land tracts, even the ones with sidewalks, driveways, street lamps and sewer pipes?”

“Because it’s a good hunch that Clark County’s resilient housing market will bounce back, said Roger Qualman, Vancouver-based executive VP of NAI Norris Beggs & Simpson commercial brokerage firm. ‘We always recover with a huge spike,’ Qualman said.”

“Qualman expects it will take two years or more for demand to return for the nearly 4,425 vacant lots in 247 unfinished subdivisions around Clark County. He attributed that anticipated demand to the county’s strong population growth. ‘An investor can hold onto (residential land) for a few years, and he should be able to sell it for a very good return,’ up to 25 percent or 30 percent more, Qualman said.”

“In most cases, sellers of the subdivisions are banks that have just begun to take back millions of dollars worth of undeveloped properties. The banks just want to unload the developments…which is why the failed properties will be marketed at bargain-basement prices, Qualman said. He hopes to find investors for tracts with housing lots that once sold for between $150,000 and $250,000 each. Now, the lots are being offered at around $50,000 each. Subdivision buyers will need to pay cash because few banks are lending for real estate investments.”

“‘They are getting down to near replacement costs,’ about equal to the cost of the improvements made to the site, Qualman said.”

“Subdivisions that are divided up and ready will fetch the best profit when the market for new homes returns, Qualman said. But most builders won’t start new construction until they see signs that a glut of existing homes for sale is shrinking. Many of those homes are on the market as bank repossessions and short sales in Clark County, which recorded the highest foreclosure rate among Washington’s 39 counties in February. A total of 388 houses entered some stage of foreclosure here last month, up 49.8 percent from the 259 filed during the same month in 2008.”

“Local home builders see the low-priced subdivisions as painful reminders of their industry’s losses, although they are good investments. Over time, the installation prices for underground water systems, paved roads and street lamps will only go higher, said Morall Olson, a local home builder and president of the Building Industry Association of Clark County. ‘The cost of plastic pipe and concrete haven’t gone any cheaper. They’re virtually getting the land for free,’ Olson said.”