The Housing Bubble

The New Hampshire Business Review. “New Hampshire’s residential real estate market continues to muddle its way through the recession, with year-to-year sales and median prices still falling and the number of days a home remains on the market still rising. In April 2009, according to the Realtors’ data, statewide residential unit sales fell 11 percent from a year earlier. Statewide median price, meanwhile, continued to fall, dropping from $240,000 in April 2008 to $204,900 in April 2009 – a 14.6 percent decline. Year to date, that drop is 16 percent, with the January-through-April median price $197,500 in 2009, compared to $235,000 in 2008.”

“Paul Sargeant, president of the Realtors association, acknowledged that the price drop is likely the product of several factors, including motivated and realistic sellers, the number of distressed properties on the market, and the welcomed infusion of first-time homebuyers who are typically looking in the sub-$200,000 range. ‘There is certainly something to be said for affordability, and that’s what we’re experiencing now,’ Sargeant said. ‘If the trend that we’re expecting does materialize, then as sales activity continues to increase, we can begin to clear out some of the large supply of inventory. That will ultimately lead us away from the clear buyers market we’ve experienced for the last two or three years and back toward a balanced market.’”

“One of the best signs, he said, has been that ‘more and more often we’re hearing cases of multiple offers on homes that, with the help of a local Realtor, are priced properly. That’s a world that many of us remember from five-plus years ago, and while we’re not quite there yet, we seem to be heading in that direction.’”

Some reports from the New York Times. “There are indications that the foreclosure crisis could be worsening in Connecticut, based on statewide data on mortgage delinquencies showing that in March, 4.8 percent of the mortgages held by Connecticut homeowners were at least 90 days past due. That is up from 2.7 percent a year earlier. This gives Connecticut the 13th-highest delinquency rate among the 50 states, according to First American CoreLogic.”

“Burt M. Hoffman, a Stamford-based lawyer, said he had been inundated by builders, investment bankers and corporate executives trying to do short sales of homes with mortgages worth more than $2.5 million each in the past two months. During the same time last year, he said, he did not have any deals for mortgages exceeding $1 million. He said homes in Greenwich, Darien and New Canaan are ’sustaining the most severe impact.’”

“The Obama administration has only recently put together the pieces of its two-month old plan to help homeowners avoid foreclosures and so it is too early to say what impact the program may have here. For now, many foreclosure counselors and agencies said they did not have enough resources to help all of the homeowners seeking help and they had trouble keeping up with changing programs and regulations.”

“Joan Carty, CEO of the Stamford-based Housing Development Fund, said it is especially difficult because many Connecticut residents did not have standard government loans backed by Fannie Mae or Freddie Mac. Instead, many of them took out private loans that enabled them to take out larger mortgages.”

“For Sandra and Curtis Davis, one of their most vivid memories is the blustery October afternoon in 1998 when they moved into their two-story clapboard colonial on a tree-lined street here. Ms. Davis said that they were ‘over the moon happy’ about ‘finally putting down roots.’ These days, they are grappling with an equally vivid nightmare: that the sheriff will knock on their door and announce that the bank is their new landlord.”

“For nearly two years since they got their first foreclosure notice, the Davises said, they have been trying to hold onto their home. The latest effort was to file for bankruptcy to buy themselves time to renegotiate their debt, a move they made after learning that their home was scheduled to be put up for auction for a third time.”

“‘This could have been solved a long time ago,’ Ms. Davis, 41, a registered nurse, said on a recent weekday morning, sitting on her worn, tan dining room carpet while pulling manila folders and foreclosure handbooks from a green trash bag. ‘Our hands are really tied right now.’”

“Peter Bergamini is barely making his mortgage payments on a $330,000 loan from the Countrywide Financial Corporation that he took out in 2006. He and his wife, Margaret, an assistant teacher in New Rochelle, are getting by. But the worry that nags at them is about what will happen a few years from now. The Bergaminis are not in foreclosure, but they are tied to a mortgage whose interest rates, he said, are ‘ready to explode on me’ by September 2013. It is an adjustable rate mortgage whose payments at 6 1/2 percent interest are now $2,200 a month but in 2013 will reset and could spiral up to 11 1/2 percent, with principal payments starting as well.”

“Like many homeowners, Mr. Bergamini admitted he bit off more than he could chew in the expectation that housing prices would keep rising and he could always refinance. He can’t even blame the mortgage lender wholeheartedly because she warned him that he was tying himself to a loan product whose terms he could not meet down the line.”

“She urged him to refinance before then, but he said that when he tried to do so earlier this year he was told by the same loan officer, now working for a different bank, that because the value of his house had declined and his credit card debt had sharply increased, he could not get a new loan. His debt, he said, is more than 80 percent of the value of his house, which has been put at $480,000.”

“‘I talk to lot of people and it’s not that uncommon,’ he said. ‘We don’t go out to dinner as much, we don’t take as many trips,’ he said. ‘Where we would have gone on vacation to the in-laws in Florida we canceled that.’”

“He is waiting for President Obama to provide some kind of relief to homeowners like himself. ‘I’m a perfect candidate for what he’s talking about,’ he said. Until such relief comes, Mr. Bergamini lives in constant fear that his life could quickly spiral downward.”

“‘Thank God I’m working,’ he said. ‘But if I had a hiccup right now I’d be done for.’”

“South First Avenue is the epicenter of Westchester’s foreclosure crisis, with at least 27 homes on just four blocks in various stages of foreclosure over the past several years. The occasion was a workshop run by a nonprofit group called Community Housing Innovations, aimed at educating people about their options in grappling with foreclosure. Andrea Moody, a soft-spoken 45-year-old account manager and single mother of two teenagers, was there to take notes because it has been three months since she made a full $2,600 mortgage payment to Chase Manhattan.”

“‘I don’t want to lose my home,’ Ms. Moody said afterward. ‘My dad had it, and it was a source of pride to him, and it hurts me to think I could lose it.’”

“The foreclosure wallop has affected even vintage Westchester neighborhoods like the Rochelle Heights and Rochelle Park enclaves in New Rochelle. Westchester’s painful toll tells much about how widespread this decade’s home-buying frenzy was. In too many cases, families took out mortgages or refinanced on payment terms that gave them only the thinnest margin for error and left no cushion for a plunging housing market.”

“The banks listed on Westchester default notices include icons of the industry — Deutsche Bank, Citicorp, Wells Fargo. But interviews with real-estate brokers, bankers and government officials indicate that the loans were often dangled by little-known mortgage brokers who received a commission for originating a loan on behalf of a bank whether the payment terms were realistic or not.”

“‘There were many of these mortgage brokers operating in neighborhoods, often in neighborhoods of color, taking advantage of people who wanted to get their piece of the American dream,’ said State Senator Jeffrey D. Klein, a Bronx Democrat who twice investigated subprime mortgages. ‘Everyone would be O.K. since the property would be worth more than they paid for it.’”

“Anthony Marciano, owner of a local real estate brokerage, told of how four or five years ago mortgage brokers began enticing residents to refinance. In phone calls and fliers, he said, they urged residents to pull out the equity in their houses in order to buy other homes as investments or to pay for home renovations or college tuition.”

“‘They came in like vultures and are no longer around,’ Mr. Marciano said of the mortgage brokers, though he puts more blame on banks for letting brokers originate loans at seductive rates.”

“The shuttered houses and for-sale signs in Irvington and neighboring Newark have helped give Essex County a foreclosure rate almost double the overall rate in the region. So many homeowners are at least 90 days behind on their mortgage payments that the delinquency rate in Essex exceeds that of Genesee County, Mich. — home of Flint, a symbol for cities economically devastated by the sinking fortunes of America’s auto industry.”

“Nationally, a report issued Tuesday by the Pew Hispanic Center said that gains made in homeownership over the past decade by African-Americans and native-born Latinos were tied disproportionately to relaxed lending standards and subprime loans and that the gains had eroded faster in the downturn than those of whites.”

“‘It’s like people just walked away,’ said Frank Perry, who has lived on Grove Street for 25 years, moving here when the area was filled with working-class families. Now, fed up with the neighborhood’s deterioration, he is planning to sell his house, despite the depressed real estate market.”

“Others who are struggling include local investors, some of whom bought multifamily units when mortgage loans were easy to obtain but have had trouble finding reliable renters. The mayor of Newark, Cory A. Booker, rents an apartment in the city owned by one of those investors. ‘They bought one or two or three homes and thought they could get their money back from a rental,’ Mr. Booker said, adding that his own grandfather made similar investments — and lots of money — in Los Angeles in the 1980s.”

“Many Newark owners ‘acquired properties in a nefarious manner,’ the mayor said. Others, like his landlord, ’saw in our city a place to invest, and got caught in the greatest modern scam and housing bubble.’”

“Turn the corner on 145th Street in Jamaica, Queens, and it is as though a cyclone has wheeled through. One resident, Lakisha Brown, a hospital worker and mother of two, snatched her house back from foreclosure last month, if only temporarily. ‘We need to sell fast,’ she says. ‘I’m just trying to save what’s left of my credit.’”

“Across the street in this black middle-class neighborhood, Patrick Nicholas, a surgical technician in blue scrubs, shakes his dreadlocks and shrugs. He rents but is moving out. ‘The owner got foreclosed and told us to leave,’ he says.”

“Late to arrive in the Northeast, the foreclosure crisis has swept through the New York region at an explosive pace in the past two years, destroying billions of dollars in housing wealth, according to a New York Times analysis of foreclosures filed since 2005 and federal mortgage data.”

“It now touches every corner of the region, from estates along the Connecticut Gold Coast to the suburban tracts of Long Island, where 6 percent of all mortgages are at least 90 days delinquent, the point at which foreclosure proceedings usually begin. But the storm has fallen with a special ferocity on black and Latino homeowners, the analysis shows.”

“In New York City, for example, black households making more than $68,000 a year are almost five times as likely to hold high-interest subprime mortgages as are whites of similar — or even lower — incomes. This holds a special poignancy. Just four or five years ago, black homeownership was rising sharply, after decades in which discriminatory lending and zoning practices discouraged many blacks from buying.”

“Now mortgage delinquencies are rising sharply even in high-income, predominantly white enclaves, from Nirvana Avenue in Great Neck, N.Y., to Otter Rock Drive on a peninsula off Greenwich, Conn. In the wealthiest ZIP codes, the median delinquency rate — although much lower than the regional rate, 5.3 percent — more than tripled from March 2005 to March 2008, then doubled again in the year since.”

“Foreclosure is cutting so deep as to reshape the geography. If enough homes go vacant in Queens and Newark and Roosevelt, a cycle of disinvestment could beckon. ‘Some home-owning neighborhoods may turn back to rentals and some might not survive,’ said Jay Brinkman, chief economist for the Mortgage Bankers Association in Washington. ‘They might end up bulldozed.’”

“Colvin Grannum grew up in a black neighborhood in Brooklyn and became president of a nonprofit organization that builds and renovates housing. His father bought several properties in the 1950s and ’60s, often without turning to banks. ‘I don’t want to say it’s in the cultural DNA, but a lot of us who are older than 30 have some memory of disappointment or humiliation related to banks,’ Mr. Grannum said. ‘The white guy in the suit with the same income gets a loan and you don’t? So you turn to local brokers, even if they don’t offer the best rates.’”

“‘Rather than helping to narrow the wealth and home ownership gap between black and white,’ Mr. Grannum said, ‘we’ve managed in the last few years to strip a lot of equity out of black neighborhoods.’”

The Washington Times. “After virtually every disaster created by Beltway politicians, you can hear the sound of feet scurrying for cover in Washington, see fingers pointing in every direction away from Washington and watch all sorts of scapegoats being hauled up before congressional committees to be denounced on television for the disasters created by members of the committee who are lecturing them.”

“The word repeated endlessly in these political charades is ‘deregulation.’ The idea is that a lack of government supervision allowed private-sector ‘greed’ to lead the nation into crises that only our Beltway saviors can solve.”

“Government regulators were the ones who imposed lower mortgage-lending standards - and it was members of Congress (of both parties) who pushed the regulators to push the banks and the mortgage-buying giants Fannie Mae and Freddie Mac into accepting risky mortgages in the name of ‘affordable housing’ and more homeownership. Presidents of both parties jumped on the bandwagon.”

“When the housing boom was going along merrily, Rep. Barney Frank was proud to be one of those pushing Fannie Mae and Freddie Mac into more adventurous financial practices in the name of ‘affordable housing.’”

“In 2003, he said: ‘I believe that we, as the federal government, have probably done too little rather than too much to push them to meet the goals of affordable housing and to set reasonable goals.’ He added: ‘I want to roll the dice a little bit more in this situation toward subsidized housing.’”

“Although this is the biggest housing disaster the government ever produced, it is by no means the first. Republicans intervened in the housing markets to promote more homeownership in the 1920s, Democrats in the 1930s and both parties after World War II. All these interventions led to massive foreclosures.”

“Don’t politicians ever learn? Why should they? What they have learned all too well is how easy it is to get credit for promoting homeownership and how easy it is to escape blame for the foreclosures and other economic disasters that follow.”