The Housing Bubble

The Lake County News Sun reports from Illinois. “The fear of losing one’s home in these difficult times sent hundreds of area homeowners Saturday to a free program designed to help them. The homeowners seeking relief are hardly poverty-stricken. In the parking lot, there were a couple of late model Cadillacs and a shining Hummer. In most cases, they were the victims of the recession, having lost their jobs but burdened by mounting debts. Dan Rouille of Gurnee who lost his $100,000-a-year job in information technology, said he owes $82,000 on a house he bought for $109,000 in 1991. ‘Recently, I received a loan modification from the bank but ended up with a $60,000 in interest I’ve to pay,’ said Rouillet who said he has found job in his field with a 70 percent pay cut.”

“‘I’m here today hoping to get a better alternative,’ he said, pointing out that he has exhausted his $100,000 Individual Retirement Account to keep up with his $1,000 monthly mortgage payment. He and his working wife have three children with the oldest, 19, college-bound. ‘Our payments for insurance and taxes are more than the mortgage,’ he said.”

“Richard McDade, an actor who lost his job a year ago, said he bought a town house in 1997 in Gurnee for $128,000. After refinancing and taking out another loan in 2006, he now owes his lender $207,000. He is seeking a reduction of his $1,650 monthly payment by $200. Wells Fargo, he said, did reduce his payment by $20 a month, which he said, is hardly enough. ‘I don’t have anything left for emergencies like a car breakdown,’ said McDade.”

“Antonio Centeno and his wife came to the event from Carpentersville. He said his lost his job in construction and is three months behind in his $2,200 monthly mortgage payment. He said they owe $140,000 to Chase after taking out a home equity loan in 1998. ‘We are hoping to get a reduction in mortgage payments,’ said Centeno.”

The Star Tribune in Minnesota. “Rosalina Gomez is a $13-an-hour janitor who cleans the U.S. Bancorp executive offices every night. Last week, Gomez tried to meet with Richard Davis, U.S. Bancorp’s chief executive, to ask him to halt the foreclosure of her Minneapolis duplex and to give her family a mortgage that reflects its reduced valuation and their ability to pay.”

“‘I want Richard to help my family keep our home,’ Rosalina said through an interpreter last week. ‘But we need a payment we can afford. The house was valued at more than $200,000 in 2006. And now it is valued at $65,000.’”

The Detroit Free Press in Michigan. “With more than 500,000 households in Michigan owing more on their mortgages than the homes are worth, thousands of Michigan residents are choosing to abandon their homes and walk away, even if they can afford to continue making payments. Sondra Malone bought a house in Eastpointe in 2005 with an adjustable-rate mortgage. The $1,200-a-month payment on the house, along with high heating bills, an expensive SUV payment and other family expenses, quickly buried her in debt.”

“At the same time, the bottom was falling out of the housing market with record foreclosures dragging down home values. Malone was soon underwater on her mortgage. She owed $116,000 on a house she listed for $99,000 in 2007. After trying to work out a lower payment with her bank, and trying to sell her house, Malone rented a condo in Sterling Heights and walked away from her house in 2007.”

“‘I didn’t know what else to do,’said Malone. ‘I’m embarrassed.’”

“One Whitmore Lake homeowner walked away after his bank pulled his business line of credit. He had spent more than 20 years building up his semi-trailer business. The man’s $400,000 lakefront home was collateral. In the midst of a short sale, he found another house for much less and walked away from the old one. His wife’s name was not on the mortgage, so she was able to get a new mortgage in her name.”

“The homeowner ended up filing for bankruptcy, in part to avoid his lender coming after him for what was owed on his mortgage. His credit was so damaged, he’s having a tough time starting a new business. His sister has helped him with loans. ‘Everything I’ve worked for the last 20 years is gone,’ he said. ‘Now I’m a dirtball. I can’t even go and get a used car.’”

The Sandusky Register in Ohio. “Foreclosure filings in Ohio set a new record in 2009. There were 89,053 foreclosure lawsuits filed statewide, up 3.8 percent from 2008. Foreclosures have spread from urban areas to other areas of Ohio, said Bill Faith, executive director of the Coalition on Homelessness and Housing in Ohio. ‘The crisis is marching steadily out into the suburban counties,’ he said. ‘Look at Medina, Wood, Geauga, Delaware — they all posted double-digit increases.’”

“Sandusky attorney Dan McGookey, a veteran attorney, has made foreclosure defense his specialty. McGookey said almost all mortgage loans are resold from one company to another. He said he can often force creditors filing a lawsuit to negotiate by challenging whether the plaintiff actually owns the note and has the standing to sue.”

“McGookey said after dealing with many clients, he’s learned it’s a myth homeowners facing foreclosures got into trouble because they’re irresponsible. The vast majority suffered a financial reversal, such as becoming unemployed or losing a good job and having to take a lower-paying one, he said. Amanda Aquino, a lawyer in Sandusky’s Legal Aid office who deals with housing issues, said most of her clients, like McGookey’s, got into trouble after losing a job or suffering a medical emergency.”

“‘Most of them have been some sort of unexpected event,’ she said. ‘The majority of the clients I see, it’s been some financial burden.’”

Business First Columbus in Ohio. “Ohio was not among the five states picked to share additional federal stimulus funding to combat home foreclosures and declining real estate values in February, and Ohio Sen. Sherrod Brown is making a case to amend that. Characterizing the Buckeye state as being on the frontline of the housing crisis, Brown noted Ohio ranks sixth in the nation for the total number of homeowners who owe more on their properties than they’re worth.”

“Brown plans to pursue two major tacks to help the state achieve more money to combat foreclosures – lobby the administration to include Ohio in future awards from the 4HP program, and ask the administration to improve the Home Affordable Modification Program. ‘Too many Ohioans are trying to modify their mortgages so they can hold onto their homes, but getting nothing but the run-around from their lenders,’ Brown said. ‘Too many communities are seeing vacant and abandoned properties that lower surrounding property values and compromise economic development.’”

From Roll Call. “Rep. Jim Jordan is a Republican from Ohio. ‘In February 2009, the Obama administration rolled out its foreclosure mitigation plan, aimed at providing relief for homeowners struggling to pay their mortgages. But instead of helping up to 4 million troubled homeowners as the Treasury Department predicted, HAMP had produced only about 31,000 permanent mortgage modifications as of November. While HAMP enrolled hundreds of thousands of homeowners, the vast majority who enrolled have not qualified for permanent mortgage payment reductions. This failure has put these homeowners in an even worse position than they would have been had they never entered HAMP.”

“In most cases so far, HAMP only delays foreclosure; it doesn’t prevent foreclosure. It doesn’t take an economist to realize that the longer it takes for homeowners to get out of mortgages that they can’t afford, the longer the housing crisis will last.”

The Capital Times in Wisconsin. “When Mid Town Commons was approved by the City Council in 1999, it was widely cheered as Madison’s first ‘new urbanism’ residential development. The overall development called for 700 dwelling units in a mix of residential and mixed-use buildings, with a commercial core along Mid Town Road. A decade later, however, only about half of the so-called ‘High Point-Raymond’ neighborhood has been built out. And it’s been virtually all residential development; none of the street-scale shops and restaurants first envisioned.”

“Developer Justin Temple is now moving forward with an $8 million, 80-unit apartment project at 1723 Waldorf Boulevard, despite earlier plans that called for mixed uses on the site. Temple says he would still love to pursue a mixed-use project but says the soft economy and poor commercial leasing market have dictated otherwise.”

“‘We just couldn’t do the new urbanism,’ he says.”

The Star Press in Indiana. “There’s no better illustration of how the national real estate crisis and recession have hit homebuilders than the numbers that Mark Thurston cites, in a matter-of-fact manner that downplays the impact on his company, TK Constructors. ‘In 2006, we built 700 homes,’ Thurston says. ‘In 2009, our worst year, we built 155 homes.’”

“For much of the 1990s and 2000s, the homebuilding boom was good to TK Constructors. Thurston’s company grew and prospered in Indiana, Ohio and Kentucky. Besides building about 500 homes each year on lots owned by customers, Thurston entered into other ventures like the 32-home Lexington Point housing addition in Yorktown.”

“In 2002, TK was named one of the 101 best companies to work for in the construction industry by Professional Builder magazine. The company’s growth attracted attention. ‘Before the bottom fell out, we received dozens of inquiries from people trying to purchase us,’ Thurston said. ‘That dropped off to zero.’”

“‘And we still battle foreclosures, although it’s not as bad for us as some builders because our customer owns his own lot and wants us to build on it,’ he said. ‘They’re not in the market for foreclosures.’”

“Thurston is not among those on the ‘blame the banks’ bandwagon. ‘Home prices have stabilized. That’s the key. If banks can be convinced that prices have stabilized or are on the way up, I think the money will get easier. We’ve made banks out to be evil, but I’m not sure I would do anything different than them. The frustrating part is that [federal banking regulators] are playing the banks as the bad guys. Why not come out and say, ‘We’ve tightened regulations so much it’s difficult to make loans?’”

“Michael Hicks, a Ball State University economist…noted that home sales have declined by the greatest margin in 50 years in recent weeks. ‘That is a good sign, because it suggests we are near the end of the excess supply of new homes that ran up in the bubble,’ he said.”

“Thurston is cautious, although he notes that TK Constructors is once again fielding offers from people interested in buying up his company. ‘My crystal ball is for sale,’ he said, laughing.”

The Wichita Eagle in Kansas. “Development continues at and near Fort Riley, despite the debacle of overbuilding, misjudgment and corruption in the area over the past five years. Although some Wichita firms were burned by the Junction City housing bust, a few Wichita companies remain in the area and are doing quite well. Outside the base, the speculative overbuilding of housing in Junction City in anticipation of the influx put many builders out of business and got a city commissioner and a developer convicted of bribery.”

“Since 2004, the city has annexed 1,500 acres and had 52 subdivisions develop. The city went into debt to buy land and install roads and utilities to supply the expected subdivisions. The city has $124 million in debt, as of last year. Much of that debt was to be paid back through specials. The shortfall in construction has led a heavy tax burden on the city. The city manager resigned in August.”

“One of the builders, Robert Harris of Harris Custom Homes in Wichita, stopped building in Junction City when the price of lots doubled and building practices didn’t meet his standard, but he continues to build in nearby Manhattan, Wakefield and Chapman. There is money to be made from the growth of the base, Harris said, just not the kind of boom-time windfall once expected.”

“‘That was just crazy,’ he said.”