The Housing Bubble

It’s Friday desk clearing time for this blogger. “Homeowners with mortgages of more than $1 million are defaulting at almost twice the U.S. rate and some are turning to so-called short sales to unload properties as stock-market losses and pay cuts squeeze wealthy borrowers. Masoud Bokaie, co-founder of engineering firm BORM Associates Inc. in Irvine, California, owes $2.6 million on a 3,664-square-foot house with marble floors and granite counters about 10 miles away in Newport Beach. He’s waiting to hear whether lenders will approve a short sale. He received an offer last month ‘close to’ the loan balances, said Shirley Cameron, his agent in Irvine, who declined to specify how much.”

“Bokaie said he doesn’t want to pay $7,000 a month in net costs including the property’s mortgages and taxes when real estate values in the area continue to tumble. ‘What’s the point when the market is going in the other direction?” Bokaie said.”

“Statistics indicate that about one in five homeowners across the state owe more on their homes than they’re worth; about 7.4 percent of homeowners were more than 90 days past due at the end of October; and home prices in the Valley remain depressed. ‘It’s a very tough situation,’ said Debbie Hobbs, of Action Association Management, which manages six homeowners associations with more than 500 homes in Canyon County. ‘We’re getting situations where people are walking away from their homes. I’m seeing a lot of foreclosures, not only of homes, but of developers.’”

“Over 200 lots in the Eagle development noted for its ties to sports stars Mia Hamm, Jack Nicklaus and others are scheduled for auction Dec. 21. Partner Todd Santiago told the IBR that sales weren’t meeting expectations. ‘We definitely planned for peaks and valleys in the housing market, but this just happened to be a deeper valley than I think anyone nationally had predicted or forecasted,’ he said. ‘This particular valley and downturn are obviously longer and more significant that what some of the historical valleys have been in the real estate cycles.’”

“Several key parcels in Baltimore’s Clipper Mill development were bought back at auction by the lender for $2.425 million Thursday in a foreclosure sale following the default on bank loans by the developer, Struever Bros., Eccles and Rouse. The auctioned properties included more than two dozen incomplete upscale homes in the 38-unit Overlook at Clipper Mill subdivision.”

“Several residents of the upscale Overlook houses said they would urge the bank to complete work on the unfinished houses as they were designed and permitted by the city of Baltimore and put them on the market as quickly as possible. They noted that several of the houses are nearly complete and need only appliances and finishing touches, while others need siding on the exterior to protect the buildings during the winter. Still others have just the foundation in place or have not been started at all.”

“‘I was hoping they would finish off what they started,’ said Lucy Rouse, an Overlook resident and former wife of a former principal of Struever Bros. ‘The exteriors need to be completed. It would be a shame to drop it in midstream.’”

“Speculation is intensifying about the fate of the ICON Brickell condominium, the $1 billion crown jewel of Miami condo developer Jorge Perez. In an interview Wednesday night, Perez denied statements appearing in a Wall Street Journal story in which he said the company would likely be relinquishing ownership of ICON to Bank of America and HSBC, the project’s main lenders. ‘We’ve been trying for nine months to work out a friendly agreement with the bank that will not put the building under bankruptcy or anything negative, and that can include us working with the lender to turn it over or for them to ask us not to turn it over,’ Perez said.”

“Regardless, Perez said, ‘Whatever happens, I developed, I created ICON Brickell — that is mine and it will always be mine in that sense.’”

“A growing number of lower-income homeowners in the D.C. region spent at least half of their income on housing costs, reflecting a decline in housing affordability across the nation, according to a study released Thursday. For new buyers taking advantage of historically low interest rates and the drop in prices, housing affordability has never been better, said Lawrence Yun, chief economist at the National Association of Realtors.”

“‘The affordability conditions are better today than in 2008,’ he said. ‘Housing costs were a problem during the boom time as well as the time immediately after. Now the market has overcorrected. Prices have crashed through normal.’”

“The Kane County subdivision of Parkside at Prairie Ridge was billed as the perfect place to raise a family. But nearly a year after Parkside at Prairie Ridge’s first residents moved into the sprawling 1,200 acre neighborhood, they’re the only ones there. ‘Obviously we expected a lot more neighbors by now,’ the family’s patriarch, who wished to remain anonymous, told the Sun-Times.”

“The U.S. housing crisis is building to a scenario where 22 million homes will be vacant by 2025. The sprawl of suburban Chicago makes it a prime target for such a blandscape. The University of Illinois’ I-Space Gallery is looking at the transition in an exhibition called ‘Architecture of Crisis.’ Curator, Roger Hubel is from Zurich, Switzerland. ‘In America, standard construction is harmful to the environment on so many levels. Not only do we use cheap materials that are not sustainable, but we also have created an illusion of value. People care more for square footage than quality of construction. This drove up the prices of houses and then, amazingly, people were paying the same costs in energy bills as their mortgage.’”

“The Mountain West has been hit harder than the rest of the country by the Great Recession, according to a new study from the Brookings Institution ‘Across the region, the deflation of a massive housing ‘bubble,’ widespread job losses, and the onset of a significant public-sector fiscal crisis have wreaked havoc on many communities,’ says the report. ‘In many Intermountain region locations, the sheer abruptness of the shift from hyper-growth early in the decade to a severe contraction in the last year has spawned a sense of almost existential whiplash.’”

“Valley Investments owner Philip Rand Lochmiller, arrested Wednesday in connection with the failure of his business, remains free awaiting a second appearance in federal court next week. A crowd of about 50 people, many of them investors in Valley Investments, murmured in displeasure in the federal courtroom in downtown Grand Junction. ‘I don’t think he should have been released,’ said investor, Jim Sanders.”

“One lot with a rental trailer in Mack secured at least 13 investments, amounting to more than $640,000, the indictment said.”

“A handful of felons already have lost their mortgage broker licenses as state regulators begin imposing tougher restrictions aimed at cleaning up the beleaguered profession. Criminals with mortgage broker or loan originator licenses have been a hot-button issue since the housing and mortgage markets collapsed in 2007. More than 340 criminals, including burglars, drug dealers, thieves and a killer, had loan broker’s licenses last year, the Journal Sentinel disclosed in an investigation published in March.”

“Chaunsler Mitchell, a Dane County broker who served a four-year prison sentence and is still on supervision for a 1993 armed robbery and burglary convictions, recently found out that he was losing his license. Mitchell disclosed his convictions when he applied for a broker’s license in 2005 and when it was renewed in 2007. This fall, however, it was rejected because officials said armed robbery merits a lifetime ban under the new rules.”

“‘I was devastated,’ Mitchell said. ‘You work so hard to build something and then this comes out of nowhere.’”

“America has the wrong approach for dealing with thieves. Rather than ‘looking backwards’ at their misdeeds and ‘punishing’ them, we merely need to ask that they not misbehave in the future, then monitor their behavior.”

“Believe it or not, this is how congressional leaders are addressing the thievery of three little-known gangs….The kid-glove treatment is reserved for thieves named Moody’s, Standard & Poor’s and Fitch’s — the Big Three credit-rating agencies that exist to evaluate the worthiness of corporate-issued bonds. But the Big Three run a rigged game that robs our pension funds and other investors. Moody’s, S&P and Fitch are not independent public regulators, but for-profit firms that are paid fat fees by the very corporations whose bonds they rate.”

“For example, the Big Three gave thumbs-up to the subprime housing bonds that turned out to be worthless, leading to trillions of dollars in losses for the public and crashing our economy. Yet, our soft-on-corporate-crime congress critters have declared these finaglers ‘too big to jail.’ Rather than taking the Big Three off the street, Congress is coddling them, meekly freeing them to continue their corrupt, for-hire, monopolistic system of credit-rating flim-flammery.”

“Things got interesting in suburbia yesterday as 200 Laborers and community supporters rallied in front of Pulte Homes’ headquarters. The rabble-rousers were calling attention to the residential building company’s abuse of workers and homebuyers. Corporate homebuilders like Pulte both build and sell houses, acting as agent, lender, and appraiser. Ninety-two percent of people who bought Pulte houses in 2007 and 2008 got mortgages from the company, many of them of the ‘exotic’ variety that have led to record foreclosure rates.”

“A handful of Laborers immediately went to work constructing a ramshackle home right on the green, plastering it with signs reading, ‘Pulte: Stop foreclosing on the American dream,’ while a team across the street inflated a two-story, cigar-chomping pig in a suit and top hat.”

“Federal Reserve Chairman Ben Bernanke cleared the first hurdle on his way to another four-year term when the Senate Banking Committee approved his nomination. Vermont Senator Bernie Sanders will try to block his confirmation. ‘Bernanke failed on his job,’ Sanders said. ‘Why would you want to reappoint somebody for that enormously important position with that kind of poor track record?’”

“Bernanke ‘presided over one of the biggest economic catastrophes we’ve had as a country,’ said Senator Jim DeMint, a South Carolina Republican.”

“Virgina Democratic Senator Mark Warner said the catastrophe would have been much worse were it not for Bernanke’s actions to prevent a total collapse of the banking system. Warner said it was ‘extraordinary’ to hear the ‘finger-pointing’ directed by Republicans at Bernanke and the Democratic Congress, ‘as if one individual or one entity or one political party was responsible for the 20-year overleveraging of our economy. I think there were no clean hands.’”

“Even though the Fed is supposed to be independent of politics, these kind of attacks come with the territory….If he gets too down, he can always pull out Time magazine’s year-end issue and look at the cover featuring him as Person of the Year.”

“Appearing at a press conference with Sanders, Robert Borosage, co-director of the liberal Campaign for America’s Future, said: ‘Awarding Ben Bernanke man of the year as Time magazine has done is something like celebrating an arsonist for helping put out the fire that they just put a match to.’”

“‘Wall Street is very powerful,’ Sanders said Wednesday. ‘Bernanke is their guy and they want their guy to stay in office.’”

“Sen. Jeff Merkley, an Oregon Democrat and banking committee member, announced he, too, would vote against Bernanke. Merkley said that Bernanke, who served in the Bush administration and was appointed by Bush to the Fed, failed ‘to take the necessary precautionary steps that could have averted or mitigated financial collapse.’”

“SEN. SANDERS:’ One of (the) key functions, as you all know, of the Fed is to oversee the safety and soundness of our financial system. He was chairman of the Fed. And, all around him, wild speculation, illegal behavior, gambling, casino-type activities were taking place. Where was Ben Bernanke, the chairman of the Fed, when all this was happening?’”

“JAMES GALBRAITH, Professor of Government and Business Relations, University of Texas at Austin: ‘I have a great deal of respect for Chairman Bernanke, both as a civil servant and as a professional economist. But this was an institutional failure of the first magnitude. He was chairman of the Fed in advance of the crisis. He failed to heed the warnings that were being offered about the dangers in the housing market, about the dangers in derivatives. The Fed was lax in its approach to the regulation of the financial system at that time. And the crisis happened on his watch.’”

“ALICE RIVLIN: I think the whole financial community bears a lot of responsibility. And there were regulatory failures. And the Fed acted too slowly…But, when the crisis came, Ben Bernanke was absolutely the right person to be there. He was calm and collected. He was very knowledgeable. He was bold in using the powers of the Fed to stabilize the financial system. It was a really dangerous, chaotic situation. We could have had domino effect, big institution after big institution going down, and a total meltdown of the financial system. He avoided that.’”

JIM LEHRER: ‘But you don’t believe — you don’t buy Professor Galbraith’s captain-of-the-ship analogy, right, that he was — it happened to his watch, so he should go?’ ALICE RIVLIN: ‘No, I don’t. I don’t have a good explanation of why so many people who watched the Fed carefully and who watched the markets carefully missed this crisis, but almost all of us did. And I don’t think Bernanke, who came in rather late in the development — he took over the Fed in 2006 — now, they might have acted more quickly in 2006 and ‘07, before the crash, but nobody saw this coming. And I don’t think it’s fair to say Bernanke should have seen it, when nobody else did.’”

“JIM LEHRER: What about that, Professor Galbraith? Nobody else saw it. Why should Bernanke have seen it?’ JAMES GALBRAITH: ‘Well, I might change my — go to court and change my name to nobody.’”

“‘There were people who saw it, very well respected people. Warren Buffett warned that derivatives were weapons of financial mass destruction. There were warnings from within the Federal Reserve Board about the dangers that were emerging in the mortgage market in the subprime sector. There were warnings.’”

“‘This, I think — it is the job of the Federal Reserve to be on top of financial danger, to be skeptical about speculative activity in the system, to both warn and to act. And it’s of course characteristic, in advance of a crisis, that that is very difficult to do. But it is their responsibility.’”