From Bubble To Puddle
It’s Friday desk clearing time for this blogger. “When Todd Bjerstedt built luxury homes in Woodbury, he was the eternal optimist. Bjerstedt had pumped thousands of dollars of personal savings into his struggling homebuilding business, only to see it fold in 2006. He looks back on his change of fortune with a sense of humor. ‘We used to have a lot of things including some savings,’ Bjerstedt said, laughing. ‘Everything fundamentally is gone.’”
“Last fall, the Bjerstedts lost the struggle to keep their Hudson, Wis., home out of foreclosure. Bjerstedt oversaw construction of the $700,000 home himself. Now his family leases a townhome in Hudson about one third the size of their old place. Bjerstedt said their lives have changed dramatically. ‘When we wanted something before, it usually just appeared,’ he said. ‘Those days are behind us — maybe forever.’”
“Meanwhile, his family is trying to get used to their scaled back lifestyle. His 15-year-old daughter Olivia says all the tumult in her dad’s career has changed her outlook. ‘Before, I guess I sort of got things handed to me more, but now it’s made me realize that not everything’s just easy going,’ she said.”
“The extravagant, customized house on Baldy Mountain Road outside Sandpoint was built in November 2005 by the stunt charity show ‘Extreme Makeover: Home Edition,’ relying on a massive volunteer effort to help a bachelor who had stepped in to raise his sister’s kids after she passed away. In past interviews, Eric Hebert, the man who was given the home, said he refinanced – first for $250,000, then for $382,500 – thinking he had a secure job working construction, but his employer went out of business. Eventually, he tried to sell the home, but by then – May 2008 – the housing market had gone from bubble to puddle. ”
“He defaulted in January 2009, and apparently left town last June or so. The bank took it back in October. The list price for the home has gone from $529,000 to just over $300,000. ‘I am disappointed,’ said Stan Hatch, a Sandpoint real estate agent and the man who coordinated volunteers and resources for the show back in 2005. He wonders whether the entertainment needs of the show overwhelm its supposedly charitable purpose. ‘That house is not just first class, but way over the top. If you could take that many resources and apply them over three, five, six families that need help.’”
“U.S. Army Capt. Jerry Frimml was granted his request in April of last year and was released from combat operations. His report date at Fort Carson was just two months later in July, so during that time, Frimml put his house up for sale. Now, a year later he said he has seen little to no movement on the house. Hoping he would meet the necessary requirements to receive financial help, Frimml began the application process for HAP, only to be let down as he found out quickly he did not qualify. Officials with HAP said the July 2006 date was originally put into place because that is when the housing market nationwide began to spiral downward.”
“‘Recently we had to drop the asking price, and right now I am paying the mortgage on the house in Texas and I am paying my lease on my house up here at Fort Carson,’ Frimml said.”
“A drive through the streets of Dalton, primarily the east side of town — where many Hispanic immigrants reside— shows an area in decline. ‘For Sale’ signs are plentiful on homes, but not as numerous as ‘For Rent’ signs on large and small apartment buildings and homes. A vacant house sits across Ashworth Avenue from the home of the Hernández family, who says the owner couldn’t afford her mortgage anymore, so she simply left. ‘She used all her income tax (return) last year to save her home, but in the end she couldn’t make the payments,’ said María Hernández.”
“María and her husband bought their house seven years ago, when they were both working 60 hours a week at local carpet factories. Now they only work a couple of days a week and have tried to sell their home for more than a year with no success. Their desperation has reached the point where she’s considering returning to Mexico, even though they’re in the country legally. But Dalton Mayor David Pennington believes those who were going to leave have already left.”
“‘A large number of people who probably left are undocumented, they couldn’t sign up for any benefits or services, so they were the first to leave,’ he said. ‘Those who bought houses here, were born here, are solidly established here, they are not going anywhere.’”
“A recent survey by CoreLogic found Oklahoma has the lowest percentage of people who owe more than their houses are worth. Local lenders said while bankers in other parts of the country wrote loans for more than the houses were worth, local loans have been more realistic. For example, if a house was appraised at $100,000, it would be unwise for a banker to lend the buyer $120,000 on the purchase. ‘Right away you have a problem loan,’ if that were the case, said Gary Chapman, chairman and CEO of the Bank of Cherokee County.”
“Many banks resell the loan to the secondary market. Since those bankers know the papers will change hands, they may not be as careful in ensuring the buyer has the resources to repay the loans, he said. ‘We do not sell our mortgages. We keep our mortgages here,’ he said.”
“Buyers may not qualify for as large a loan as they could have in the days of looser lending policies. ‘A few years ago, the lenders could loan a 55 to 60 percent debt to income ratio, and that’s unheard of now,’ said Linda Pippin of Charter Mortgage Group.”
“William Dudley — president and CEO of the Federal Reserve Bank of New York — returned to his alma mater Friday to give the commencement address at New College of Florida. ‘Although the Federal Reserve has been aggressive about easing monetary policy to support economic activity, the recovery is not likely to be as robust as we would like for several reasons,’ Dudley said.”
“Among those reasons: Households are ‘deleveraging.’ In other words, households are trying to recover from the loss of ‘paper wealth’ associated with the rise and fall of housing values. Those losses might not have been so disruptive but, as Dudley noted, homeowners borrowed money based on housing values — and then spent with abandon. ‘This pushed the consumption share of nominal gross domestic product to a record high of about 70 percent,’ Dudley noted.”
“‘The banking system is still under significant stress — ‘particularly the case for small- and medium-size banks that have significant exposure to commercial real estate loans. This stress means that banks have been slow to ease credit standards as the economy has moved from recession to recovery.’”
“‘Some of the sources that have supported the nascent recovery are temporary.’”
‘For instance, inventories that were liquidated cheaply have been depleted and, perhaps most important, ‘fiscal stimulus from the federal government is subsiding and will soon reverse.’”
“‘Outlooks for U.S. home prices remain very guarded,’ said D’Ann Petersen, a business economist for the Federal Reserve Bank of Dallas. ‘I think this is a genuine concern, given the uncertain environment we are currently operating in.’”
“North Texas pre-owned home sales were up 9 percent in the first four months of 2010 from the same period last year. Most of that gain is attributed to the federal home-buying tax credit, which just ended. ‘The problem is that most of the improvements in the housing sector – sales, values, general activity – are government-induced,’ said Dr. James Gaines, an economist for the Real Estate Center at Texas A&M University. ‘Even the ultra-low mortgage interest rates we have today are government-induced by the Fed. The basic issue is whether demand will sustain at a level sufficient to keep prices up as the government incentives – primarily the tax credit – go away,.’”
“High foreclosure rates in many markets, including North Texas, are also a drag on the housing recovery. ‘At the national level, foreclosures have been slowed by modification efforts,’ Petersen said. ‘Thus, foreclosures going forward could still impact prices.’”
“With 11 consecutive months of growth, San Diego County is leading the nation’s largest metro areas in home-price appreciation. Analysts warned that San Diego’s increase may only reflect a change in market mix, not an increase in value, and that it will likely to slow down and possibly reverse as additional foreclosed homes hit the market.”
“Brad Kemp, director of regional analysis at Beacon Economics, said bank policy rather than market mix may be at work. He argued that banks are keeping distressed homes off the market and thereby prompting overbidding by bargain hunters. That way, prices come closer to outstanding loan balances and banks lose less. ‘We think it’s an artificially unsustainable rise being caused by artificially keeping inventories low,’ Kemp said.”
“A separate report from the California Association of Realtors showed the state’s median home prices were up in April, about 1.5 percent from the month before and 21 percent from a year ago. San Bernardino and Riverside counties prices jumped 17.3 percent from a year before. ‘Real estate is very local. So these aggregate measures can be very misleading,’ said Leslie Appleton-Young, the association’s chief economist.”
“In California, home prices are rising in part due to the scarcity of foreclosed properties on the market despite high demand in areas such as the Inland Empire, Appleton-Young said. ‘The reason the California number went up is because we were selling fewer homes in the inland areas because there was not enough supply,’ she said.”
“Alaska-based banks saw increases of 14 percent to 28 percent in net income during 2009 following the disastrous fourth quarter of 2008, but nobody is breaking out the party hats just yet. Bankers remain cautious about job growth, interest rates, continuing soft loan demand and pending financial reform legislation in Washington, D.C.”
“Working through nonperforming loans and assets acquired through foreclosure were a major challenge of 2009. Other real estate owned, or OREO, has increased at the six Alaska banks from $7.6 million at the end of the third quarter of 2007 to $34 million in 2009. The key to managing OREO, said Northrim CEO and founder Marc Langland, is patience.”
“‘From my knowledge, most banks have good quality bad stuff,’ Langland said. ‘People laugh at that, but it’s the truth. It’s a matter of time. When you have low interest rates like this, you have a good opportunity to go about marketing the products without doing a lot of stupid stuff so you don’t destroy the prices by lowballing.’”
“‘Things have improved somewhat in terms of the response from banks,’ said Seema Agnani, executive director, Chhaya Community Development Corporation, a non-profit organisation based in New York that counsels home buyers and owners to prevent foreclosure. ‘Some are finally giving owners loan modifications that comply with the Home Affordable Modification Programme. On the other hand, many of those who were in the initial stages of foreclosure have lost their homes.’”
“In California, the residential foreclosure market has softened a bit, but the market has shifted to commercial real estate. ‘Due to a large number of vacancies, bank defaults have forced price reductions on both office and apartment buildings. Though the rents are usual in many cases, prices have gone down considerably, even 35 percent in many cases,’ said Jeevan Zutshi, owner, Jeevan Zutshi Real Estate Services and an expert on residential and commercial real estate.”
“He doubts the intentions of commercial lenders like Chase who are not doing anything to alleviate landlords’ suffering. ‘It appears at times that they welcome foreclosures,’ Zutshi said. ‘Perhaps they have asset management capabilities as well now and are anxious to acquire these properties by defaulting on them. It is brutal. So many people are wondering whom Obama’s efforts in this direction have been helping.’”
“The derivative disaster that devastated Wall Street now stalks state and local governments. Over the last decade, their argument goes, state and local officials who lacked expertise in the multi-layered ’synthetic’ financial instruments so dear to New York’s mega-banks have been seduced into them anyway. The result is that states, cities and counties ended up owning collateralized debt obligations and credit default swaps like those that blew up in the faces of major corporations like AIG during the 2008-2009 financial meltdown.”
“A spokesperson for one of the main lobbying groups for derivatives, the Securities Industry and Financial Markets Association, said that while some entities experienced problems with interest swaps, they worked as intended for the majority, lowering rather raising their debt costs.”
‘Richard Eskow of the Campaign for America’s Future, said the industry’s defense that most deals have worked is like saying ‘the vast majority of Zepplins functioned as designed, too, but the Hindenburg put an end to lighter-than-air travel.’”
“Tax credits and historically low mortgage rates have failed to lift home prices so far this year. Prices fell 0.5 percent in March from February, according to the Standard & Poor’s/Case-Shiller 20-city index. That marks six straight months of declines — a sign that the housing market is going in reverse. ‘It looks a little like a double-dip already,’ economist Robert Shiller said in an interview.”
“Blaine County Assessor Valdi Pace told the County Commission that the total estimated value of all property in the county for 2010 has dropped to just under $10.6 billion—an 11 percent decline from 2009 values, which were just under $11.9 billion. Pace said the sharp drop over last year did not surprise her, given the state of the housing market. ‘That’s roughly what I expected,’ she said. ‘The market has finally caught up with us.’”
“There was at least some humor inserted into the discussion of the dismal news when Blaine County Commissioner Angenie McCleary asked Pace to repeat her statement about when the peak of the county’s total assessed value took place, in 2008. Apparently, that coincided with McCleary’s purchase of a home in the Ketchum area. ‘I’m just trying to confirm that I bought my house at exactly the wrong time,’ she said.”
“Eventually, he tried to sell the home, but by then – May 2008 – the housing market had gone from bubble to puddle.”
A vision of the Wicked Witch of the West instantly springs into mind:
‘I’m melting, I’m melting…’
“The extravagant, customized house on Baldy Mountain Road outside Sandpoint was built in November 2005 by the stunt charity show ‘Extreme Makeover: Home Edition,’ . . . Eric Hebert, the man who was given the home, said he refinanced – first for $250,000, then for $382,500. . . He defaulted in January 2009, and apparently left town . . . Hatch, a Sandpoint real estate agent and . . . wonders whether the entertainment needs of the show overwhelm its supposedly charitable purpose.”
Where did Hatch get the idea that Extreme Makeover had a charitable purpose? Of course if you build people homes they can’t even afford the taxes on they will refi it death or sell it. That is as bad as thinking that when Oprah gave stuff away as part of a marketing strategy that she was being altruistic. On a side note I have a friend that quit his law firm job to work for Habitat for Humanity. He was back at the firm after 6 months, saying that after meeting with the recipients he could no longer view the organization as doing good deeds but instead encouraged destructive behavior (almost always ungrateful, not really looking for work to become self sufficient, used the homes as crack houses and meth labs, etc.).
One recipient I knew was not grateful at all, but instead she complained she had to make a mortgage payment.
It gets sooo tiring…
You had a house free and clear
You took out lots and lots of money in equity
Where did the money go????
And since you walked away, you will not pay it back ever.
And I am supposed to feel sorry for you?
2banana,
At $632,500 in Equity Liberation, how is this anything short of criminal? Anyone who has raised children will tell you it’s not cheap, but during the mere 4 years that he stayed there that avg’s out to $158,125 a year in ( additional ) income!
Even assuming he sat on his duff the entire time. Why all the lament and why aren’t they going after this guy? Sandpoint is a very nice area btw.
I once went hiking with a retired realtor from Sandpoint, circa 2007. At the peak, many of the Realty firms “invested” in developments that they marketed. Why settle for fees, when you can have an equity stake? As of the summer of 2007, those arrangements were already starting to tear down some of thoe firms… negative cash flow, leverage, no income… not pretty.
Sandpoint is a nice place to spend a week in the summer, but it will never be a glamorous location. The super exclusive developments up there were never going to fly.
Groundhogday,
I don’t know how different OR is than ID or any other place for that matter when it comes to RE firms wanting to own the entire distribution channel!
“Why settle for fees”
Right, taking 6% for taking absolutely NO risk is kind of paltry? Why not the whole enchilda!? To their credit, one local RE firm here in Salem, OR focused on rentals ( and rea….sonably priced homes! ) They’re still hanging in there. Several national affiliates have pulled out altogether and the Coldweel Banker office has like (1) active agent. The rest are apparently just ‘parking’ their license until things pick up?
I never thought the ‘appeal’ of Sandpoint was that it was upscale or luxurious or whatever. Just quiet and private, that’s all.
There are no jobs in places like Sandpoint. What transpired in those far flung locations can only be described as a hideous waste of natural resources.
Grizzly Bear,
Or ‘resources’ period? Just more to hate about the Rolling Bubble! Personally, I never really cared if people in… the Bay Area wanted to play musical houses/ponzi/whatever.
I really didn’t. But when there became no refuge from it ( o.k, other than Oklahoma ) THAT is when it got personal! After a time ( and doing a little math ) I soon realized even paying OFF ( not -down-, there’s a difference ) paying off so much as a $200k mortgage just wasn’t going to happen..? Then it’s time to start focusing on those “far flung” places to at least assure your “Starvation Acres” retirement home would be paid off!
Then they couldn’t wait to pee in that pool either?
On a side note I have a friend that quit his law firm job to work for Habitat for Humanity. He was back at the firm after 6 months, saying that after meeting with the recipients he could no longer view the organization as doing good deeds but instead encouraged destructive behavior (almost always ungrateful, not really looking for work to become self sufficient, used the homes as crack houses and meth labs, etc.).
I’ve commented on my own experiences with Habitat. I’ve personally witnessed the ungrateful homeowners, but, like every story, there are two sides.
A couple of weekends ago, I was at a local volunteer fair, and a Habitat homeowner (who was there with her son, who lives with her because he’s of limited intelligence and can’t fend for himself) greeted me warmly. I worked on her house, and many others in her complex.
She was talking about inviting me over for a party. Don’t know when, but I do know that it’s best not to ask if I can bring anything.
Why not? Because this lady and her neighbors offer their hospitality from the bottoms of their hearts, and, as hard as it is for me to rein in The Troublemaker (my mouth), I should just go and accept their kindness.
In short, there’s lack of gratitude, and there’s gratitude.
Arizona Slim,
I agree. My only guess is that by ‘05 the word had gotten around that being on Extreme Makeover was tantamount to hitting the lottery. Yea…!
Ben has featured these follies ( and the HGTV blowups ) for years. Why wasn’t a provision put in place that the occupants couldn’t HELOC the living hell out of them? Just sayin’.
When I spent a short stint working with them, the ‘homeowners’ were pretty happy and working at the site. I just couldn’t stomach the amount of debt they were going to be taking on as part of the deal. It was enough that I wouldn’t have wanted my wife and I (with two tech jobs) to take it on.
This is almost the exact same story as the house that the show built in Chandler, AZ. Huge house the family could not afford and multiple refinancing for cash. I had heard somewhere that the show was planning to scale down the “projects” to something more affordable.
AZGolfer,
Or… the one out of Atlanta ( where… ) the family did a cash-out to start.., wait… a homebuilding business!!!
I wish I had the audio clip for Cheech & Chong.
“Over the last decade, their argument goes, state and local officials who lacked expertise in the multi-layered ’synthetic’ financial instruments so dear to New York’s mega-banks have been seduced into them anyway.”
I sure hope somebody is at least attempting to produce a clear accounting for the amount of irreversible damage Wall Street’s Megabank, Inc has inflicted on the American and global economies. Between sh!tty mortgage backed securities, CDOs and other derivatives they peddled on the global marketplace, the damage may be incalculably large.
“The result is that states, cities and counties ended up owning collateralized debt obligations and credit default swaps like those that blew up in the faces of major corporations like AIG during the 2008-2009 financial meltdown.”
Didn’t The OC blow up back in 1994 or so due to some kind of sh!tty derivatives assets that Wall Street sold it? You would think those who get severely burned would learn to stop playing with fire…
“You would think those who get severly burned would learn to stop playing with fire …”
These civic “leaders” have expertise in getting elected not necessairly expertise in handling money, not that it should matter all that much to them since the money isn’t really theirs.
“…expertise in getting elected not necessairly expertise in handling money…”
Makes them easy marks for Megabank, Inc’s banking scams…
And as exemplified by Meg Whitman and many others.
Wall Street will richly reward those who sell out the average American.
Meg Whitman spends $80 million on campaign, declines in polls
May 28, 12:34 PMSacramento Liberal ExaminerElizabeth Fehr
Sacramento Liberal Examiner
As of today, Republican gubernatorial candidate Meg Whitman has spent more than $80 million on her campaign, with $68 million coming from her personal finances. $42 million alone has gone to TV advertising, with an additional $8.4 million for political consultants. In addition, the EBay billionaire says that she is prepared to spend as much as $150 million of her money on her campaign. This kind of money for a non-presidential campaign is unprecedented. Already, the 2010 California governor’s race is the most expensive non-presidential race in American history.
For all the money that Whitman’s pumped into her campaign, it doesn’t seem to be helping her much in the polls. Over the past two months, Whitman’s standing in the polls has fallen by 23 percentage points. Whitman now leads insurance commisioner Steve Poizner by only 11 percentage points. A third of GOP voters remain undecided. It’s a huge gain for Poizner, who two months ago was all but written off as a candidate. In comparison to Whitman’s huge sums of money spent on her campaign, Poizner has spent only $24 million of his own money. Still an outrageous sum, but less than half of what Whitman has spent.
With less than two weeks to go until the June 8th primary, we can expect a huge blitz by both Whitman and Poizner as they try to buy their way to the nomination.
I have to ask…
What’s in it for them?
What do they have to gain by becoming governor of California? Does becoming governor somehow open more doors than what they already have access to as multi-millionaires/billionaires? Is it power…money?
Perhaps I’m a bit naive, but I can’t understand why someone would throw away $150 MILLION to become governor.
Can they write it off as business expenses against huge stock option profits?
Perhaps I’m a bit naive, but I can’t understand why someone would throw away $150 MILLION to become governor.
“You would think those who get severely burned would learn to stop playing with fire…”
Well, when you have six figure public employee pensions to fund the money’s gotta come from somewhere, so it’s off to the Wall St. casino, just beware that the dice are loaded.
In Colorado,
…. hadn’t thought of that ‘before’..? Interesting. In OR ( back during the Roaring 90’s ) our OPERS -mandated- our public employees receive NO LESS than an 8% a year return!
At the time ( it seemed a pittance ) Well obviously since then, we’ve been forced to repeal that but you’re absolutely right! Had we not insitutionalized such grand notions ( and bold promises ) going to the casino would have never been necessary.
Had their expectations in retirement been more modest and remained so, much more conservative means would have been employed.
DinOR,
Are you sure it was the *employees* who were supposed to get 8% returns, or was it the pension fund that required the 8% return in order to fund it’s obligations?
From what I know of Cal-PERS, the pension funds anticipated ~8% returns, on average. It was these expectations that ran head-first into the Fed’s decision to lower rates to 1% (or lower!).
IMHO, it’s not “greedy workers” who are causing the problems with the pension funds. Cal-PERS was “superfunded” in 1999 (had more than it needed, based on historical returns).
What destroyed the public pension funds was WALL STREET!
Let’s not take our eyes off the problem. I’m seeing a disturbing trend of workers turning against other workers while those who destroyed this country are flying away on their Gulfstream jets…lauging at the fools who scramble for the crumbs left behind.
CA Renter,
All very tidy ( except in OR it’s the state employees that fly off in Gulfstreams! )
CA Renter, when you look at so much that’s derailed in that system often the shortcomings arise from -local- consultants making -local- real estate deals because “you can trust us.., we’re not from Wall Street we’re in your back yard!”
Craig Berkman pulled the same BS here in OR ( local “consultant” ) etc. etc. He specialized in -local- start ups, all of whom FAILED btw. Greedy “workers”, greedy public employee’s unions, greedy WS types… and “I” am suppossed to be forced to make some sort of distinction here? I’ll get stuck for the bill regardless.
By the by, in 1999 ( we ‘all’ were superfunded ) I don’t mean to be crabby about it, but if I don’t want to become a victim ( personally ) of WS’s, I just don’t do business w/ them! But as a state resident, I wind up being joined at the hip whether I want it or not.
Every gambler knows that if you lose, you just have to keep betting more until you win it all back…..
“Brad Kemp, director of regional analysis at Beacon Economics, said bank policy rather than market mix may be at work. He argued that banks are keeping distressed homes off the market and thereby prompting overbidding by bargain hunters. That way, prices come closer to outstanding loan balances and banks lose less. ‘We think it’s an artificially unsustainable rise being caused by artificially keeping inventories low,’ Kemp said.”
IS IT LEGAL?
To me the question turns on whether collusion is the driving force behind this policy. But with forty percent of the banking sector concentrated into the hands of a small cartel of Wall Street Megabanks, isn’t collusion almost an inevitability?
This question of banks withholding inventory seems to fall safely outside the realm of monetary policy; hence I hope the GAO auditors ask Federal Reserve officials whether they have any information on whether banks withholding inventory from the market is due to illegal collusion.
“He argued that banks are keeping distress homes off the market and thereby prompting overbidding by bargain hunters. That way, prices come closer to outstanding loan balances and banks lose less.”
Lol, and it is shocking that banks are doing this because …?
Not shocking, but I believe it is important to know whether they act as individuals or in consort. I have often mentioned here that price fixing is a violation of the Sherman Antitrust Act, and I would like to know the extent to which it might explain the shadow inventory accumulation. I would think Department of Justice officials would also be interested in this question.
‘When you have low interest rates like this, you have a good opportunity to go about marketing the products without doing a lot of stupid stuff so you don’t destroy the prices by lowballing’
OK, so here we have a banker talking about holding REOs off the market, and just htis week, we saw an executive openly discussing shadow inventory:
‘ at least one bank executive is blaming the backlog on the Obama Administration’s loan modification campaign… citing comments made at an industry conference. Banks are holding off on foreclosures as they attempt to work things out with struggling homeowners, which along with a myriad of temporary foreclosure moratoriums imposed by different states, has helped create the giant overhang, John Ciresi, a vice president and portfolio manager for Bank of America, is quoted as telling fellow industry executives.’
http://thehousingbubbleblog.com/?p=6060
Legal or not, this is the time to make opposition known to the practice and put political focus on the matter:
‘We the undersigned believe that, to ensure a free and fair housing market, consumers must have complete knowledge of, and fair access to, the housing supply. Currently, many lenders regulated by the Federal government, or that have received taxpayer funds, are accumulating a housing inventory, but are not making this inventory (commonly referred to as the “shadow inventory”) known or available to the public. This practice is preventing the market from functioning as it should, to the detriment of the consumer. We call upon the Federal government to eliminate these unfair market conditions and expeditiously make this inventory known and available to consumers.
http://shadowinv.epetitions.net/
If we get enough signatures, I’m taking this to the reps in DC in June. We’ll do the ground work ahead of time with press releases and hopefully, some media attention. But we need your support!
Just signed it, Ben. Thanks for putting it up!
All the banks have the same problem. All of them have the same options, dump them ASAP, or make an attempt at regulating the supply over the next 1-5-10 years. All of them are trying to recover as much money as possible, or are putting off the Joshua Tree, in a hope that the candy- crapping Black Swan will show up and bail them out, either figuretively, or literally.
Collusion? If they all have the same problem, it shouldn’t be surprising that they came up with the same answer.
If there is collusion, its allowing them to get away with this strategy.
It’s really no different than the FB who keeps his home off the market, either renting or letting it sit hoping things will get better.
Not that I don’t believe there is collusion as well. I suspect it is the FED pushing the collusion by giving guidelines for the banks to follow. Step out of line and well the former CEO of BOA will tell you what happens.
‘It’s really no different than the FB who keeps his home off the market’
That’s not true. The FB bears the consequences of this decision. Most of the lenders we’ve documented doing this received government assistance in some form, allowing them to stay out of capital trouble and being liquidated. Most of the smaller banks that have been closed were ’sold’ to banks receiving govt/Fed money.
Then there is the matter of people paying too much for houses (with tax credits and almost nothing down), right now! IMO, when these people walk away, the folly of this practice will be opened for all to see. If I’m right about that, the SWHTF in the media, which is why you are seeing BOA position itself to blame the white house. (And note that the focus is ‘keeping people in their houses’, when the vast majority of houses we are talking about are vacant/blight and have been for years in some cases. Fundamentally, this is an issue of open, free markets and consumer fairness).
Just look at the stink that gets raised about TARP money and CEO bonuses, etc. This issue is much more important to each and every person who uses a house, or has a stake in the economy, which means most of us.
“All the banks have the same problem”
Well, other than being total idiots I’ll take that to mean they’re in the same boat? So, no more “collusion” than all of the Titanic’s passengers scramblimg for life rafts.
‘no more “collusion” than all of the Titanic’s passengers scramblimg for life rafts’
This is backwards. I’ve contacted many of these players and talk with their brokers. They know prices are falling. So it would only be logical that they would RUSH these properties to market. (That’s what happened in previous busts).
But they are doing the opposite. And what most strongly suggests collusion is that not one is breaking ranks. If there was nothing stopping them from putting the REOs on the market, wouldn’t at least one say, ‘you guys want to limit supply? We’re getting these houses sold while we can get these prices.’
X-GS Fixer and DinOR:
You are both making the same mistake. Your thing is that it’s “natural” for banks to hold their assets in a fallling market. In fact, the opposite is true. Under capitalism, it’s most natural to sell one’s assets quickly in a declining market. The only thing that would stop this from happening is collusion amongst sellers, which is a threat to the system and is, hence, illegal.
How many times have we heard it said that “The first rule is not to panic. The second rule is, if you’re going to panic, then panic first.”?
Why have we not yet seen the first panicker out in the streets? He must be getting paid off. Between the TARP money and very real threats of prosecution for fraud, etc, I’m pretty sure our political “representatives” have something to do with this. Because we (the peeps, ya know) are the ones getting the short end of the stick, it’s up to us to grab that stick and start beating someone else with it.
Big V,
Well said, and don’t forget to sign Ben’s petition above!
Truthfully… ( I don’t have a dog in the fight ) Sold any and all financials NLTN ‘06 ( Lord and I was scared THEN! ) and my checking acct. usually has enough to cover a few Redbox late fees…
As you’d imagine, I manage my ‘own’ acct. and have no interest in chasing REO’s etc. But you’re absolutely right, I feel left out that I don’t have anything to panic over?
“They know prices are falling. So it would only be logical that they would RUSH these properties to market. (That’s what happened in previous busts).
But they are doing the opposite. And what most strongly suggests collusion is that not one is breaking ranks.”
Spot on, Ben, and this has been my point all along. Without coordination from the top, cartels’ price fixing efforts generally collapse quickly from the bottom, as each individual competitor (e.g. bank w/ REO to sell) has an incentive to sell before the rest of the lot does, or else catch themselves a falling knife.
But cartel coordination gets a heck of a lot easier with 40 percent of a sector concentrated into the hands of four or so Megabanks.
I’m starting to see a pattern locally here. Can’t say for sure if I’m id’ing all of them. But DH and I will walk out of a house and say “bank owned” to each other after certain viewings. The tells: usually outrageously priced like everything’s up to date when in fact the home requires about $100k in updating/maintenance, furniture often doesn’t match the home (endless list of shabby looking deferred maintenance, nice hip furniture), realtor will comment owners are going to take a loss, remnants from burst pipes in basement, heat at minimum in winter/no ac in summer.
DH and I have discussed how it’s almost like they don’t really want to move them. They are obviously priced to sit.
Regarding the end-game to inventory withholding: I imagine the PTB will work things so that, like the wealthy passengers on the Titanic who had privileged access to life rafts, the major banks with REO holdings will some how be enabled to hang their bad real estate gambling debt on Main Street households; at the end of the day, it will be your Mom and Dad trying to sell their homes that discovers prices aren’t all that different from Detroit’s in other parts of the USA.
CarrieAnn,
The Mrs. and I have noticed as much as well. More oft than not ( you don’t even have to go in? )
Given how much leverage there is in the system ( is there ‘any’ equity left in RE these days ) I think it’s easy to understand why the banks play hard to get.
The problem they’re having is that if.., say GE found they had an entire warehouse of bigscreen TV’s or whatever, all they need do is simply not disclose that, exhaust the current inventory in the distribution channel and judiciously release the rest as appropriate.
Banks.., really don’t have that option do they? I mean, we all see it? Hard not to. Everyone that’s of a mind will get their free house soon enough, probably won’t want it though.
Banks.., really don’t have that option do they? I mean, we all see it? Hard not to.
… I think they were given that option when the accounting rules were changed. Mark to Market!
I said a long time ago that HAMP, HAFA, and all of this other crap was simply the government’s way of tacitly allowing the Chinese water torture release of REO on a grand scale. It allows each party to blame the other while artificially keeping supply low and prices high. Yes, it is collusion, and it’s done with the full support of the government.
‘it’s done with the full support of the government’
IMO, this isn’t the issue. Are we going to sit here and not say anything? I wish someone else would take this matter up, but I don’t see anyone DOING something about it. This is a chance to object, and with some luck, we can use the power of opinion (with the help of internet) to kick the snowball off the edge.
You have a lot of interests lining up here:
1) If you’re a banker, you want to keep the bank owned properties coming to market in a trickle to keep comps high and inflate the nominal value of your “assets”.
2) If you’re a homedebtor, you want the same thing, especially if you’re trying to sell or refinance.
3) If you’re in the government you want to keep groups 1 & 2 happy, and homeowners outnumber renters.
I support any effort to bring this issue to light, but tightly controlling inventory while waiting for a cyclical upturn was ALWAYS the plan. Everything else is window dressing.
Consider this. All of the modification plans have been spectacularly bad at their stating purpose of “keeping people in their homes”. They have been extremely successful, however, at dragging out the foreclosure process and keeping the suckers paying their mortgage for another year.
‘homeowners outnumber renters’
‘If you’re a homedebtor, you want the same thing’
30% rent and 40% own the houses free and clear.
‘waiting for a cyclical upturn’
But we’ve had a housing bubble. IMO, it’s understood these loan prices will never come back.
As for those who own “free and clear”, they may actually benefit from declines due to reduction in the assessed value for property tax. But people’s feelings on homeownership don’t exactly seem rational, and the “wealth effect” is pretty real. People just don’t want to hear that their asset values have gone down (especially when their incomes are flat or declining), not to mention people that hate all the turnover and absentee ownership going on in their neighborhood as a result of the decline.
“It’s understood these loan prices will never come back”. Is it?? You’ve posted a ton of articles about people who are waiting for “the market to recover” before putting their homes up for sale, and that’s the other huge chunk of the shadow inventory. My reference to a cyclical upturn was more about the perception of the government, who want to bandage asset declines and deflation long enough for some kind of job creation to kick in.
The point I’m trying to make is that most people think high house prices BENEFIT THEM as long as they own a house. So, they wouldn’t be too perturbed even if they learned the banks were sitting on all this inventory, they turn a blind eye to the massive concentration of home loans with the GSEs, etc. It’s not really logical, but I’ve seen plenty of evidence for the attitude.
“You have a lot of interests lining up here:”
Interests be damned; IS PRICE FIXING LEGAL OR ISN’T IT???
“30% rent and 40% own the houses free and clear.”
Ergo 70%+ subsidize the minority 30%- who are stuck with underwater mortgages. Seems like the prudent ought to be able to punish politicians in the voting booth who extract payments to prop up Megabank, Inc’s plankton customer base.
“I support any effort to bring this issue to light, but tightly controlling inventory while waiting for a cyclical upturn was ALWAYS the plan.”
Really? Could you please furnish some references to the source of the plan so American voters will know where credit is due come next November?
If we are willing to entertain the conjecture that inventory is being held off the housing market by top-down coordination, what is the implication? My knee-jerk thought is that IF the PTB succeed in continuing this until the UE rate starts to drop, there will still be a strong second wave down in prices, similar to what happened circa 1994-1996 in CA, as those who avoided selling during the recession all bring their homes to market at the same time, only the supply-side price pressure will be far greater this time due to a larger inventory overhang.
‘It’s understood these loan prices will never come back’
‘Is it?’
Most definitely. Right now I’m reading the BOA exec statements at the latest NAR conference. These guys not only know prices aren’t coming back, they know foreclosures are exploding right now, and aren’t touching the mortage market. Another fact to back this up; the GSE/HUD/VA/govt backed percentage of housing loans right now is over 95%. If that isn’t proof that the industry knows prices are going to continue to fall, I don’t know what is.
Shiller mentions above that the second leg down has started. IMO, we’ll see third, fourth and maybe more, as private lending won’t come back until there are reasonable downpayments, foreclosures are coming in waves, and we are in a serious recession.
Yes, it is well understood by those paying any attention at all that housing bubble prices are history. The question is, how far down will we go?
Guys, Barney Frank mentioned something along the lines of everything working out…”as long as banks continue to follow the POLICY of keeping homes off the market.”
I’ve also heard from some people who broker REOs in bulk that the Federal Reserve and Treasury have instructed them to keep houses off the market.
BTW, trying to follow what’s going on in the official foreclosure pipeline isn’t showing the real problem. “They” have caught on to what we’re trying to follow, and now they don’t even bother filing a NOD in many cases.
Some people are going on YEARS without making a mortgage payment, and without receiving a NOD.
Something stinks here, and I really appreciate Ben’s efforts to get to the bottom of it.
correction: The Fed/Treasury/FDIC/govt (heard different stories) have told **the banks** (not REO brokers) to keep inventory off the market.
“Last fall, the Bjerstedts lost the struggle to keep their Hudson, Wis., home out of foreclosure. Bjerstedt oversaw construction of the $700,000 home himself. Now his family leases a townhome in Hudson about one third the size of their old place.”
There are going to be a lot of fancy McMansions changing hands from the MN-WI river border region along the picturesque St. Criox River Valley area. It is one of the most beautiful areas in the US, it is a wonderful lifestyle and was once a best kept secret. Part of the secret was…bring money and money there was, for a while
The MN-WI river valley areas was a short commute from Minneapolis-St. Paul twin cities and the loose money so the speculators, dreamers and builders came to small quaint tourist towns like Taylor Falls, St Criox Falls and Hudson seeking refugue and the good life away from the cities.
The second part of the St. Criox valley goodlife secret was bring a real local job, because if you didn’t have a lot of money when the tourists leave and it’s -20 below, life can be cold and hard without money or a job even in God’s country.
Don’t feel bad Tom Bjerstedt. A lot of those 700k, 4000sq. ft McMansions and better are gonna be a changing hands before this is all over.
It’s happened before as any local wage earning struggling resident could have plainly told you …if you’d have just asked or even bothered to paid close attention.
But what the heck, even as a lowly renter, they’ll still let you and the kids go tubing down the Apple River over in Somerset this summer…just remember to bring the money like … any other tourist.
mikey’s MN-WI, Hudson and St. Criox Valley McMansion beautification and gentification project rant over.
Oh…and this little shack would work just fine for me if I had the spare change.
http://tinyurl.com/34twwf5
mikey,
Interesting to see the TC/Saint Criox “conduit”. Like a good friend of mine up in Idaho loved to say “That was a town that was just ‘too cute’ to survive!”
What really interested me though ( was the timeline of these events ) Todd the Builder had already burned thru his considerable “savings” ( read Credit Line ) before going under in ‘06!
This really plays to my pet theory that while less pyrotechnic, The Bubble is a lot older than most of us suspect? Obviously Todd ( in REIC-World a common name ) had to have had SOME successes prior to that or things wouldn’t have ramped up and out of control over night!?
In your estimation ( as a lowly renter that is ) was there a quiet but consistent increase in Real Estate Fascination or did it all really start on 1 JAN 2004?
DinOR
What can I say other than THIS time, they seem to have got caught. It just didn’t start in 2004. It’s always been this way to some degree.
The heavy duty MN-WI RE fascination has always been pushed hard by the “old crowd” as Family Plan “B”. A second property or a lake/country place was even added fun and economic security. It is like the major economic back-up plan as it was prosperous or at least stable for the Boomer and Plus crowd and their parents.
The “your house is your bank” mentality got these people through many hardships and long hard winters. Owning a home is the BASE in the mid-west family oriented mindset. In the dead of our long MN-WI winters, Life is nearly always oriented around The Family, Friends and Da House much more so than in other warmer areas !
It seemed to always …work.
The RE agents, banks, builders and specuators wait for them to swim upstream every Spring, their spears poised, sharp and held high.
b..b..but it seemed to always work… huh kids!?!
The bubble in Minnesota dates back to 1997 or 1998. The thought of what has happened in the Twin Cities, and surrounding areas, such as Hudson makes me want to be sick.
For sure NYCityBoy,
I was a MN-WI border hopper and lived in St Criox Falls overlooking the St Criox Falls/Taylor Falls Dam and the river for period many moons ago. What a view with the hardwood leaves changing, especially in the Fall looking over to MN. Loved those small towns even in the winter.
Like you say, from the Twin Cities to the St.Criox Valley, lots of stupid and wasteful change and yet some dare to call this “Progress”?
NYCityBoy,
I blame it all on that sleazebag Dean Johnson and his stupid azz PBS series “Hometime”! ( Scumbag )
No, that would be me recollection too. Maybe even the mid-90’s. I cold called a LOT in the upper MW during that time and other than owning Mesabi Airlines and maybe Medtronix/St. Jude to a man, virtually everyone you spoke w/ had a RE “project” in the hopper.
“only to see it fold in 2006″
mikey, ANY of the WI posters.., can you -please- help us out with the chronology and market conditions here? Why I thought ‘06 was in the sweet spot of ‘it only goes up’?
During that time, all Ben was posting about from the Upper MW was wine and roses.
morning DinOR and gang,
my latest crazy WI post and rant …is somewhere in the AZ Purple Haze mail.
This was from a Channel 58 local News clip…
Article Author: Asa George. 28 May 2010
“Four unpaid furlough days were authorized in the city’s budget this year.
MILWAUKEE– Many Milwaukee city services are shut down on Friday as the city implements a mandatory one-day furlough. Most city employees will not report for work. Police, Fire, EMT and parking enforcement will not be affected. Garbage and recycling will not be collected Friday, or Monday for Memorial Day. Four unpaid furlough days were authorized in the city’s budget this year.”
It’s gonna take a whole heck of a lot more than 4 unpaid days off to save the City of Milwaukee’s budget and bacon but it is a sign of things to come.
Just keep sending the Milwaukee welfare recipients to Minnesota. Send along the Chicago recipients, too. That will help both towns ease some of their budget problems.
Ten minutes of looking at HBB posts from March and April of 2006:
Does The Mid-West Have A Housing Bubble?
http://thehousingbubbleblog.com/?p=354
People Are Aware Of What’s Happening’ In Michigan
http://thehousingbubbleblog.com/?p=338
Home Prices Falling In Chicagoland
http://thehousingbubbleblog.com/?p=337
Speculators ‘Want To Find A Sucker’ In Chicago
http://thehousingbubbleblog.com/?p=564
Chicago Area Builders ‘Can’t Miss Starts’
http://thehousingbubbleblog.com/?p=518
‘It’s Opportunity Time’ For Twin City Homebuyers
http://thehousingbubbleblog.com/?p=477
I could go on. Actually, the MW broke down ahead of most markets. And MI and OH were the first states to pass laws against subprime lending. Not because it was more prevalent there, but because those market flattened first and the loans went bad.
Ben,
Thanks for the Refresher Course! I did a double-take when I saw this builder went under in ‘06? No doubt denial ran as deep in the MW as anywhere and there was plenty of MSM coverage purporting that all was well!
IIRC the prevailing UHS talking points at the time were slanted to portray the MW as having been more ’sensible’ and that if a bubble ‘did’ in fact exist.. ( it was confined to the coasts blah, blah )
Any chance they’ll be able to recover more quickly?
“IIRC the prevailing UHS talking points at the time were slanted to portray the MW as having been more ’sensible’ and that if a bubble ‘did’ in fact exist.. ( it was confined to the coasts blah, blah )
Any chance they’ll be able to recover more quickly?”
IMHO, it’s all about real jobs and productive work.
Possible long term 80’s style recession and stagnation for some at best, if they are lucky. For others, mid-west city and community killing recession-full blown welfare depression at worse.
( it just takes one major or key business or industry closing to kill a community’s hopes and futre in some of these smaller towns and they don’t have a lot of really big productive cities between Milwaukee, WI and Fargo, ND.)
The upper mid-west working people class could be facing some serious stuff that it hasn’t seen the era of the “Rust Belt” days.
Lil’ Sis bought in the Midwest at the end of 2006, against my advice. So far as I know, she and BIL are still getting the home they moved out of ready to sell…
‘A large number of people who probably left are undocumented, they couldn’t sign up for any benefits or services, so they were the first to leave,’
How were they able to sign their mortgage papers, then?
With the pen their mortgage broker gave them?
“A recent survey by CoreLogic found Oklahoma has the lowest percentage of people who owe more than their houses are worth.”
Tentative conclusion: There is at least one state in the union where the idea that homes could be worth hundreds of thousands of dollars above what they sold for back in 1998 is so completely absurd that no loan officer would go along with the idea.
There is at least one state in the union where the idea that homes could be worth hundreds of thousands of dollars above what they sold for back in 1998.
……or at least one state where there was a lack of interest on the part of infestors. Ouch!
I’d argue for the latter because Oklahoma got hammered with the oil bust in the 1980’s. They’re not immune from overpaying. Perhaps what saved them this time was not having outsiders meddling in the market as happened in so many other places.
“Many banks resell the loan to the secondary market. Since those bankers know the papers will change hands, they may not be as careful in ensuring the buyer has the resources to repay the loans, he said. ‘We do not sell our mortgages. We keep our mortgages here,’ he said.”
How did Wall Street’s Megabank, Inc overlook the opportunity to snap up Oklahoma mortgages and securitize them?
They were hard little apples way up high. Wasn’t worth getting the ladder for.
If you have the choice of refinancing one $500K CA/AZ/FL house, or 6-7 $70K Oklahoma houses, which would be easier/more profitable for the mortgage company?
All wrong!
There were not enough “hot chicks” in OK for Daniel Sadek!
( The Housing Boom was all about the chicks guys )
“…which would be easier/more profitable for the mortgage company?”
I guess that depends on where the next F5 twister hits OK versus where the next M7.0+ temblor hits CA.
“Among those reasons: Households are ‘deleveraging.’ In other words, households are trying to recover from the loss of ‘paper wealth’ associated with the rise and fall of housing values. Those losses might not have been so disruptive but, as Dudley noted, homeowners borrowed money based on housing values — and then spent with abandon. ‘This pushed the consumption share of nominal gross domestic product to a record high of about 70 percent,’ Dudley noted.”
Did he mention said home owners were following Alan Greenspan’s advice to unlock their home equity wealth gains?
This was the real disaster.
Which is more horrifying: that banks did it, that borrowers did it, or that regulators and bond raters allowed it?
“Which is more horrifying:”
That the Fed, which was the unapologetic source of the detrimental consumer recommendation to spend away home equity wealth gains until foreclosure happens, is going to be granted an increased consumer protection role under financial reform…
“Capt. Jerry Frimml was granted his request in April of last year and was released from combat operations. His report date at Fort Carson was just two months later in July, so during that time, Frimml put his house up for sale”.
Rule 1: If you’re on active duty and nowhere near retirement do NOT buy a house! In my 17 years of active service I knew that buying a house was the kiss of death as you had no control where (or when) your Uncle Sam would send you away for a long, long time. If you fail to heed this rule and you find yourself in a bind such as the young Capt. please do not come whining to me!
BTW, I wonder if some poor enlisted schlub would be released from combat operations to get his house in order. I somehow doubt it.
mugsy,
( As an Enlisted, I concur )
No, I think for a great many years, home ( not loan ) ownership was one of the few… ways an enlisted guy could raise himself up out of poverty? It wasn’t uncommon for an E-5/E-6 to buy a home in… Gulfport or P’cola etc. and then rent it out to ‘another’ G.I when he transferred.
Where the problem arose is that, these aren’t ‘normal’ times. For all the pay raises they’ve seen, they have no business playing high stakes/zero down housing options! ( You can’t “just walk away” when you’re in the military )
LAY is still channeling Lereah at this late stage of the game? WTF does it even mean to say, “Real estate is very local”?
“‘Real estate is very local. So these aggregate measures can be very misleading,’ said Leslie Appleton-Young, the association’s chief economist.”
===========================================================
All Real Estate Is Local: What You Need to Know to Profit in Real Estate - in a Buyer’s and a Seller’s Market (Hardcover)
~ David Lereah (Author)
Price: $21.95 & eligible for FREE Super Saver Shipping on orders over $25. Details
Only 2 left in stock–order soon (more on the way).
13 new from $1.74 18 used from $0.44
“In California, home prices are rising in part due to the scarcity of foreclosed properties on the market despite high demand in areas such as the Inland Empire, Appleton-Young said. ‘The reason the California number went up is because we were selling fewer homes in the inland areas because there was not enough supply,’ she said.”
If only there was more supply.
But her statement is an indication of how highly manipulated the current market is. With vacancies as far as the eye can see, prices in the Inland Empire should be falling, not rising.
Without considerable intervention, there shouldn’t even be the possibility that prices could be rising.
yup
If the Inland Empire had water instead of debt, they’d still be treading in it to keep from drowning.
This past weekend I went to a Home Buyer’s Expo here in Anne Arundel County, Maryland. It was a surreal experience.
1) On the plus side, there was at least *some* admission that there was a Housing Bubble by some of the realtors, title companies, lenders, etc. who were there. Not a lot of admission, of course, and “now is the best time to buy!” was the mantra, as expected.
2) Some arm of the county is starting to build smaller, affordable green homes… in the over $300,000 range. Mind you, Anne Arundel county median household income is only a bit over $60,000 a year. A strange definition of “affordable.”
3) The county offers 0% loans of $5,000 to first time homebuyers that only have to be paid back when the house is sold. The insane part: the loans are available to households with 2 people making up to $98,000 a year, and to folks who make over $100,000 a year if there are 3 or more people in the household.
This is madness: why is the government offering money to people making 50% more than the median household income? And why is it you need to make that much money or more to be able to afford a house in the county?! Oh, then there’s the leverage involved; we all know that $5,000 will be leveraged at least 5 to 1, thus jacking up the price of houses by $25,000 or more. Madness… we’re lending out money to virtually everyone to make housing more “affordable” by increasing the prices?!
Needless to say, I won’t be buying anything soon!
Do you know if they are going to have one of those Home Buying Expos for Howard County? We currently live in Montgomery County and are thinking of making the move across the Beltway. I hear Howard is a nice place and would like to see more of it, as we don’t like the Bethesda area as much as we thought we would.
Maybe I’m reading it wrong, but Anne Arundel median income is actually $83K, not 60K. And Howard Co is $102K. Even PG is $70K. These are 2008 #’s - probably higher now given the high % of gov’t workers. Whether or not it’s valued appropriately or worth it, a 300K house around Anne Arundel is affordable.
http://quickfacts.census.gov/qfd/states/24/24003.html
The bulls got their behinds slapped as the trading day closed on the last day of May. Where is Eddie today — I thought he said this was a good buying opportunity?
You non-signers and lurkers need to man up and sign the damn petition. There is more than 14 of us here.
http://shadowinv.epetitions.net/
Has anyone tossed the above link into the Bits Bucket? Betcha there are a few signers over there.
It’s in the body of the Bits Bucket post, and will stay there until we get to DC, on June 24th.
Feel free to email it to those who may be interested.
Is this Northwestern bank contagion really a new development? I seem to recall WaMu (our former bank) as having been located somewhere up in the Pacific Northwest before blowing up spectacularly, and that was quite a while back!
* The Wall Street Journal
* BUSINESS
* MAY 29, 2010
Bank Contagion Spreads to Northwest
By ROBIN SIDEL And PETER LATTMAN
The symptoms are familiar: too many construction loans made when money was plentiful and real-estate values defied gravity. And now the disease that has killed more than 200 banks is spreading to another part of the U.S.
Six banks in Washington state have failed this year, while about one-fourth of the banks and savings institutions based there are operating under toughened regulatory scrutiny known as “cease-and-desist” orders, according to the Federal Deposit Insurance Corp.
In comparison, about 19% of banks in Georgia, home to more failed banks than any other U.S. state since the start of 2008, face such operating constraints. Cease-and-desist orders often are a sign that a bank is in deep financial trouble, though the restrictions don’t necessarily mean that the bank will fail.
“There are areas around the country that may be worse, but I would put the Pacific Northwest right up there,” said Joey Warmenhoven, a trader specializing in small-bank stocks at McAdams Wright Ragen, a brokerage firm in Portland, Ore.
The struggles of many banks based in the region are a contrast to signs of stabilization for the industry as a whole. Loan-loss provisions declined 17% in the first quarter from a year earlier, and the quarterly increase in loans at least 90 days past due or not accruing interest was the smallest since 2007’s third quarter, according to the FDIC.
The six Washington banks to fail in 2010 represent about 7% of the state’s banks at the start of this year. One Oregon bank has failed. The largest financial institution in terms of assets to fail, Frontier Bank of Everett, Wash., had $3.5 billion in assets and 51 branches when it was seized by regulators April 30. Frontier succumbed to the weight of its construction-loan portfolio.
In all of 2009, three banks failed in Washington, three failed in Oregon and one failed in Idaho.
Another measure of the distress can be found in the Texas ratio, which assesses the probability of failure based on nonperforming loans, reserves, capital and other factors. Some 25 banks in Washington, Oregon and Idaho had a high probability of failure based on that ratio in early 2010, more than double the number a year earlier, according to McAdams Wright Ragen.
Some bankers and analysts are worried that turmoil at banks in the Pacific Northwest could slow the overall industry’s recovery. Construction loans are a particular sore spot, hurt by slackened demand from California residents who scooped up vacation and retirement homes in the region before the real-estate bubble burst.
Observers said the damage on bank balance sheets and bottom lines is intensifying because the economy of the Pacific Northwest often lags behind the rest of the U.S. by as much as a year.
Like banks in other parts of the country upended by declining real-estate values and the economic slump, sick financial institutions in Washington, Oregon and Idaho are scrambling for new investors who will help them replenish shrinking capital levels.
…