The Housing Bubble

A report from News 9. “In 2008, Brian Neill and his wife Olivia found the perfect property to build Happy Hounds, a doggie daycare. But they were living in Pennsylvania at the time. They put their house on the market assuming it would sell in a few months and they could pack up and move to Colorado. Little did they know the housing market was about to take a dive. But they could not sell the home and they would not let go of the new business that was already under construction. ‘I think we were caught up like a lot of people,’ Olivia said. ‘We thought when we sell the house we will make a profit and put it to the business.’”

“Eighteen long months had passed. While Olivia was busy building boarding kennels and a doggie playground at their new business in Longmont, Brian was back in Pennsylvania trying to sell the house while working full time to pay the bills. Finally, in December of 2009 a decision had to be made. After nearly two years living their lives in two states, the couple reunited on Christmas Day. They sacrificed the home for Happy Hounds. ‘It was the hardest decision I’ve ever had to face,’ Brian said. ‘We can always eventually buy a new house, but you only get one chance to do something like this that you really love.’”

The Philadelphia Inquirer in Pennsylvania. “Builder Marshal Granor is hoping this will be a banner month for home sales. In fact, an eight-foot-long banner announcing Granor Price Homes’ ‘Let’s Make a Deal Weekend’ will greet prospective buyers at its developments two April weekends. The Horsham firm is among thousands of builders and real-estate agents nationwide attempting to lasso home buyers before federal tax credits expire April 30. Decision-makers will be on site, he said, ‘to review and accept all reasonable offers.’”

“Up to now, there’s been no mad rush to take advantage of the new credits, economists outside the housing industry point out. Even as builders hurried to start houses they believed would be swallowed up quickly by eager buyers, economists such as Patrick Newport of IHS Global Insight in Lexington, Mass., predicted - correctly, as it turned out - that there would be ‘payback’ in the first quarter.”

“Newport and others said a large share of new-home sales between January and March would not have occurred had there been no incentive. By starting more houses, builders simply increased inventory they had been cutting for almost 33 months - and now, those houses, too, need buyers.”

From Delmarva Now. “When Max Spann speaks, everybody listens — that is, everybody scouting Maryland’s Eastern Shore for a bargain on a luxury waterfront home well below the original sales price. In November, Spann sold 14 condominium units at the Harbour Light community overlooking Tangier Sound in Crisfield. About the same time, the firm auctioned units at Sunset Bay on nearby Chincoteague Island on the Eastern Shore of Virginia.”

“In late April, Spann will auction half the unsold Water’s Edge town houses on the Annemessex River in what could be a last chance to snatch a new luxury residential property in Crisfield for less. Bidding starts at $75,000 on 18 town house residences originally priced between $365,000 and $700,000. Robert Messick Homes developed Water’s Edge, completing 38 units in a first phase construction project and selling 20, said Glen McDonald, regional director of business development at the New Jersey-based Max Spann Real Estate & Auction Co. A continued soft housing market complicated by a recession stalled sales on the remaining vacant units and nixed plans for a second phase of units.”

“Since Crisfield in the last few years shifted its economy to maritime and tourism, at least five waterfront residential communities have sprouted where factories once stood, some of them caught into the housing crunch and forced into foreclosure. ‘Now is the perfect time for buyers to capitalize on this window of opportunity,’ Spann said in a statement. ‘Water’s Edge is one of those opportunities that can’t be ignored.’”

The Baltimore Sun in Maryland. “Counselors and attorneys at St. Ambrose Housing Aid Center, Baltimore’s largest nonprofit foreclosure-prevention team, can take on about 1,900 troubled borrowers a year - a weighty load of nearly 200 cases each. But more than 150,000 Maryland homeowners are behind on their mortgages.”

“Even now, the team of nine employees and one volunteer at St. Ambrose aren’t seeing the crisis abate. Instead, from their offices in a converted red-brick rowhouse in Barclay, a neighborhood with scores of abandoned homes, they see a never-ending stream of clients. Emotions run so high that Anne Balcer Norton, director of foreclosure prevention at St. Ambrose, has considered installing panic buttons in rooms where staffers meet with clients.”

“Getting a mortgage during the housing bubble was easier than easy, but getting it modified now to avoid foreclosure is often fiendishly difficult. ‘I naively came into this position without fully appreciating how big this crisis would become,’ said Norton, head of the operation since fall 2007, soon after foreclosures began worsening. ‘It’s now a pandemic.’”

The Washington Examiner. “A steady stream of disturbing facts are becoming public about the $700 billion Troubled Asset Relief Program conceived by former Treasury Secretary Henry Paulson during George W. Bush’s last year and approved in 2008 by the Democratic Congress. The program also has been championed by President Obama since he assumed the Oval Office in 2009. The emerging picture is not a pretty one, however, because it illustrates yet again that politicians cannot resist the temptation of using tax dollars to advance their personal political interests.”

“Judicial Watch recently obtained via the Freedom of Information Act a series of internal e-mails generated during the Paulson era at Treasury that document efforts to help a troubled bank by House Financial Services Committee Chairman Barney Frank, D-Mass., and Rep. Maxine Waters, D-Calif., who chairs the panel’s subcommittee on housing and community opportunity. Funds from the TARP program were supposed to be used to jump-start lending by healthy banks. But One United Bank, a troubled minority-owned bank headquartered in Frank’s district, got a $12 million infusion of tax dollars.”

“Frank has been vague about his role in securing those funds for One United Bank, telling the Wall Street Journal last year that he spoke to somebody at Treasury about it, but couldn’t recall that official’s name. The e-mails obtained by Judicial Watch clear up that mystery — Frank spoke on multiple occasions to Paulson about One United Bank. The e-mails obtained by Judicial Watch also reveal that Waters lobbied Treasury on behalf of One United Bank as well, a fact that raised eyebrows within Treasury because the California congresswoman’s husband was at the time on the bank’s board of directors.”

“One United Bank’s problems were caused in large part by its extensive investments in Fannie Mae and Freddie Mac, which lost value when those scandal-plagued institutions were nationalized. ‘I did feel that it was important to frankly try and save them since it was federal action that put them into the dumper,’ Frank told the Wall Street Journal.”

The Roanoke Times in Virginia. “William Dudley, president and CEO of the Federal Reserve Bank of New York, shared his remarks Thursday evening at Washington and Lee University’s Stackhouse Theater. Dudley reviewed the cascading disasters in the housing sector, mortgage lending, ‘new financial products,’ rampant speculation and deeply indebted homeowners that helped create the Great Recession.”

“‘Now, with the aid of hindsight, it is pretty clear that we built too many houses, invested in too much commercial real estate and overvalued the price of both significantly,’ he said.”

“As for regulatory reform, Dudley said the nation needs to ‘think hard about what we can do to prevent the type of speculative bubbles that occurred from causing so much damage in the future.’”

The Falls Church Times in Virginia. “Single-family homes continue to move at a brisk pace in Falls Church City, even at prices far above their City assessments. The latest example is 912 Lincoln Ave., which was priced at $1,100,000 and sold in six days. The house hasn’t closed yet, but it’s a safe bet that it’s going to sell for well above the $900,000 at which it’s assessed. Several other City houses have sold within days for well above their assessments. A home at 502 Columbia, priced at $795,000, sold in 4 days; it was assessed at $677,000. Likewise, 1304 Seaton Lane sold in four days; priced at $780,000, it was assessed at just $636,000.”

“A house at 1005 Seaton Lane took 121 days to get a contract, but, priced at $782,000 compared to an assessment of $613,000, it still will almost certainly close far higher than the assessed value. The listing agent for the Lincoln house, Joan Sutton, credited accurate pricing and a walk-to-Metro-and-town location for the quick sale. She also suggested that Falls Church City’s housing market is a little different — better — than many others.”

“Ms. Sutton said large, fancy houses in Great Falls have languished. In the case of Falls Church City, she reiterated a familiar refrain: there’s not a lot of houses for people to choose from, but there are plenty of people looking. If a buyer is seeking at least four bedrooms, there are seven houses to select from as of March 28. Three of those are over $1.2 million, and one of them isn’t even built. The one not built is being offered for sale pre-construction priced at $1,289,900.”

The News & Observer in North Carolina. “After a period when too many lenders focused just on the getting people into homes - and not on whether they could afford the homes - the pendulum has swung back in the other direction. The number of mortgage products being offered to consumers has shrunk, while the amount of income documentation being required of borrowers has increased. ‘It’s going back to how things were done 10 years ago,” said Jim Bennison, a senior VP with Raleigh-based Genworth Mortgage Insurance.”

“Given how severe the housing downturn has been, said Todd Barbour, VP of a mortgage company in Cary, many people assume they won’t be able to get a loan. That’s a mistake, he said, because there are good loans available for qualified buyers and interest rates are at historic lows. One of Barbour’s clients, Lauri and Mark Moore, recently purchased a home for $285,000 in Wake Forest. The couple got a 30-year mortgage with an interest rate of less than 5 percent.”

“‘It went crazy smooth for us,’ Lauri Moore said. ‘It was literally a miracle how smooth it went.’”

“As a consumer with good credit and a 10-year history of paying his mortgage on time, Ed McLaughlin expected that his record would put him in good standing with his bank. But when he approached his lender, Bank of America, about refinancing his existing mortgage or qualifying for a new loan, McLaughlin felt like a brand new customer just off the street.”

“‘They said new banking laws required that I jump through all the hoops, which I thought was a little odd because my record with Bank of America had been good,’ said McLaughlin, who lives in North Raleigh. ‘All the new paperwork, all the new guidelines they were now required to administer. All that was going to complicate it.’”

The Star News in North Carolina. “Up until last year, home buyer Jodi Laprade thought, ‘I was one of those folks who did everything right.’ In 2006, she put 20 percent down on a Victorian in downtown Wilmington. ‘The money I put down was the equity I had built up over the years,’ she said. Her loan was conventional, not one of those ‘funky’ interest-only or no-down-payment mortgages. It was well within her budget. That is, until July 2009. ‘Unfortunately, I got laid off.’”

“‘It was probably a couple of days after I got laid off, I called Bank of America to see whether they could temporarily modify my mortgage,’ Laprade said. The bank suggested she could refinance. But the bank ‘would not accept unemployment as valid income,’ Laprade said sarcastically.”

“So she started the short sale process last October. Laprade paid $370,000 for her home, and her mortgage was $290,000. The offer she received in November was for $245,000. ‘I was sick over the amount of equity I had lost,’ she said. Laprade says she has ‘already gone through the mourning process’ as she watches the short sale slowly take its course.”

“Loan servicers are not set up for quick loan modifications or assessment of short sale requests. ‘The whole process is kind of cumbersome,’ said Rob Story, chairman of the Mortgage Bankers Association, a trade group. ‘A lot of loans are held by investors, and the servicer needs to get approval’ from them to allow a short sale, he explained.”

“Brian and Kate Ray of Leland are in the midst of a short sale, working through their lender, Wells Fargo. Brian was laid off from construction management and is going back to school to get a better job. Kate is a teacher, but they are having trouble on just one income, Brian Ray said. They made a big down payment – 30 percent – and continue to pay their full mortgage payment, ‘but this can’t go on forever,’ Ray said.”

“At first, ‘we just put (our house) on the market, selling it normally. It wasn’t working,’ Ray said. Then, the Rays’ agent suggested a short sale, and they ‘decided to do that, so we could get out of here and get into something more affordable,’ he continued.”

“The Rays’ asking price was about what they owed on their mortgage, Ray said. ‘But with fees and closing costs, we would still owe the bank,’ he said. ‘We got a contract for $10,000 less than we owed. ‘We’re trying to do the right thing by the bank as well,’ Ray added.”

The Citizen Times in North Carolina. “‘Because that’s where the money is,’ Willie Sutton is reported to have said, when asked why he robbed banks. Sutton made the FBI’s Top 10 most wanted list back in the 30s, but nowadays our lawmakers seem to have trouble seeing that crimes were committed in the nation’s banks that has robbed the nation of trillions of dollars of wealth and millions of jobs.”

“It wasn’t guys like Sutton walking in with guns. It was an inside job as a few Wall Street-types robbed us all into a Great Recession. There has been a legitimate anger rising across middle-America at the high-handed ways of those same bankers who precipitated the financial meltdown in 2008.”

“The housing bubble that saw a slew of controversial developments rising up our ridgetops — as close as Reynolds Mountain or Bartram’s Walk within eyesight of downtown Asheville, or the Cliffs overlooking Swannanoa — grew and grew along with astronomical housing prices, until it all finally popped.”

“Now we have million-dollar homes sitting vacant on ridges all around Western North Carolina, empty views that hardly anyone can afford since the mumbo-jumbo of jumbo mortgages went away.”

“A bubble bursting sounds kind of harmless, but plenty of people have been hurt in the aftermath. The hard-working counselors at OnTrack Financial Education and Counseling in Asheville are seeing huge increases in clients who are facing foreclosure after falling behind on their mortgages. These aren’t necessarily the folks who took out tricky subprime mortgages that later exploded, but creditworthy customers who have since lost their jobs and their ability to make payments.”

“Part of the problem was a lack of oversight on investment banks and hedge funds and no transparency in the market for the credit default swaps that were bet by the billions on toxic subprime mortgages. What set my blood to boiling was the recent report on the Lehman Brothers’ bankruptcy back in 2008. The auditor found that Lehman essentially cooked its books to shuffle $50 billion off its bottom line before its quarterly report, hiding its bad investments while misleading investors and regulators.”

“The trouble is that accounting trick was not illegal under existing law, but Washington policymakers should make sure it is a crime going forward, so we don’t have a repeat of the skullduggery that nearly triggered another Great Depression. Willie Sutton spent most of his adult life behind bars for his crime spree. His take for all those robberies came to only about $2 million. That’s chump change these days on Wall Street.”

“Lehman Brothers’ CEO Richard Fuld collected $300 million in pay and bonuses over the past eight years, presiding over the largest bankruptcy in American history. And he was by no means alone, raking in the loot. That’s the real shame, if not a crime, if you ask me.”