The Housing Bubble

The Bozeman Daily Chronicle reports from Montana. “Yellowstone Club attorneys grilled a Credit Suisse officer Tuesday about why the international lending group didn’t unearth financial vulnerabilities before facilitating a $375-million loan with the resort. In addition to the Yellowstone Club deal, which a group of club creditors maintains triggered the private ski resort’s bankruptcy, international lending consortium Credit Suisse financed several other projects across the West, including Lake Las Vegas, Promontory and Turtle Bay, that went into default. There was no way to foreshadow the club’s financial ailments, said Credit Suisse senior credit officer, Steven Yankauer, during testimony. When Credit Suisse pitched the loan to former club owner Tim Blixseth in 2004, the deal was so appealing that investors rushed to plunk cash into the club.”

“‘The market demand was such there were effectively lenders clamoring,’ he said. ‘For every dollar of the loan there was four dollars of demand. Capital was extremely free flowing and available.’”

“But Yellowstone Club and creditor’s committee attorneys argue the lending consortium was so focused on reaping financial rewards, that they ignored financial warning signs. Working to prove this point, Yellowstone Club attorney Troy Greenfield pointed to a Credit Suisse internal memo warning employees to keep investors satisfied, because if a deal went bad, ‘our gravy train will stop.’”

“‘Credit Suisse’s gravy train stopped?’ Greenfield asked Yankauer. To which Yankauer replied, ‘I think the entire economy’s gravy train stopped.’”

The Idaho Statesman. “In the last days of the First Bank of Idaho, bank officials thought the 12-year-old institution might be spared. But nervous depositors were taking their money elsewhere. Regulators weren’t convinced investors would give First Bank a cash infusion quickly enough to keep it from running out of cash by the end of April.”

“Putting First Bank of Idaho into receivership was an ignominious end for a dream that came true for Greg Lovell, an Idaho native. Lovell thought he saw a niche for home-town banks in resort communities. First Bank didn’t make subprime loans. But its loan portfolio was heavy in residential construction and commercial development, mostly in resort communities, including Ketchum and Jackson. Those loans were particularly vulnerable to the national housing slump and the recession’s impact on business expansion.”

“The drip of troubled loans become a torrent when the decline in the real estate market accelerated in the last few months of 2008. ‘As the economic situation got worse, more and more of our real estate loans became nonperforming,’ said Everett Covington, who was CEO when First Bank went into receivership. ‘People couldn’t pay.’”

The Durango Telegraph. “‘There were difficult loans across the board, but the Teton Valley was definitely a major problem for this bank,’ Everett Covington, CEO of the First Bank of Idaho, said. He told the Idaho Mountain Express that real estate sales in Victor and Driggs were nearly nonexistent, and foreclosure proceedings had begun on many properties.”

“‘The bank’s story is entwined with a booming national economy and people investing in vacation homes all over the West. It’s the story of how a banking system became engulfed by a speculative market in which eye-popping growth ultimately could not be sustained,’ said the newspaper.”

“‘The phenomenon transformed small towns into bustling boomtowns. It made savers look silly and speculative spenders look like geniuses. Lasting more than a decade, it looked like it might never end,’ the Express continued.”

“‘It went far, it went fast. Then, like a car hitting the proverbial brick wall, it stopped.’”

Boise Weekly from Idaho. “Next week, amid cars circling for parking spots and bikes weaving around packs of strolling pedestrians, something new will roll into BoDo—moving vans. The Aspen Lofts, Scott Kimball’s prism-faced 17-story mixed-use condo complex, will finally open its doors to downtown’s newest urban residents.”

“‘We just finally got our certificate of occupancy,’ said Beth Gregg, director of marketing and sales. ‘We’ll have probably four residents living there … We’ve got one on five, one on six and then two on the ninth floor. For a while, they’ll be Lone Rangers there.’”

“Though the economy has made it difficult for many to obtain loans for more reasonably priced workforce housing, downtown real estate agents and developers have faith that will change. Though both Dana Wendland, a CitySide Lofts condo renter who also owns the downtown shoe store SoleMates, and CitySide lofts resident Al Greenberg, acknowledge that late-night noise is part of the urban package, the city’s downtown task force has formed a special noise ordinance subcommittee to tackle any noise complaint issues. ”

“‘People move to a downtown core knowing it’s going to be more vibrant and knowing that there’s going to be more to do. At the same time … at 3 a.m., you don’t necessarily want to hear people banging on your trash cans,’ said Cece Gassner, assistant to the mayor for economic development.”

The Bellingham Herald from Washington. “According to the Northwest MLS, Whatcom County had 240 pending home sales in April, up 17 percent compared to the same month last year. Completed sales were down, however: 144 homes were sold in April by real estate agents, down 15 percent year over year. The median price for the homes sold in April was $260,500, down from $280,000 in April 2008.”

“April also saw an increase in homes entering the market. There were 521 new home listings in April, up from 398 in March. April 2008 had 532 new home listings. Lylene Johnson, a real estate agent who tracks the NWMLS data, said the new sellers she’s talked to are well aware of the realities of the current market. ‘Many of them realize they won’t be getting what they once thought the house was valued at, but many are also establishing a bottom line that they won’t go below to sell it,’ Johnson said.”

The Olympian from Washington. “Last month 196 homes sold in Thurston County, down 31 percent from the 284 homes that sold in April 2008, combined single-family residence and condo data show. Overall, the Thurston County median home price fell 11.5 percent to $232,600 in April 2009 from $262,725 in April 2008.”

“One reason median prices fell in the year-over-year period is because builders have adjusted to changes in the marketplace by building a more affordable home, said real estate agent Bob Jorgenson. Also creating downward pressure on home prices are the number of ’short sales’ in the county, said Doug Burger, owner and broker of Burger Professionals in Olympia.”

“‘One-third of our deals are short sales,’ he said, adding that in some cases lenders are taking as little as 70 percent of what is owed on the house. ‘That’s driving prices down because the banks are saying it is cheaper for them to do this than go through the foreclosure process.’”

“Jorgenson said some prospective buyers still are waiting to see whether mortgage interest rates fall lower; others are worried about their jobs, Burger said. ‘We find a lot of buyer hesitation,’ he said.”

The Seattle Times from Washington. “If the Seattle residential real-estate market is coming back to life — and that’s still a big if, despite a relatively upbeat monthly report Tuesday — it’s because of people like Lori Gifford. She and her fiancé, Scott Brush Goodwin, bought their first house last month. It’s a two-bedroom, one-bath former rental in the Arbor Heights neighborhood that the previous owner lost last year through foreclosure. Goodwin and Gifford paid Washington Federal Savings $249,000 for it.”

“When they started looking again this spring, the difference in prices was ‘jaw-dropping,’ says Goodwin, who works for a travel company. Their new house is small — 820 square feet atop an 820-square-foot unfinished basement. But it sits on a huge lot, nearly half an acre, with a peekaboo view of Puget Sound. And, according to county records, the price they paid is just $14,000 more than what the owner who lost the house to foreclosure paid for it — in 2002.”

“The land was a big part of the property’s appeal, Gifford says. There’s room for a workshop, maybe a greenhouse, maybe a deck someday. The house itself has a new roof and recently remodeled kitchen, but ‘it looked as if people had trashed the place,’ Gifford says.”

“After a stressful nine-month search that began in 2007, John Bowers and Monica Jackson bought a $448,000 home in Seattle that was far from their ideal. On the plus side, it was in a neighborhood they loved, close to friends and good public schools. If they didn’t jump on it, they feared being priced out for good.”

“But there were considerable drawbacks. A big one: They couldn’t afford the monthly payments in the short term without tapping into savings. And, with two bedrooms and one bathroom, it was a tight squeeze for the married couple and their two young children.”

“‘We have the worst timing,’ said Jackson, a substitute librarian with the Seattle Public Library system. ‘We bought in April 2008, and within two months, everything crashed. We saw the signs in other parts of the country, but everyone said Seattle was different.’”

“On a good month, their combined take-home pay hovers around $4,600, and about $3,000 of that goes to their mortgage payment, which has a fixed-interest rate of 6 percent and includes taxes, insurance and private mortgage insurance. ‘There’s nothing extra,’ Bowers says. ‘We don’t have cable and we don’t go out. We don’t get coffees and lattes. All the things that they tell you to do, we’ve already done.’”

“‘We’re hoping that the loan modification is going to be the key to all of our problems,’ Jackson said. ‘If we can get the payments more affordable, we’ll be in a much better position.’”

Oregon City News. “As the price of housing droops in the Portland area, development fees levied on new homes being built continue to rise, according to a new study by the Home Builders Association of Metropolitan Portland. ‘It’s becoming disproportionate to the price of a house and onerous to the buyer of a home,’ said said Ernie Platt, the association’s director of local governmental affairs and the man who compiles the annual survey.”

“Homebuilders are pleading with local governments to abate some fees, to spur more housing development during the recession. But that’s not flying. Instead, development fees appear to rise steadily each year, sometimes according to indexes pegged to inflation. ‘They never go down,’ Platt said.”

“School advocates often argue that homebuilders get off easy when it comes to system development charges here, because the Oregon Legislature, under pressure from the homebuilders’ lobby, barred the charges to pay for new schools. In other states, development fees for schools often are the costliest system development charge.”

“However, the Oregon Legislature in 2007 enabled school districts to create a construction excise tax on new projects to defray some of the cost of new schools. That roughly equals $1 for every square foot in the home. The homebuilders’ study did not include the new school construction excise tax in their recent survey, though the majority of area school districts have agreed to levy the new tax.”

“‘For a 2,500-square-foot home, that’s another 2,500 bucks,’ Platt said.”

“An Oregon man has admitted operating a Ponzi scheme that bilked more than $3 million from mostly elderly investors. Dennis R. Thaut of Marcola pleaded guilty to multiple counts of theft at a hearing in Lane County Circuit Court on Wednesday. Thaut, who ran First Security Financial from a restored Victorian home in Eugene, faces 10 to 15 years in prison at his June 16 sentencing. The sentence cannot be less than 10 years, said Bill Warnisher, a deputy district attorney.”

“The probe started when investor Zelma Randles told authorities that Thaut had rejected a request to close her account and refund her money. Randles gave Thaut $75,000 in 2004, believing the money would be used in a real estate investment with a two-year term that paid an annual interest rate of 9.25 percent. When Randles requested a cash-out payment in accordance with the agreement, Thaut told Randles the funds were not available.”

“He told Randles the money was with a mortgage company. After Randles contacted the firm, she concluded that Thaut was a liar. ‘It’s not just that we lost money,’ Randles, 76, said in an interview with The Register-Guard newspaper. ‘We thought we had a trusted friend and adviser, and he ended up being a wolf in sheep’s clothing.’”

The Register Guard in Oregon. “The Willamette Valley was a hot spot for subprime mortgages four years ago, according to an investigation published Wednesday. Many of the nation’s top 25 subprime lenders were highly active in Lane County until the market meltdown in late 2007. The firms — most now defunct or sold to avoid bankruptcy — include Washington Mutual, Countrywide Financial Corp., New Century Financial Corp. and First Franklin Corp.”

“It means a lot of families are going to go into foreclosure,’ Sen. Jeff Merkley said Wednesday. ‘They may be able to afford the payments quite handily when the payments are at 6 percent (interest) but when the payments (change) to 10 percent, they can’t. There’s just no way they’re going to be able to make those payments. And you’ve got unemployment thrown in on top of that, throwing fuel on the fire.’”

“‘You’ve got a lot more poor people — people on the edge who are not really qualified to own a home and they’re desperate for it,’ said Robert Roth, a retired financial fraud investigator who follows the mortgage finance industry closely. ‘You had a lot of people without the money to own a home motivated to want one.’”

“Into the fray came Seattle-based Washington Mutual Bank. Through its Long Beach Mortgage Co., the now-dissolved WaMu was the fifth most active subprime lender in the nation, making $65.2 billion of these loans from 2005 to 2007, according to the Center for Public Integrity, which made an in-depth study of 7.2 million subprime loans made between 2005 and 2007.”

“The consequences for consumers are devastating, the senator said. He estimates that 20,000 Oregon families will lose houses to foreclosure this year. Oregonians not only took out a lot of straight, subprime high interest loans. Oregon also ranked near the top for exotic pick-a-payment loans and negative amortization loans in which the amount the borrower owes may actually grow, instead of shrinking, as time passes.’

“In 2003, less than 2 percent of the home loans made in Oregon matched that description, according to First American CoreLogic. By 2006, the proportion had soared to more than 20 percent.”

“‘The reset date on those loans is coming due now. Over the next 12 to 24 months, the bulk of these loans will have their first major reset,’ said Angela Martin, spokesman for the Portland-based political group Our Oregon. ‘That’s where we’re going to see Oregon — and the Willamette Valley in particular — continue to struggle with very high home foreclosures. It’s a mess.’”

“Bad loans would have been avoided ‘at the retail level, if we had required transparency and fairness and fiduciary responsibility from the broker to the borrower, like we do in the real estate market,’ Merkley said.”

“Instead, the senator said, ‘We’re going to have a couple difficult years.’”