The Housing Bubble

Don’t tell me I’ve beaten our west coast crack of dawn health nuts! A. sloth wins again! Now for a morning paw full of green shoots.

Regulators take over 2 failed Arizona banks, assets sold to Oklahoma City’s MidFirst Bank
August 15, 2009, 12:16 am EDT

PHOENIX (AP) — Two Arizona banks were declared failed institutions on Friday and were taken over by federal or state regulators.

The Federal Deposit Insurance Corporation took over control of Gilbert-based Union Bank, National Association. The FDIC agreed to sell its assets to MidFirst Bank of Oklahoma City. The bank’s only branch will reopen on Monday as a MidFirst branch.

Also closed on Friday by state regulators were all four branches of the Community Bank of Arizona. That bank’s assets were also sold to MidFirst Bank.

Nevada regulators also closed Community Bank’s holding company and sister bank, Community Bank of Nevada. That bank will be liquidated.

Account holders at all three banks can continue writing checks, making deposits and using their ATM accounts.

All customers deposits in the Arizona banks — even those above the federal insurance limits of $250,000 — are secured, said Felecia Rotellini, Superintendent of the Arizona Department of Financial Institutions.

Those with deposits in Las Vegas-based Community Bank of Nevada may not be so lucky. That bank will reopened as a new holding company called the Deposit Insurance National Bank of Las Vegas. It will remain open only for about 30 days, long enough to allow customers to move their deposits to other institutions.

The FDIC said in a press release that those with deposits above $250,000 in the Nevada bank will have to inquire about their deposits. Approximately $4.2 million in insured deposits potentially exceeded the insurance limits when the bank was shuttered on Friday.

INMATES COLLECTED $30K IN UNEMPLOYMENT BENEFITS

ALBANY — Eleven inmates cheated the state by collecting $30,000 in unemployment benefits while already on the dole in jail, an audit released this morning by state Comptroller Thomas DiNapoli has found.

The auditors compared payments made by the Department of Labor for unemployment benefits during June 2008 with prison records maintained by the state Department of Correctional Services.

Aside from the 11 who inappropriately received benefits, the review discovered another 14 prisoners who potentially profited from gaps in the system.

One man who auditors discovered incarcerated under another person’s name is now being prosecuted by the Manhattan District Attorney’s Office. Payments to another four inmates were stopped when they failed to respond to inquires about the issue.

Unemployed New Yorkers must be ready, willing and able to work their usual job in order to receive taxpayer-funded unemployment benefits.

“These prisoners figured out a way to game the system from inside a cell,” DiNapoli said in statement. “Taxpayers shouldn’t be footing the bill for this kind of outrageous scam.”

Different in Canada, eh? RE sales set records, up six straight months and YOY! Say what? Has Canada decamped?

http://www.reuters.com/article/wtUSInvestingNews/idUSN1431340220090814

This should come as no surprise, but I’m sure some experts will be caught off guard by this, ‘unexpected’ occurrence.

Retailers See Slowing Sales in Back-to-School Season.
NYT 8-15-09

Halfway through the back-to-school shopping season, retail professionals are predicting the worst performance for stores in more than a decade, yet another sign that consumers are clinging to every dollar.

Fears about the job market have resulted in sluggish customer traffic over the last few weeks, spurring the gloomy sales projections. Parents who do shop are aggressively trading down, informing status-conscious teenagers that notebooks from the dollar store or shirts from Costco will have to do this year.

Stock analysts at Citigroup are predicting a decline in back-to-school sales for the first time since they began tracking the figures in 1995. They estimate August and September sales at stores open for at least a year — known as same-store sales — will fall 3 to 4 percent, compared with an increase of nearly 1 percent in the same period last year.

The National Retail Federation, an industry group, expects the average family with school-age children to spend nearly 8 percent less this year than last. And ShopperTrak, a research company, predicted customer traffic would be down 10 percent from a year ago.

“This is going to be the worst back-to-school season in many, many years,” said Craig F. Johnson, president of Customer Growth Partners, a retailing consultant firm.

Auto suppliers under bankruptcy protection
Aug 14, 7:20 PM (ET)By The Associated Press

Auto parts supplier Visteon Corp. has asked a Delaware bankruptcy judge for permission to cut health and life insurance benefits for thousands of current and former workers.

Judge Christopher Sontchi said Friday that he needs time to consider the evidence and arguments.

While the Van Buren Township, Mich.-based company acknowledged that cutting off the benefits would cause hardship for some people, it claims the benefits are one of its largest liabilities and keeping them in place would make it tough for the company to reorganize.

Here’s where the bankruptcy cases of other auto suppliers currently stand:

DELPHI CORP.: The Troy, Mich.-based supplier, which filed for Chapter 11 protection in October 2005, won permission in March to stop providing health care and insurance benefits to its salaried retirees. More recently, Delphi received court approval to emerge from bankruptcy protection by handing control of the company over to its lenders in exchange for debt forgiveness. The company is expected to emerge from court protection by Sept. 30.

LEAR CORP.: Lear Corp. filed for bankruptcy court protection in New York in July. Its next hearing is set Aug. 25.

In the Grip of Indecision
By Laura M. Holson August 14, 2009 NYT

PICTURE this: You are standing on the edge of a pool, trying to figure out whether to dive in — do you or don’t you?

BACK AND FORTH After much deliberation, Hans Tester bought a one-bedroom. “I couldn’t take another day not deciding,” he says.

A few years ago, buying real estate was that simple. If you loved the place, you could buy it. If you were ambivalent, you could buy it anyway, because if you changed your mind later, you could always sell it at a profit.

But these days, buying a home is more psychologically demanding, fraught with conflict and confusion. Buyers and sellers need to know what they want to own, and commit to it — a challenging task for even the steeliest New Yorkers. Nothing is ever perfect, even when you have a big budget.

Confounding the emotional calculus is the fact that home prices could drop in the autumn — or not. It’s anybody’s guess.

These questions, psychologists say, have left a bewildered public even more unsure about what to do this summer, no matter what the economic indicators seem to point to. “The tipping point for many people is when they finally become exhausted by their emotions,” said Kathleen Gurney, the chief executive of the Financial Psychology Corporation in Miami, which studies the psychology of money management. “People will do anything to not regret how they feel.”

For many homeowners who bought at the top of the market, admitting what now seems to have been a mistake is painful, and could keep them from selling, even though the decision may be a smart one. “If they don’t sell, they don’t regret the loss,” Dr. Gurney said. Others don’t want to look dumber than their equally unfortunate friends.

Yesterday there was a post about the need to buy in New York City because of hyperinflation or currency devaluation. I guess some people wanted this idea debated.

For anybody to feel a need to quickly buy in Manhattan for these reasons is beyond my ability to understand.

What do they think would be so great in Manhattan, or any part of NYC, during a currency devaluation? I would expect massive economic difficulties in all boroughs, especially at the lowest ends of the economic spectrum. The crime rates of the 70s and 80s could easily resort back to the norm in all areas of The City. Well trained gangs and thugs would be brazen and work freely.

The criminal element in this city has great logistics. The subway gives them the ability to move freely to nearly any neighborhood they like. The advent of cell phones and wireless communication gives great ability to coordinate efforts. Good luck protecting that valuable co-op and yourself in such an event.

There would be no way to pick a winning neighborhood when it comes to real estate. I would guess that nearly every neighborhood would crash hard. Property taxes would most likely skyrocket just to keep local government functioning. Property owners will have huge targets on their backs. Who would be able to render their debt unto Caesar during such a time? The mortgage might be great but the tax bill would be a killer.

Anybody that was critical of pointing out how dumb that statement was must not live here. I listen to that crap at work all the time and have had enough of the simplistic view, “real estate is the path to riches”. It is beyond tiresome. I would expect more from anybody that has been on this blog for several years.

To buy now, dreaming of currency collapse, means that a person would think they can pay off the mortgage with ease as the loan amount looks miniscule during hyperinflation. Thinking you can time that is one heck of a bet. Just look at all the things a determined government and their corporate masters have been able to prolong and extend. That collapse could come tomorrow, ten years from now or never.

If I wanted to protect against currency collapse the last thing I would do is “buy now” in Manhattan or the surrounding areas, unless I was very politically connected. I might buy the universal currencies of gold and silver (even those haven’t skyrocketed to $5,000 and $50 per ounce like many predictions). You’d be better off to rent out a space in the country or buy a small building. Stock it with booze and cigarettes and toiletries that would be very valuable during a currency collapse. Those are the hard assets I would most want to control in a currency collapse, not some silly apartment in Brooklyn or the Upper East Side.

I did not work to offer a lengthy rebuttal yesterday to the “buy now in NYC” argument because I felt that the statement was so ludicrous that it didn’t really need one. To get on this blog and say, “buy now in Manhattan” is like walking into a cathedral and shouting obscenities. It is even more gutsy to say it to people living in New York that have to listen to drones say these very same things day after day. In short, it is an insult to people’s intelligence.

But I have heard it is a great time to buy in San Diego.

China steel workers trap official in 4-day protest
Hundreds of China steel workers trap official during 4-day protest of plant purchase. August 15, 2009

BEIJING (AP) — Hundreds of steel workers in central China trapped a government official in their factory’s office compound for four days, angry at the official’s role in the state-run plant’s privatization, the local government said Saturday.

A local official denied a report in state-run media that armed police were dispatched to clear out the workers, saying they left voluntarily after the government persuaded them to go.

“No conflict broke out during the protest, which was related to the restructuring of the steel company,” the official, surnamed Zhang, with Anyang city in Henan province, told The Associated Press.

As many as 400 workers for the Linzhou Steel Corporation and their relatives dispersed early Saturday after surrounding the company’s offices since Tuesday, the Linzhou city government said in a notice on its Web site. Anyang city oversees Linzhou city.

Protests are common in China, especially as state-run companies are sold off and privatized, leading to layoffs. The government is also shutting down old, polluting steel mills to make way for more efficient plants.

A similar protest last month in northeastern China led to the general manager of a state-owned steel plant being beaten to death. That plant’s merger was called off.

I use Yahoo as a search engine. I have to look at that ugly woman Lynndie England all weekend, when I am here and want to get on line anyway. I’ll never forget that photo of her with a cig hanging out of her mouth. Disgusting human being.

I bet Step agrees too, or maybe he has something to add to the subject I don’t know about. Also, Step, how was the Steak and Shrimp?

“It’s no longer a credit expansion; it’s a credit contraction. The consumer has had his fill of debt. He’s cutting back on his spending and paying off debt. That’s what the July figures show. That’s been the history of the entire downturn.

That’s why it’s a depression, not a recession. It’s a major change of direction that will take years to accomplish. Now, stimulus is not only useless – since it is against the major trend – its counterproductive. It delays and contradicts the adjustments that need to be made.”

~Bill Bonner

Rep. Ron Paul, a medical doctor, was written off by mainstream media as a whacko with ideas that were alien to the American way of life. Lately, though, some of his suggestions…such as auditing the Federal Reserve…have been gaining some traction. And what does his think of expanding the federal government’s role in medical insurance and services?

“The government simply does not have the money for a new, expansive, public healthcare plan. The country is in a deep recession that will deepen even further with the coming collapse of the commercial real estate market. The last thing we need is for government to increase and expand taxes to pay for another damaging, wasteful program. Foreigners are becoming less enthusiastic about buying our debt, and creating another open-ended welfare program when we cannot pay for what is already in place, will not help. Champions of socialized medicine want to tax the rich, tax businesses that already cannot afford to provide health plans to employees, and tax people who don’t want to participate in the government’s scheme by buying an approved healthcare plan. Presumably, all these taxes are to induce compliance. This is not freedom, nor will it improve healthcare.” Economic Fantasy

“The average man doesn’t want to be free. He wants to be safe.”

~H.L. Mencken

Tips on the “pending collapse of the U.S. dollar”. We even got a warning via snail-mail from an outfit promising (for a fee) to show us to to deal with the imminent disaster.

We’ve personally been warning about the erosion of the dollar by constant inflation for years. We’re delighted to finally see some interest taken in the subject of our irredeemable fiat currency.

But, let’s not lose our heads! The dollar has been declining for nearly 70 years. It is not going to be suddenly replaced by “ameros” or an international currency later this month, as some people fear. Or next month, either.

Some commentators predict that banks will close for several days, soon, and a new form of currency will be issued when they re-open. That’s imagination in overdrive!

It’s true the U.S. dollar has lost status as the world’s reserve currency. It’s also true that another currency might take its place. That’s up to the rest of the world, not us. Individuals should worry about the future purchasing power of the dollar.

Is it poised to burst into a hyperinflationary phase, or is “The Great Recession” wiping out so much debt so fast that remaining dollars will gain some strength? Knowing the answer to that question can make a person rich.

TS becomes Ana. So much for that always popular, hot-as-hell, August/September RE bounce in Florida.

We’ll just have to wait for the snowbirds, Boomers, foreigners, and investors now.

I had asked a few weeks ago, but my post was smashificated by Ben’s smashificator: is buying a log home in Florida insane, stupid et. al?

Thousands more could soon lose homes in ’second wave’ of repossessions.
U.K.Daily Mail
15th August 2009

A second wave of home repossessions could soon sweep across the country, experts warned yesterday.

They said that although the number of those losing their homes has fallen recently, the outlook remains bleak.

Repossessions between April and June were 10 per cent lower than the previous three months.
Fewer people hare having their homes repossessed

Fewer people are having their homes repossessed thanks to low interest rates and more help from lenders

However, this is still 14 per cent higher than a year ago, while the number of those in serious arrears has soared by almost 50 per cent in a year.

Repossessions are falling because interest rates are at record lows and the Government has been putting pressure on lenders to take a softer line on those behind on payments.

Banks and building societies have also held off repossessing homes because of low house prices.

However, the housing charity Shelter is concerned that once interest rates and prices begin to rise again, the banks will step up their property grab.

A spokesman said: ‘Shelter fears a second, more devastating tidal wave of repossessions is coming as unemployment continues to rise, the recession deepens and at some point, interest rates begin to climb again.’

Its director of policy and campaigns, Kay Boycott, called for lenders to allow those in arrears to switch from high fixed rates to low variable rates.

‘Banks have been bailed out with billions of pounds of taxpayers’ money,’ she said. ‘Now it’s time to ensure they do everything they can to keep customers in their homes.

Muggy- I am a Florida Appraiser and I can tell you that there is a limited market for log homes. The reasons vary from WDO, wood destroying organism issues to simple lack of appreciation by the public. Many people seem to think they are dirty and hard to keep clean. HUH?

There is a market for them and some people love them but Mom makes most of the decisions on buying and the women by and large seem to prefer traditional light bright homes.

Who knows? We guys love our forts.

I am off to beautiful lake Greenville, Il for the weekend. It IS very pretty. Me and a gang are going boating and drinking beer. Good memories there, so many good memories.

Hope everyone here has a great weekend!

ATE

I have been reading the blog for years now, but I haven’t posted much. I remember seeing that someone was looking in the Horsham/Montgomery County area in Pennsylvania. We have started looking for a house in the area this summer and would like to compare thoughts as to what is going on in the market here. If anyone out there has insight into this area, I would welcome your feedback.

Thanks!

After banking at S&L’s and credit unions for 4 decades i recently opened a tiny account at Chase. If the inept bunglers and carnival barkers at my branch are representative of the commercial banking industry it is no wonder that the banks have lost trillions of dollars.

So if almost 1/3 of mortgages in (traditionally) non-bubbly St. Louis are underwater, I am wondering how that percentage looks in California, where home prices dropped by, what, 40 percent? I am guessing it must be over 50 percent.

An obvious related question: What percent of underwater owners will walk away before the housing bust is over?

Negative equity about the norm in St. Louis
by Tim Logan
ST. LOUIS POST-DISPATCH
08/15/2009

Despite St. Louis’ relatively affordable cost of housing, borrowers here are just about as likely as the nation as a whole to owe more on their house than it’s worth.

Those are the findings of a new report out this week from First American Core Logic, which tracks real estate and foreclosure data. In the second quarter of the year, it found, 29.5 percent of St. Louis mortgages were “underwater” — that is, borrowers owed more on their mortgage than their house is worth. That’s 170,871 homes. An additional 38,000, or roughly 6.5 percent, are “near negative equity” — within 5 percent of being underwater.

Nationwide, the underwater figure sits at 32.2 percent, and another 6 percent are nearly there.

This is a serious problem for the housing market, and broader economy, said Mark Fleming, First American CoreLogic’s chief economist, because such negative equity situations are a major factor in the stubbornly high rate of foreclosure.

“Negative equity continues to be the dominant driver of the mortgage market because it leads to foreclosures in the event a borrower experiences some kind of economic shock: job loss, illness or other adverse situation,” he said. “Until negative equity recedes and unemployment declines, mortgage risk will continue to be very elevated.”
…

OT. Last week I had to go to a local lab, Quest Diagnostics (the one dictated by my insurance company), for routine semi-annual blood work. The clerk politely demanded my insurance card and my drivers license, the latter presumably for identification. Without telling me she would do so, she quickly swiped my drivers license through a card reader. Is this a normal practice, and is there a good reason for it? It’s not like they’d lose a fortune if I were a fraudulent testee. I can’t figure out why a medical lab has the authority and software to read what’s encoded in my drivers license in the first place.

CDDs (and other variations of Community Development District bonds): does anyone here have any experience with these, or know first hand of anyone who has been screwed by buying into a neighborhood covered by them?

My wife and I saw a CDD neighborhood in the Jacksonville area that we like, but as I read more about it, it looks like the potential liability is almost unlimited and that for the amenities portion there is no say-so at all by the residents over the costs or the portion of overall assessments that is applied to amenities versus infrastructure.

Is this a housing bubble-related phenomenon that likely will go away? I like the boulevards and green spaces and conservations, but can’t afford to see my taxes increase at a rate greater than non-CDD residents endure.

I hope you guys are looking. The tax credit expires November 30.

There is a fantastic article in today’s WSJ on the “New American Dream.” Anyone who can afford a copy should go out and buy a dead tree edition of the paper, and save it to show your grandchildren some day. (Note to self: Hide article from wifey before it gets recycled…)

I post a snippet below, but there is much, much more to this article (and a forthcoming book!). Kudos to Professor Sugrue for telling the real story when porcine beautification is so much more politically attractive.

* The Wall Street Journal
* LIFE & STYLE
* AUGUST 15, 2009, 11:15 A.M. ET

The New American Dream: Renting

It’s time to accept that home ownership is not a realistic goal for many people and to curtail the enormous government programs fueling this ambition.

By THOMAS J. SUGRUE
…
Atlanta represents the current housing crisis in microcosm. Since the second quarter of 2006, housing values across the United States have fallen by one third. Over a million homes were lost to foreclosure nationwide in 2008, as homeowners struggled to meet payments. The number of foreclosures reached an all-time record last month—when owners of one in every 355 houses in the country received default or auction notices or were seized by creditors. The collapse in confidence in securitized, high-risk mortgages has also devastated some of the nation’s largest banks and lenders. The home financing giant Fannie Mae alone held an estimated $230 billion in toxic assets. Even if there are signs of hope on the horizon (home prices ticked upward by 0.5% in May and new housing starts rose in June), analysts like Yale’s Robert Shiller expect that housing prices will remain level for the next five years. Many economists, like the Wharton School’s Joseph Gyourko, are beginning to make the case that public policies should encourage renting, or at least put it on a level playing field with home ownership. A June 2009 survey commissioned by the National Foundation for Credit Counseling, found a deep-seated pessimism about home ownership, suggesting that even if renting doesn’t yet have cachet, it’s the only choice left for those who have been burned by the housing market. One third of respondents don’t believe that they will ever be able to own a home. And 42% of those who once purchased a home, but don’t own one now, believe that they’ll never own one again.
…
—Thomas J. Sugrue is Kahn professor of history and sociology at the University of Pennsylvania. He is writing a history of real estate in modern America.

As mentioned a day ago, my REIC-thinking aligned deluded bro in Hawaii called. I took the first opportunity to deliver to him the hard truth about the RE and basic market concepts like supply/demand, price action, etc.

His response was much like a robotic recording of a RealTard. Spewing senseless unquantifiable and unverifiable platitudes. I took the bait and sliced and diced each of these lies (housing always goes up, housing is an investment, etc). After 40 minutes, he still didn’t grasp until he went on a tirade about how “new houses are getting built with sticker prices of 800k-1000k. My response to that was “find a buyer at that price”.

Silence

http://money.cnn.com/2009/08/13/real_estate/july_foreclosures/index.htm

My Clarke Griswold moment (when he finally gets to Wally World and has tears of joy) when I read this article.
Patience is paying off here in Oregon as we have just entered the top 10 list of forclosure states. Very encouraging for this renter of the past 3 years.

Foreclosure plague: No cure yet
The housing market is still sick, with a record number of foreclosure filings posted in July.

By Les Christie, CNNMoney.com staff writer

NEW YORK (CNNMoney.com) — The foreclosure plague continued to devastate last month.

There were more than 360,000 properties with foreclosure filings — including default notices, scheduled auctions and bank repossessions — an increase of 7% from June and 32% from July 2008, according to RealtyTrac, an online marketer of foreclosed homes. In fact, one in every 355 U.S. homes had at least one filing during July.

“July marks the third time in the last five months where we’ve seen a new record set for foreclosure activity,” said James J. Saccacio, chief executive officer of RealtyTrac. “Despite continued efforts by the federal government and state governments to patch together a safety net for distressed homeowners, we’re seeing significant growth in both the initial notices of default and in the bank repossessions.”

The jump occurred as several foreclosure moratoriums phased out. They were initiated by many states to give the administration’s foreclosure-prevention efforts time to work. But for many help did not come: The modification and refinancing programs have met with less success than hoped.

“It’s starting to reach more and more people, but we have to do better and make sure the program reaches the millions of folks we intended it to reach,” said Jared Bernstein, an economics adviser to vice president Biden.

The picture would be even worse, however, without the programs.

“Each of these programs nips away at the problem of excess supply,” said Doug Duncan, cheif economist for Fannie Mae, “and fights against declining prices. … The hope is that the aggregated programs will result in less loss than would happen in the free market.”

Out of their homes
RealtyTrac statistics revealed that more than 87,000 properties were repossessed by lenders, effectively sending many families out of their homes. There have been a total of 464,058 repossessions — or REOs in industry parlance — so far this year (through the end of July).

“We’re seeing more option ARM resets, triggering defaults and more prime loans, which are failing due to job losses,” said RealtyTrac spokesman Rick Sharga.

That is resulting in more filings on higher priced homes, for two reasons: 1. option ARMs were typically used for more expensive properties; 2. borrowers using prime loans generally had better credit and were able to afford more expensive houses.

Best and worst
The worst hit areas continue to be in the “sand states,” with California posting the highest number of total filings, 108,104, and Nevada posting the highest rate of foreclosure at one for every 56 homes.

The other hardest hit states are Arizona, at one filing for every 135 homes, and Florida, at one for every 154. Las Vegas, with one for every 47 homes, had the highest rate among metro areas. That’s Sin City’s 31st consecutive month topping the list.

These were bubble states, where home prices soared and banks financed mortgages for anyone who could fog a mirror.

“We’re seeing the highest levels of foreclosures in the markets that had the highest appreciation [during the boom] and the worst lending practices,” said Sharga.

First Published: August 13, 2009: 3:41 AM ET

From behind “The O.C.”

Oh Lordy,… (Hwy, sits down & ponders the wealth of the Catholic Church…)

“You know financial times are getting rough when even those preaching the prosperity gospel take a hit.”

“Trinity inspires great passions. Supporters feel that it is doing God’s work on Earth - spreading hope, sharing the gospel and saving souls. Critics, meanwhile, accuse the organization of fleecing its flock.”

“But that’s for you guys to decide. We’re just here to look at the numbers. Why do we care? Because Trinity has nonprofit status from Uncle Sam. And as such, it does not pay taxes on its revenues of nearly $200 million.”

Trinity Broadcasting, in tightening times, pays family members more than $1 million:

ALL IN THE FAMILY

The crown for most highly-paid exec of a religious nonprofit in America came to rest again on the head of Trinity’s president, Paul F. Crouch Sr., according to nonprofit watchdog Charity Navigator’s 2009 CEO Compensation Study.

* Paul Sr. made $419,500 - same as the year before.
* Wife Jan (above right) - Trinity’s vice president - earned the same $361,000 as the year before as well.
* But son Paul (right), also a vice president, saw his compensation jump 24 percent, to $161,792.

TBN was tsk-tsked by Charity Navigator for having so many relatives on the payroll - whose combined compensation totals more than $1.2 million. To wit:

* Jan’s nephew, John B. Casoria, is Trinity’s assistant secretary and lawyer. His law firm was one of Trinity’s five highest-paid independent contractors, earning $162,236.
* Paul Senior’s sister, Ruth Brown, is Trinity’s secretary/treasurer. She earned $95,680.
* Jan’s sister, Dorothy B. Casoria, is Trinity’s station manager. She earned $38,529.
* Another Crouch child, Matthew W. Crouch, is Trinity’s assistant vice president. No pay reported. But Crouch is chairman and CEO of the Christian film production company Gener8Xion Entertainment, which has produced films with Trinity.

“We haven’t heard back from Trinity on all of this.( After we wrote about Trinity’s finances last year, lawyer Casoria vowed that Trinity would no longer speak to The Orange County Register, and he seems to be keeping assets2gifhis word.)”

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My oh my, there sure are a lot of Californians living rent-free these days. I never imagined so many households would discover the true value of ownership: Paying your mortgage is optional.

Los Angeles Times | BUSINESS
MORTGAGES
California’s default rate soars to 9.5%

Delinquencies in June are up sharply from a year ago, when 6% of borrowers were behind on their loans.

By Peter Y. Hong
July 31, 2009

About 1 in 10 Californians with a home loan is now in default, and there’s growing evidence that the mortgage meltdown is spreading to commercial real estate.

The home mortgage delinquency rate — the percentage of borrowers who have missed several payments and are in the first stage of foreclosure — climbed in June to 9.5% in California and 9.9% in Los Angeles County, according to First American CoreLogic.

The staggering number of home mortgage defaults probably will lead to large numbers of foreclosures through at least this year, housing experts say.

“It’s probably a given we’ll see a high number of foreclosures in the next couple of quarters due to the level of defaults plus the recession and jobs lost. There’s plenty more pain to come,” said Andrew LePage, an analyst for real estate research firm MDA DataQuick of San Diego.
…

The problems with securitized commercial mortgages sound extremely similar to the problems with securitized residential mortgages. Meanwhile, the Fed and Treasury are mulling over options for repriming the mortgage securitization sump pump, before even properly identifying exactly what resulted in the collapse of the US real estate finance system.

* The Wall Street Journal
* REAL ESTATE
* AUGUST 15, 2009

Hotels Deliver Some ‘Jingle Mail’

By KRIS HUDSON

‘Jingle mail” isn’t just for homeowners anymore. From San Diego to Dearborn, Mich., an increasing number of hotel owners in the U.S. market are simply walking away from money-losing properties and forfeiting them to lenders.

The rise in hotel forfeitures is the product of the worst hotel market since the early 1990s, with revenue declining by double-digit percentages. That has pushed the value of many hotels to less than the balance on their mortgages. Just like homeowners who mail their house keys back to the bank — so-called jingle mail — hotel owners see no hope in renegotiating their loans.
[ InterContinental Montelucia Resort & Spa near Phoenix] InterContinental Hotels Group

Eurohypo is foreclosing on the InterContinental Montelucia Resort & Spa near Phoenix.

Distressed noncasino hotel loans now cover more than 1,000 properties with a cumulative loan value of $16.8 billion, according to Real Capital Analytics, a real-estate research company. That figure encompasses delinquencies, foreclosures, bankruptcies and restructurings of securitized mortgages in addition to loans from banks and other institutions.

Among them are a Mondrian boutique hotel in Scottsdale, Ariz.; a St. Regis resort in Dana Point, Calif.; the InterContinental Montelucia Resort & Spa in Scottsdale, and a Hyatt Regency in Dearborn — each of which is either in foreclosure or has stopped making payments on its debt. It includes the 680 hotels of the Extended Stay Inc. chain that filed for bankruptcy in June.

Delinquencies of loans on casinos that have hotels adds 31 properties and $8.6 billion in distressed loans to the mix.

One major factor in the foreclosures: Many hotel loans are difficult to restructure because they were packaged into commercial mortgage-backed securities, or CMBS, which combine hundreds of property payments into one single bond. With scores of investors owning those bonds, it is extremely hard to cut a new deal to keep the hotel in owners’ hands.

“There is no one person or two people that can really represent the interests of the borrowers and strike a deal,” said Art Buser, chief executive of Sunstone Hotel Investors Inc., which is forfeiting one hotel and has put lenders on notice that it might do so with others.
…

Good things may come to those who sit on their hands while fools rush in to catch falling knives. This NC Times article reveals that
18,900 North County homeowners have recently defaulted on their mortgages without their lenders beginning the foreclosure process, while an additional 8,600 homes are already in the foreclosure process.

So it sounds like something like 27,500 homes are in foreclosure pipeline, in North San Diego County alone. Assuming these homes have on average dropped by thirty percent in value, and enjoyed a median peak bubble valuation of $500,000 (a conservative figure, mind you), they represent an aggregate loss of paper home equity wealth on the order of 0.30*$500,000*27,500 = $4,125,000,000. Of course, this is a minuscule share of the aggregate paper home equity losses for all of California.

North County Times
Home / Business
HOUSING: Median house price up again

But foreclosures loom ever larger, threatening to undercut prices

CHRIS BAGLEY - cbagley@nctimes.com
Posted: Tuesday, August 11, 2009 5:05 pm
…
Assuming that homes continue to sell at the current pace and that no additional homes come onto the market, the homes now listed in North County would all be sold in 3.4 months. That figure, known as “inventory,” is down sharply from more than 15 months in September.

Independent analysts, meanwhile, say the inventory figure means less than it did a year or two ago because of the large and growing number of homes threatened by foreclosure.

Nearly 8 percent of San Diego County mortgage borrowers are at least 90 days behind on payments, and thus in imminent danger of foreclosure, according to First American CoreLogic, a mortgage research firm.

That figure, along with ZIP code-level data from ForeclosureRadar.com, another research firm, suggest that nearly 18,900 North County homeowners have defaulted on their mortgages without their lenders beginning the foreclosure process. An additional 8,600 homes are in the foreclosure process, while banks have seized just 1,300 homes to complete the foreclosure process, according to ForeclosureRadar.com.

In other words, the bank-owned homes now on the market may be the tip of an iceberg.

Even in an economic downturn, preachers in the “prosperity gospel” movement are drawing sizable, adoring audiences. Their message — that if you have sufficient faith in God and the Bible and donate generously, God will multiply your offerings a hundredfold — is reassuring to many in hard times.

Many in this flock do not trust banks, the news media or Washington, where the Senate Finance Committee is investigating whether the Copelands and other prosperity evangelists used donations to enrich themselves and abused their tax-exempt status. But they trust the Copelands, the movement’s current patriarch and matriarch, who seem to embody prosperity with their robust health and abundance of children and grandchildren who have followed them into the ministry.

There’s never been a better time to sheer the sheeple.

BWAHAHHAHAHAHHAHAHHAHAHHAHAHAHHAHAHAHHAHAHHHHHH!!!

Los Angeles Unified School District wants to raise property taxes $100 per $100,000, and claims a bond law for building new schools might protect them from prop 13 denial. ABC News had a segment today. Talk about adding to the avalanche of foreclosures. A lot of my former co-workers are hanging on by a thread in L A.

IIRC, their goal was 160 new schools for the 3rd worlders. Most don’t belong here, but their mother squated on U.S. soil.

Though the housing bubble has deeper historic roots, the beginning of Clinton’s first term is not a bad first approximation to the point when the housing mania’s seeds were first planted. Green shoots of an incipient mania sprouted shortly thereafter. I can hardly wait until when Hitlary gets her turn in the WH, so we can relive the experience all over again.

* WALL STREET JOURNAL
* OPINION
* OCTOBER 3, 2008

How Government Stoked the Mania

Housing prices would never have risen so high without multiple Washington mistakes.

By RUSSELL ROBERTS

Many believe that wild greed and market failure led us into this sorry mess. According to that narrative, investors in search of higher yields bought novel securities that bundled loans made to high-risk borrowers. Banks issued these loans because they could sell them to hungry investors. It was a giant Ponzi scheme that only worked as long as housing prices were on the rise. But housing prices were the result of a speculative mania. Once the bubble burst, too many borrowers had negative equity, and the system collapsed.
[How the Government Stoked the Mania] David Klein

Part of this story is true. The fall in housing prices did lead to a sudden increase in defaults that reduced the value of mortgage-backed securities. What’s missing is the role politicians and policy makers played in creating artificially high housing prices, and artificially reducing the danger of extremely risky assets.

Beginning in 1992, Congress pushed Fannie Mae and Freddie Mac to increase their purchases of mortgages going to low and moderate income borrowers. For 1996, the Department of Housing and Urban Development (HUD) gave Fannie and Freddie an explicit target — 42% of their mortgage financing had to go to borrowers with income below the median in their area. The target increased to 50% in 2000 and 52% in 2005.
…
Guess who gets the credit for “predatory subprime lending” to minorities? HUD gets the credit!!!

Recession is bad for the US birth rate (and presumably for whatever activity accounts for changes in the birth rate as well…).

NBC Philadelphia
politics
Recession Ends Baby Boom
Birthrate drops for the first time in the last 10 years
Updated 4:05 PM EDT, Fri, Aug 7, 2009

For the first time in over a decade, the U.S. birth rate has dropped and some industry analysts are blaming the recession.

At the start of the economic downturn in December 2007, the U.S. had broken a 50-year-old record high for births set during the baby boom, but since then the number has declined, a full 2% last year. The National Center for Health Statistics reports that 4,247,000 babies were born in the U.S. in 2008, down roughly 68,000 from the year before.

Births were down across the country in all but 10 states, most of which were in the northern belt, where the recession was felt the least. California and Florida, two states that were hit the hardest by the housing crisis, saw the steepest decline.

The birth rate has historically risen and fallen with the economy, with record lows recorded during the Great Depression in the 1930’s and the Arab oil embargo of the 1970’s.

Serial bottom callers are at it again. Could someone please fill in Rex to some of our recent posts so the death of green shoots does not dash his irrationally exuberant hopes into the wicked and expedient stones?

Economic Preview

Aug 16, 2009, 12:01 a.m. EST
Housing hits a bottom

Housing starts and sales expected to rise modestly in July

By Rex Nutting, MarketWatch

WASHINGTON (MarketWatch) — Housing, which led the economy into recession, may be one of the forces that helps to pull it out of the ditch.

After 14 quarters of declining investment in homes averaging one percentage point of GDP per quarter, residential investments could actually add to the nation’s gross domestic product in the third quarter, economists say.

No one expects a renewed housing boom. But at least sales and construction spending aren’t falling any more.

Home builders are gradually becoming more hopeful, even though surveys show most builders are still very discouraged. The builders’ housing market index has risen in four of the past five months.

Housing starts have increased in four of the past five months after tumbling to a postwar record low. Building permits for single-family homes have risen at a 109% annual rate over the past three months.

Sales of new single-family homes have risen three months in a row after falling to a record low in March.

Sales of existing homes have risen four of the past five months, supporting by a government subsidy for first-time buyers and by sales of foreclosed homes.

Three of these key housing indicators will be released in the coming week, with the fourth arriving a week later. Economists surveyed by MarketWatch expect all four to continue to rise modestly.

“Home sales and construction are still at low levels, but evidence is growing that they are past their lows and beginning to rebound,” wrote economists for Moody’s Economy.com. “Most influences on housing demand are still negative, but with the recession winding down it has become increasingly difficult to sustain the kind of weakness witnessed over the past couple of years.”
…

omega-sloth sleep surfin

Who’d of thunk the Research Triangle housing market would sink this deep underwater?

Friday, August 14, 2009, 1:05pm EDT

Report finds 1 in 5 Triangle mortgages underwater

Triangle Business Journal - by Lee Weisbecker Triangle Business Journal

About one in every five Triangle home mortgages examined by a California-based real estate analytics firm were “underwater” as of June 30 – a ratio better than both the state and national averages.

When a mortgage is underwater or in a negative-equity position, the borrower owes more on the loan than the home is worth. A high percentage of “upside-down” mortgages in a community is thought to correlate to higher home-foreclosure rates.

The report from Santa Ana-based First American CoreLogic found that 19.8 percent of all mortgaged properties in the Raleigh-Cary metropolitan area and 21.2 percent in the Durham-Chapel Hill area were underwater on June 30.
…
More underwater mortgage news:

* Arizona’s ‘underwater’ mortgage level among nation’s highest [10/31/2008]

* Report: Twenty-six percent of Houston-area mortgages underwater [08/14/2009]

* Report: 40% of Columbus-area mortgages underwater [08/14/2009]

* Cincy MSA: 37% of mortgages underwater [08/14/2009]

So much housing bust news, so little time…

Friday, August 14, 2009, 11:24am CDT
Report: Twenty-six percent of Houston-area mortgages underwater
Houston Business Journal

* Orlando February home values fall 21%
* Nashville home prices falling faster
* Duke City home prices dip 2.4 percent
* D-FW apartment sector faces second-highest volume of maturing loans in the U.S.
* May foreclosure rates up in Cincy metro

More than a quarter of all mortgaged properties in the Houston-Sugar Land-Baytown are in negative equity, according to new data from First American CoreLogic.

Negative equity means the borrower owes more on their mortgage than the home is worth.

The Santa Ana, Calif.-based real estate information company says 239,912 mortgaged properties in the Houston-Sugar Land-Baytown area, or 26.15 percent, were in negative equity as of June 30, 2009, while 310,715 mortgages, or 33.86 percent, were in a near-negative or negative equity situation. The total value of property at risk of default in the area was estimated at more than $34 billion.

In Texas, 777,000 mortgages were in negative equity, putting the state fourth in terms of the number of negative equity mortgages. California led with 2.9 million mortgages underwater, followed by Florida with 2.3 million and Ohio with 862,000.

Friday, August 14, 2009, 11:51am EDT
Report: 40% of Columbus-area mortgages underwater
Business First of Columbus

New data from a real estate research company indicate two of every five households in the Columbus area owe more on mortgages than their houses are worth.

Santa Ana, Calif.-based First American CoreLogic said it found that 160,216, or 40 percent, of all properties with a mortgage in the Columbus area were in negative equity, or “underwater,” as of June. An additional 28,000 mortgages are nearing the point of negative equity.

That means property in the region valued at $24.3 billion is at risk of default because homes with underwater mortgages are unlikely to sell at a profit and are likely to have refinancing troubles, First American said.

Nationally, more than 15.2 million mortgages, or nearly a third of all mortgaged properties, are underwater, while the percentage of homes in or near negative equity climbs to 38 percent. The share of underwater mortgages, however, is down slightly from the end of the first quarter and reflects a recent stabilization of housing prices, First American said.

According to the latest data, Ohio is one of the five states with the highest number of negative-equity mortgages at 862,000. The worst states for underwater mortgages, California and Florida, accounted for more than one in three negative equity loans nationwide.
…

San Francisco Chronicle
Real Estate Mailbag
- Benny L. Kass

Should I walk away from underwater property?

Saturday, August 15, 2009

Q: My wife and I purchased a four-unit rental property for $935,000 in 2006 and put 10 percent down. The lender split our loan into 80/20 and we have a loan balance of $650,000 and a HELOC balance of $192,000. We have an adjustable-rate first mortgage and our monthly payment increases annually. It’s now getting to a point where we can’t pay any more.

Currently, the property value is $625,000, so we pretty much are upside down. The bank doesn’t want to adjust our loan because it is a rental property, and it won’t refinance.

We also have a problem with a tenant who could not pay rent because she lost her job, and it is hard to find tenants because of the economic downturn. I would like your honest advice on what I should do. Should I just walk away?

A: It will not be a consolation to you, but I am receiving questions from many, many readers with similar issues.

Unfortunately, there is no easy answer. The federal government and many state governments have started implementing plans and programs to assist people who are in your situation, but there still remains a lot of confusion - and indeed distrust - of many of these operations. More important, many lenders are unwilling to work with people whose properties are underwater.

There are a number of options available - but only you and your wife can make the final decision. You can file for bankruptcy relief, but you must consult a bankruptcy attorney to determine what the consequences will be.

You can try a short sale. Contact a real estate agent to see whether there is any market for your property. Obviously, your lenders will have to approve, and this can take some time.

You can ask the bank if it will take the property back. This is called a deed in lieu of foreclosure. Or you can just walk away from the property, and let the bank foreclose. However, once again, you have to determine the consequences.

Many states allow lenders to go after their borrowers for a deficiency judgment. Let’s take this example: You owe a total of $842,000 on both loans. If the bank sells the property for only $600,000, that leaves a balance owing of $242,000.

This is known as a deficiency. You have to talk with a local attorney to see if your state law permits - or prohibits - lenders from seeking that additional money from you.

I know you have already talked with your lender, and that’s the first thing anyone should do. But don’t talk to a local bank representative; it’s difficult to find a responsible person at most lenders, but make the effort to talk with someone as high in the chain of command as possible.
…
…difficult (bwa ha) to find (bwa ha ha ha ) a responsible (bwa hahahaha ) person at most (bwa hahahahaha ) lenders… (BWAHAHAHAHAHHAHAHAHAHAHAAHAHAHAHAHAA!!!!!)

This industry has self-destructed, and now they need more or your tax dollars so they can fook themselves and the rest of America some more!!!

Holy Toledo — 44% underwater?

Toledo area’s home equity is sinking: Underwater rate put at 44%
Sat. August 15, 2009; Posted: 09:06 PM

Aug 15, 2009 (The Blade - McClatchy-Tribune Information Services via COMTEX) —

A national real estate data firm is estimating that through June, 44 percent of metro Toledo residential properties with a mortgage
are “underwater” — that is, the borrower owes more on the mortgage than the home is worth.

First American CoreLogic, of Santa Ana, Calif., said the 61,155 properties that it believes are in a negative equity
position have a total property value of $7.2 billion.

In addition, another 8,120 properties were in a near-negative equity position; that is, they are within 5 percent of being underwater, CoreLogic said. That means, according to the firm’s estimates, that nearly half of home-owners either owe more than their homes are worth or are close to owing more.
…

Here is the First American Core Logic Report on the distribution of negative equity across the American mortgage landscape.

IT’S UGLY, FOLKS — UGLIER THAN SHREK’S GRANDMA, IN FACT!!!

I just posted a link to the First American Core Logic report everyone is discussing. In case it doesn’t show up soon, here is a snippet:

More than 15.2 million U.S. mortgages, or 32.2 percent of all mortgaged properties, were in negative equity position as of June 30, 2009 according to newly released data from First American CoreLogic.

June’s negative equity share was slightly lower than the 32.5 percent as of the end of March 2009 and it reflects the recent flattening of monthly home price changes. As of June 2009, there were an additional 2.5 million mortgaged properties that were approaching negative equity. Negative equity and near negative equity mortgages combined account for nearly 38 percent of all residential properties with a mortgage nationwide.

Deutsche Bank is predicting the percentage of negative equity mortgages will eventually exceed 50 percent. 38 percent is not far away from that already…

This writer has nicely cataloged “Seven Deadly Sins” of government distorting housing market policy.

OPINION

The Seven State Regulations of Markets That Made the Crisis Possible—And What Should Be Done about Them

by Vincent Bénard
…
Below are the top seven state interventions and regulations that broke our market-based defences against failures and thus brought us the worst economic crisis since the Great Depression. The first three interventions can be branded as elements of a “system of subsidies” to banks and financial institutions, aimed at artificially lowering the cost of financial resources to banks. They exist worldwide. The four others are specific to the real estate and mortgage markets, and some are specific to the USA.
…
Subsidies to the Banking System
…
• Federal Reserve manipulation of interest rates
…
• Tax codes that favour over-leveraged companies (especially financial institutions)
…
• Basel I and II inflexible capital requirements
…
Distortions in Mortgage and Real Estate Markets
…
• Special advantages granted to Fannie Mae and Freddie Mac
…
• Special constraints placed on Fannie Mae and Freddie Mac
…
• Community Reinvestment Act
…
• Smart Growth Policies and similar land-use regulatory restrictions
…
Conclusion: Restore Markets!

Markets are imperfect because human beings are. All the state interventions in free market mechanisms described above were supposed to bring corrections to unavoidable market imperfections. They were supposed to provide us with safer banks, better access to consumer goods for the poor, better-performing companies and economies, better use of space, and better social side effects. None of the intended goals of these interventions have been achieved. But by destroying the “natural” defences of markets against failure, they wrought havoc on the world economy.

It’s time for politicians to ask themselves why state regulations of land, finance and money failed so miserably, and if we should not replace them with a few market-based mechanisms that would be more efficient in achieving their stated goals.

If lenders and borrowers agree to a lease-back agreement that works for both of them, that is their business. I have to side with the lenders’ view that the government should not interfere with private contracts by forcing them to do this. Besides the questionable legality of taking away a lender’s private property rights, such a measure may have the unintended and undesirable consequence of limiting the future flow of private funds into the mortgage market.

The other thing I disagree with is the idea of injecting tax dollars into bridging the gap between what owners can afford to pay and what lenders are willing to charge as rent. If the current owner cannot fulfill his side of the contract, why should that be anyone else’s problem besides that of the lender on the other side of the contract? In particular, why should anyone who decided to rent a home or live in lower quality housing have to pony up to enable other households to enjoy relatively luxurious housing?

Nation’s Housing
From owner to tenant and back to owner again
KENNETH HARNEY
2:00 a.m. August 16, 2009

WASHINGTON — Here are two questions getting a lot of attention on Capitol Hill and from the Obama administration: When homeowners lose their houses to foreclosure, should they be able to stay in the property, leasing it back at fair-market rent from the lender?

Should they also get an option to purchase the house from the bank at the end of the lease term, assuming they have the income to afford it?

Before leaving for their August break, Democrats and Republicans in the House took a rare, unanimous stand on both questions by passing the Neighborhood Preservation Act by voice vote. The bill was co-sponsored by Reps. Gary Miller, R-Diamond Bar, and Joe Donnelly, D-Ind.

The bill would remove legal impediments blocking federally regulated banks from entering into long-term leases — up to five years — with the former owners of foreclosed houses. It would also allow banks to negotiate option-to-purchase agreements permitting former owners to buy back their houses.

The idea, said Miller, is, “at no cost to the taxpayer,” to “reduce the number of houses coming into the housing inventory and preserve the physical condition of foreclosed properties,” which ultimately should help stabilize values in neighborhoods with large numbers of distressed sales and underwater real estate.

If the bill is approved by the Senate, participation by banks would be purely voluntary. But the legislation might encourage banks to calculate whether they would do better financially taking an immediate loss at foreclosure, or by collecting rents and then selling the property at a higher price in four or five years.

Though it was not opposed by banking lobbies, the bill quickly attracted critics. The Center for Economic and Policy Research, a think tank based in Washington, said a key flaw is to leave decisions about lease-backs solely to banks themselves.

“If Congress does want to give homeowners the option to stay in their homes as renters,” said the group, “it will be necessary to pass legislation that explicitly gives them this right.”
…

“Common Sense” market timing? Heh heh heh…

Time to take profits from booming market Question
Question is, which stellar stock should be sold?

By James B. Stewart, THE WALL STREET JOURNAL

2:00 a.m. August 16, 2009

This month, the Nasdaq topped 2,000, a milestone in itself, but also another selling threshold for Common Sense. The Nasdaq hasn’t been that high since Oct. 1, and at that level it was 58 percent above its March 9 low.

This means it’s time — past time, actually — to take some profits. The Common Sense system calls for selling at intervals of 25 percent gains in the Nasdaq, but there are no hard-and-fast rules. Even with the recent market pullback, we’re still in selling territory. The Common Sense goal is to sell higher and buy lower, not perfect market timing.

Anyone who followed my advice to buy stocks in March is sitting on some significant gains. As usual, this isn’t a prediction that the market is going to fall, simply a recognition that no market rises indefinitely without a correction and an accompanying buying opportunity. This is the second selling opportunity this year without an intervening correction.
…

I find myself curiously humming a churchy tune my kids some times sing:

“The foolish man built his house upon the sand
The foolish man built his house upon the sand
The foolish man built his house upon the sand
And the rains came ‘a tumbling down.”

Daily Finance
An AOL Money & Finance Site

The negative home equity nightmare: Housing won’t stabilize until 2011
James Cullen

Aug 11th 2009 at 3:00PM

Aggressive lending practices fueled the housing boom, and the availability of generous sums of mortgage and home equity money left borrowers with more debt and less equity than ever before. The Federal Reserve reported that home mortgage debt grew at a double-digit rate every year from 2002 to 2006. But as real estate markets across the country have seen price declines between 10 percent (Dallas) and 54 percent (Phoenix), an estimated 11 to 15 million households are now “underwater” on their mortgages, owing more than their house could be sold for today. This overhang, already being blamed for exacerbating the decline in residential real estate, likely won’t peak until 2011, according to a research note from Deutsche Bank obtained by DailyFinance.

Deutsche Bank says that nearly $6 trillion in home equity has been vaporized since the peak in housing prices, and any quick recovery would be dependent on repeating the same lending mistakes that led to the boom — an unlikely proposition. As housing prices continue to fall, the firm estimates that 25 million homeowners, or 48 percent of all mortgages, will eventually wind up being underwater.

The concentration of underwater borrowers is somewhat dependent on geography and the mortgage products that were used in the latter stages of the housing bubble. Deutsche Bank believes that about two-thirds of Alt-A and Subprime loans and almost 90 percent of Option ARM loans will be underwater in 2011. Option ARMs had higher initial balances relative to the home’s price (loan-to-value, or LTV), and had negative amortization features that made the principal balance grow for a set amount of time. Additionally, the use of alternative mortgages were more heavily favored in areas that had registered large gains in housing prices — the same areas that have since been hit hardest by the bursting of the bubble.

Deutsche Bank’s future pricing declines divide the worst housing markets into the “sand states” of Arizona, California, Florida, and Nevada, as well as states like Ohio, Michigan, Illinois, Wisconsin, Massachusetts and West Virginia that are struggling due to their manufacturing base. While the current list of areas where more than 50 percent of borrowers are underwater is dominated almost exclusively by the sand states, Deutsche Bank sees the number more than doubling to include parts of the aforementioned states in addition to places like Lousiana, Maryland, Oregon, and Utah. In other words, the “sand state” housing crisis is going nationwide.
…

I thought the housing market had already bottomed out, but I keep reading these scary reports that prices will keep falling at least through some time in 2011. ME CONFUSED!

U.S. Home Prices to Fall Through 2011’s First Quarter (Update1)

By Dan Levy

July 7 (Bloomberg) — Home prices may fall in more than half of the largest U.S. cities through the first quarter of 2011 as unemployment and foreclosures rise, mortgage insurer PMI Group Inc. said.

Thirty of the 50 biggest metropolitan areas have at least a 75 percent chance of lower prices through March 31, 2011, Walnut Creek, California-based PMI said in a report today. The decline is likely to spread to “all regions of the nation” from California, Florida, Nevada and Arizona, the states most affected by the housing slump, PMI said.

“The housing market has been hit by a demand shock of high unemployment and a supply shock of distressed foreclosure sales,” LaVaughn Henry, senior economist at PMI, the fourth- largest U.S. mortgage insurer, said in an interview.
…

Try not to catch yourself a falling knife.

Real Estate Pro Articles
Underwater Mortgages Driving Rise in Bank Repo Homes

Nearly 50 percent of all residential mortgages in the U.S. will be
underwater by 2011 as house prices continue to drop, according to Deutsche Bank.

The bank explained that the continued drop in house prices has been
driving the continued increase in bank repo homes as borrowers walk away from their underwater mortgages.

In June, Deutsche Bank predicted that home prices will fall by 14 percent
in the first quarter of 2011 in at least 100 metro areas, bringing the
total home price decline to 41.7 percent.

The projected increase in the volume of underwater mortgages to about 48 percent by 2011 marks a staggering increase from the 26-percent share on March 31 this year.

Deutsche Bank also said that conforming mortgages which met Freddie Mac and Fannie Mae lending guidelines and which comprise most of the mortgages originated will be battered most by home price declines. Prime conforming mortgage loans comprise around 67 percent of all mortgages and usually are less risky than other types of loans because these are given to borrowers with high credit scores and complete and qualified financial documentation.

Of all conforming home loans, about 41 percent shall be underwater during the first 3 months of 2011, an increase from the 16 percent share in the first 3 months of 2009.

Borrowers who took out risky home loans during the boom years will also be hit hard in 2011 because they are suffering the biggest erosion in home value and in equity, according to Deutsche. Of all subprime mortgages, 69 percent will become underwater in 2011, a substantial increase from the 50-percent share in March.

Of all option adjustable-rate mortgages, 89 percent will become underwater in 2011, another substantial increase from the 77-percent share in March. Option ARMs allow borrowers to make very low payments during the first years of their loan terms.

Deutsche analysts Ying Shen and Karen Weaver made the projections despite indications of improvements in the housing market, as increases in home prices were reported in many areas of the country after 3 years of price declines. They said that the next wave of house price declines will affect prime mortgage borrowers the most.

According to the analysts, around 90 percent of all mortgages in Las Vegas and in other cities in California and Florida will be underwater by 2011 and the states that will suffer negative equity the most will be
California, Florida, Nevada, Arizona, Ohio, Illinois, Michigan,
Massachusetts, Wisconsin and West Virginia.

Does anyone else sense a mighty struggle underway between the efforts of “green shoots” propagandists to perpetuate irrational exuberance, and the countervailing force of reality-based analysts like the Deutsche Bank folks who just released an eminently reasonable and even conservative prediction of continued US housing price declines into 2011 leaving 48 percent of US mortgages underwater?

Which will eventually prevail: The side of whimsical economically irrational fantasy, or that of ground-truthed rational economic reality?