The Housing Bubble

The Pittsburg Tribune Review reports from Pennsylvania. “Millions of America’s homes are sliding ‘under water,’ meaning their value has fallen beneath the mortgage owed, data shows. And surfacing is a homeowner response long deemed unthinkable: Financially strapped people are simply walking away from their homes. ‘We are seeing an increase in walk-aways,’ said Ben Hess, an expert on foreclosures and distressed home sales for Coldwell Banker Real Estate Services, McCandless. ‘In our market, this just started showing up last quarter. I don’t know that anybody even heard the term, strategic default before last summer.’”

“Timothy and Kimberly Bozzo bought two homes in Sharpsburg about nine years ago with mortgage money from PNC, say court records. The couple rented out the properties until a flood in 2004 rendered them uninhabitable, and the Bozzos lacked the money for repairs, said their attorney Stephen Barsotti. They declared bankruptcy in April 2007, and deeded the properties back to PNC last Sept. 22, he said, because they couldn’t sell the properties for enough to pay off the mortgages.”

“But PNC claims in a lawsuit against the couple it never agreed to take back the property and that the Bozzos just walked away. ‘They just wanted to get rid of the debt and move on,’ said Barsotti of the Bozzos, who declined comment.”

The Philadelphia Inquirer. “It could have been a textbook transaction: A house is purchased. Over time, it increases in value enough to exceed the $279,000 balance on the mortgage. The first offer to buy the property covers the loan, the real estate commission, and closing costs. Instead, after more than two years wrangling with the lender about a prepayment penalty - a dispute over $7,000 that resulted in 10 offers to buy going nowhere - the homeowner throws in the towel and deeds the house to the bank in lieu of foreclosure.”

“This is what happened to Kay Henson. In early 2007, amid a divorce, she decided she couldn’t afford the $2,000 monthly payment on the house she and her now-former husband had bought in Townsend, Del., in 2003. The only recourse was selling it. On the day of closing in June 2007, her agent told her that Chase now was saying there was a prepayment penalty of $7,000, boosting the payoff to $286,000. It could have been any amount, Henson couldn’t afford it, and the sale was canceled. ‘I was in shock,’ she said. ‘I had nothing left, there was nothing I could do.’”

“Over the next 30 months, Henson tried to get Chase, first on her real estate agent’s advice, to negotiate a deal. No dice. In August, another Chase rep told Henson that…no one knew the name of her new agent. She had had enough. ‘I told them that day to go ahead and foreclose on my house,’ Henson said. ‘I couldn’t keep worrying anymore. I did all that I could.’”

The Daily Record in New Jersey. “Five high-profile apartment properties managed by the city-based Connolly Properties Inc. are anticipated to be sold at an open auction scheduled for next month in Middlesex County. ‘They’re being offered regardless of price and are guaranteed to be sold to the highest bidder,’ Sheldon Good Senior Managing Director Jeff Hubbard said. ‘The beauty of this kind of sale process is that the buyer gets to determine the price.’”

The Press of Atlantic City in New Jersey. “Donald Trump portrayed Carl Icahn as a penny-pinching corporate raider whose ownership of the Trump casinos would be ‘a mess’ if he gains control of them in a bankruptcy battle between the two billionaires. This is the third time that Trump Plaza, Trump Taj Mahal Casino Resort and Trump Marina Hotel Casino have been in bankruptcy since the early 1990s. Trump acknowledged that his namesake casinos have struggled, but he said they are no different than other gaming halls that have suffered in the sluggish economy. Expressing confidence in Atlantic City’s future, he predicted the Trump casinos will rebound under the bondholders’ ownership once the economy recovers.”

“‘I want to see this company succeed,’ he said. ‘That is very important to me because it has my name on it.’”

The Daily Press. “For Scot Wiegner, the easy part of moving to Hampton Roads was selling his house in Connecticut. Twice he made offers that were refused. The owners weren’t willing to budge on sales price, Wiegner said. The family finally found what they were looking for in the Stonehouse neighborhood in Toano and moved in this month. Wiegner moves every two to three years because of his job. This move has been the most challenging, he said, thanks to the sour real estate market.”

“‘I thought moving this far south, I would see somewhat of a difference of price, and I saw none,’ he said.”

“Buyers coming into the market are looking for a discount to make up for value they lost selling their homes. But while Hampton Roads has seen prices fall and foreclosures increase, it hasn’t occurred here at levels experienced elsewhere, said Kathy Chambers, president of the Williamsburg Area Association of Realtors. ‘They’re coming to us with fresh wounds,’ she said.”

The Day in Connecticut. “In time, Jan. 7, 2010, might prove to be a seminal date in the history of Waterford - the end of the Millstone era. On that day, town officials learned that health insurance costs had ballooned by $1.5 million, throwing the calculation of the already tight 2010-11 budget into disarray. Superintendent of Schools Randall Collins announced the news to the Board of Education in ominous tones that night.”

“‘This will take you to places you have not been,’ Collins said.”

“‘We’re now in the same situation as every other town in southeastern Connecticut,’ said John Sheehan, a Board of Finance member. Finance board member George Peteros admonishes that ‘dark days’ are ahead. ‘The day of reckoning is here,’ Peteros said. ‘Too long (town departments) have been feasting on prime rib; now there’s only hamburger.’”

The Hartford Courant in Connecticut. “A sobering report showed that the number of residential borrowers struggling to make mortgage payments is higher than at any other time in the past 30 years. Foreclosures and seriously delinquent home loans in Connecticut jumped more than a full percentage point to 8.1 percent in the last three months of 2009, compared with the previous quarter, according to the report from the Mortgage Bankers Association.”

“That set a record high in Connecticut for the eighth consecutive quarter, according to the association. Housing counselors in the Hartford area said that they have seen little evidence of a let-up in borrowers falling behind, a growing number from white-collar, professional households with fixed-rate mortgages. ‘We don’t see any slowing in sight,’ said Penny Trick, a foreclosure specialist at the Housing Education Resource Center in Hartford. ‘Every time I hear bad economic news, I say, ‘I know my job is safe.’”

“For 10 years, Paul and Nicole Mozeleski of Vernon had no problem paying the mortgage on their modest, three-bedroom cape. Paul Mozeleski was self-employed, working as a subcontractor transporting documents for banks. His wife worked in the billing department of Hartford Hospital. The couple took out a second mortgage to renovate their kitchen. Still, their monthly payment — including escrow for taxes and insurance — was a manageable $1,400 a month.”

“Then last year, Paul Mozeleski lost the contract, and he was forced to take a maintenance job for less than half of what he was making. The couple quickly fell behind in their payments. ‘Money is always a problem when you don’t have it,’ Paul Mozeleski said.”

The Buffalo News in New York. “The popular notion that Buffalo weathered the mortgage meltdown better than most cities is attracting the attention of federal prosecutors who don’t buy it. The government, convinced that the fraud and foreclosure problem here is worse than expected, has formed a Mortgage Fraud Task Force to uncover civil and criminal wrongdoing among brokers, lenders and buyers.”

“‘It’s a much larger problem than first forecast,’ U.S. Attorney Kathleen M. Mehltretter said of mortgage foreclosures here.”

“High on the list of potential targets are mortgage brokers, many now out of business, who lured unsuspecting consumers into high-interest mortgages. The fraud in those cases often involves inflated appraisals. Kathleen Lynch, a lawyer with the Western New York Law Center, said the number of Erie County mortgages entering foreclosure — between 2,000 and 3,000 a year since 2006 — may seem small when compared with other areas of the country, but not when you compare it with the smaller population here.”

“One of the neighborhoods hardest hit by subprime-fueled foreclosures is the Kensington-Bailey area. A separate 2008 study by the Empire Justice Center found a large number of subprime loans in distress in that neighborhood, one of Buffalo’s strongest African-American communities. To understand the subprime market’s impact on Buffalo’s neighborhoods, the center isolated a single street, Stockbridge Avenue. The four-block street was home to 16 foreclosure filings.”

“‘There’s a high, high amount of predatory lending going on in that neighborhood,’ said University Council Member Bonnie Russell. ‘That whole area needs a crackdown.’”

The New York Post. “The little-known law firm of Steven J. Baum PC, which is based in suburban Buffalo, NY, and represents dozens of banks in matters of failed mortgages, last year filed a staggering 12,551 foreclosure lawsuits in New York City and the suburbs, which works out to about 48 a day. The foreclosure mill is one of a handful of super-regional law firms used by the country’s banks — and its lawyers appear to have practiced in every county courthouse and bankruptcy court from Staten Island to Plattsburgh and from Montauk to Niagara Falls.”

“The problems involving Baum and others highlight the increasingly nasty foreclosure problem in the US after banks started the profitable (for them) system of securitizing mortgages and then slicing and dicing pieces of the loans and selling them around the world. Little attention was paid to having an easy-to-use system tracking mortgage ownership.”

“Now, as foreclosure actions clog the country’s courts, some lawyers are fighting back and asking bank lawyers or mortgage servicers to provide proof they own the mortgage. In most instances, it can’t be done. ‘In 85 percent of the cases I handle, the paperwork submitted by the bank or mortgage service company is not in order,’ said Linda Tirelli, a consumer bankruptcy lawyer based in White Plains and Stamford, CT. For example, she said, one mortgage servicer recently filed paperwork to prove it owned a mortgage and it said it was assigned ownership by Lehman Brothers in October 2009.”

“‘Now everyone knows there was no Lehman last October,’ Tirelli said.”

“Most of Baum’s 5,312 cases in NYC last year were fought against no legal opponent. Usually, delinquent homeowners can’t afford to hire lawyers. The result is a slam-dunk win for Baum — and the foreclosure of another house.”

The Palm Beach Daily News. “It’s been six years since The Corcoran Group made its dramatic entrance from New York City onto the Palm Beach real estate stage, instantly acquiring local cachet by acquiring successful broker Paulette Koch’s namesake agency here in late 2003 and, shortly thereafter, purchasing McCann, Coyner & Clarke.”

“For the next five years, as the nation’s real estate bubble over-inflated, Corcoran enjoyed heady success. And so did Pamela Liebman, once the protege of the legendary Barbara Corcoran, who left the Manhattan-based agency after selling it to the massive NRT Inc. in 2001. The year before, Liebman had become Corcoran’s president and CEO, the position she still holds today, overseeing 2,300 employees and a company with sales totaling $10 billion last year.”

“But by the end of 2008 and the first months of 2009, high-end real estate in all three of Corcoran’s markets had sputtered to practically a halt, as the recession took hold.”

“Liebman last week traveled to South Florida from New York to host a reception for Corcoran agents at a home in Gulf Stream listed for sale by the agency. Before that event, she talked with the Palm Beach Daily News about the state of the company’s real estate markets, which appear to be picking up steam.”

“Q. What’s your take on the state of Corcoran’s markets? A . Toward the end of the year, when the stock market was showing a lot of life, people who had so much fear at the beginning of the year sort of lost that fear and began to get to a place where they said: ‘It’s going to be OK. My family’s going to be OK. I’m not going to lose my job. I want to live again.’”

“People reset their expectations. I think for a long time in all of our markets, whether it was Palm Beach or The Hamptons or New York City, there was a lot of talk about people wanting luxury and ‘the biggest’ and ‘the best’ — the biggest apartment, the best views, the most oceanfront. It was all about the splashy — there was no subtlety involved. And what we’ve seen has been a shift back to what homes are all about — an enjoyable place to live. People are buying properties again for themselves to enjoy, not to make a statement about their life and how much money they have. And that’s a good thing…A big part of everything starting to move again is realistic expectations on the part of buyers and sellers.”

“Q. How exactly does that process begin? A. The buyers get more realistic, and the sellers decide that they do want to sell, that they’re going to be a little more negotiable. And we put the deals together. The reality is that everyone knows the prices have come down — they’ve come down, and that’s just a fact.”

“Q. But in your higher-end markets, getting buyers and sellers on the same page can be tough, can’t it? A. One of the first things we did with our brokers was to educate them about how to educate their buyers and sellers. We had to teach the buyers that the sky was not falling, that — contrary to what some people and some media pundits were saying — houses were not going to be selling for 25 cents on the dollar. There’s intrinsic value in all of these homes, especially in this very special area.”

“Sellers can be unrealistic even in the best of markets, but they sometimes don’t get hit as badly, because with a rising market, the prices can catch up to their hopes and unrealistic pricing. But in a market that’s flat or sinking, that seller just gets further and further away from where a trade is likely to happen. So it becomes even more difficult to adjust the price, because you have to go so far down. And they ask themselves: ‘Do I even have to sell? I don’t care if I sell, but I’ll leave my price here.’ And that just adds to the extra inventory on the market.”

“Q. So what’s the real estate outlook for the coming year? A. I don’t think we’re going to see huge (dollar-volume) increases in 2010, but we’re going to see the number of transactions move up this year. A lot of it depends on the sellers and how discretionary they want to be. At the end of the day, it’s the sellers who remain in control.”