The Housing Bubble

It’s Friday desk clearing time for this blogger. “Daniel Taylor is still waiting to hear whether he will qualify for a permanent modification under the Home Affordable Modification Program. A year ago, he lost his job as a salesman with a St. Charles car dealership when General Motors closed down dozens of dealerships. He is exhausting his savings trying to keep his Mariner Drive home. His mortgage is’under water’ by about $16,000. Lately, he’s noticed more and more vacant houses on his block. He’s counted three or four within a block, including one just around the bend from his home. ‘I have no idea what’s going on,’ he said. ‘I’m paying what I am supposed to pay, but they have me sitting in limbo.’”

“Johnny Placeres, executive director of Neighborhood Housing Services of the Fox Valley, recalls the real estate boom of just five years ago. Back then, banks would give anyone a loan, even a ‘no doc’ (no documentation) loan. Those loans — prospective homeowners didn’t even have to show proof of employment — were the norm, he said. ‘Right now, there’s no help for those people other than time is on their side,’ Placeres said. ‘The normal foreclosure process takes a year from missing your first payment. Now, people have been in homes a year and a half to two years and not been foreclosed on.’”

“Foreclosure activity in May continued to slow down nationally and in the Inland Empire as lenders worked to deal with a glut of distressed properties, according to report. ‘Banks are being very lenient with people not making their payments,” said Brad Kemp, director of regional research at Beacon Economics.”

“Banks are hoping that holding onto homes and controlling the inventory in the market would ratchet up home prices, Kemp said, a phenomenon occurring in the Inland Empire where demand is outpacing supply. Tim Adams, a realty broker associate in Redlands, said he knows of people in the Inland Empire who have been allowed to live in their homes for two years without making a single payment to the bank.”

“‘What we don’t have the information to is what we aren’t filing on,’ Adams said. ‘How many people are delinquent and not telling us.’”

“In the Riverside-San Bernardino-Ontario region 18.7 percent of homeowners with mortgages were at least 90 days late on their mortgage payments in April according to CoreLogic. That is up from 14.7 percent in April, 2009. Pete Nyiri, owner of Top Producers Realty & REO in Corona, who on Wednesday was attending a national industry conference on bank repossessions in Dallas, said banks and other industry officials advise that brokers should expect their shrunken inventories of bank-owned homes to expand in the fourth quarter.”

“Nyiri said the drop in defaults gives a false impression that the economy is getting better. ‘But when you have delinquencies going up and foreclosures going down, it doesn’t take much intelligence to see there is something wrong.’”

“Banks in May repossessed nearly 94,000 homes across the country - a second straight month of record highs, and California was among the ‘hot spots.’ While lenders continued to ‘manage the inventory’ to offset ‘the negative effect on home prices,’ they’ve also ramped up the pace of completing foreclosures that were delayed over the last 20 months, RealtyTrac officials said.”

“Ultimately, only a small percentage of troubled homeowners that need help actually get it, said Whittier Realtor Chris Vigil. ‘When the loan modifications actually run their course, only 3 to 5 percent actually qualify for a modification,’ Vigil said.”

“Foreclosure activity in Hampton Roads eased in May but remained at a historically high level. Banks and lenders repossessed and auctioned off 1,563 homes last month, down 10 percent from April but up 66 percent from a year ago, according to RealtyTrac. Dotty Acampora, a foreclosure-prevention counselor for the nonprofit Virginia Beach Community Development Corp., has seen lenders ramping up efforts in recent months to schedule foreclosure auctions.”

“James Koch, an economist at Old Dominion University, called the federal foreclosure-prevention programs disappointing. Koch said he doesn’t expect the foreclosure tide to turn in Hampton Roads until the employment situation improves or lenders work through their backlog of delinquent homes. ‘More and more financial institutions are coming to the realization that if someone doesn’t have a job and gainful income, they can’t let them live in the homes forever,’ he said.”

“Stacey Howard, counselor at the nonprofit NEDCO organization, said she sees little reason for optimism so far. ‘You see people unemployed,’ she said. ‘They’re running out of long-term unemployment benefits. They’re unable to find work that will support their mortgage.’”

“Howard said foreclosure numbers tend to run in cycles. For example, when the government changes a program, loan servicers may delay foreclosures while they react to the change. ‘You see an improvement, and then you see a spike the other way,’ Howard said. ‘It’s going to take some time before we really know if the worst of it is over — have most of the people who are going to lose their houses already lost them, or are there still waves coming?’”

“In the $350,000-and-above price range — the top 15 percent of the local market — some homeowners still hold adjustable mortgages, said real estate agent Erick Harpole of Keller Williams Realty. For example, there’s a $413,500 house on Lady Slipper Loop, a $507,653 house on Wendell Lane and a $621,500 house on Los Altos Lane — all in Eugene and all up for foreclosure, according to RealtyTrac.”

“It may take four or five years for local home prices to regain their previous levels, so buyers at the top of the market, who are now in distress, may not be able to sell, Harpole said. This means more high-end houses may fall into foreclosure, he said. ‘I see the writing on the wall,’ Harpole said.”

“The slump will hang around if Stan Humphries, chief economist forZillow, is right. He sees prices in Florida staying flat for three to five years as the state works through a high inventory of foreclosed homes and pending foreclosures. ‘We think there might be more than 1 million foreclosed properties in Florida shielded by the banks right now and another 5 million either in the foreclosure (process) or seriously delinquent,’ Humphries said.”

“If bankruptcies continue at their pace of the first five months, district filings in 2010 will surpass those of 2005, the year laws were changed to make the process more difficult. ‘It’s just amazing the number of people that are struggling,’ said lawyer Jerrett McConnell, president of the Jacksonville Bankruptcy Bar Association, which has more than 200 members. ‘The housing market is what is driving it and what we are seeing is, across the board, there is a lag effect of economic woes.’”

“‘The first people we saw filing bankruptcies were people involved in the construction industry. Then we saw the contractors themselves start to file bankruptcy, and the real estate brokers,’ said McConnell. ‘And now we are seeing the upper echelon people who had cash saved up and have used their savings and they have no choice but to file bankruptcy. Now I am seeing the corporate owners and the accountants.’ His practice has experienced ‘a tremendous increase in the number of people coming in, but the biggest increase is in the upper class - accountants, doctors, people who would have been considered, five yeas ago, wealthy.’”

“Those are folks making $250,000 a year or more and many of those he sees have substantial real estate holdings. ‘With a downturn in the market, they can’t find renters for their properties or are having lines of credit pulled,’ he said. ‘They can’t keep the ball rolling, so to speak,’ he said.”

“Carol Cook, a licensed real estate agent in Carrollton, said it appears that foreclosure rates are pretty steady for now. ‘I think a lot of them (homes) have been foreclosed on for a while and they are just now coming on the market,’ said Cook, who mentioned a house on the new foreclosed property listings that was foreclosed on in June 2009. ‘We’re seeing a lot of that right now.’”

“The recessionary escape route has been plotted for Savannah’s community banks. Beef up deposits. Step up lending criteria. Sell off foreclosed properties. Charge off uncollectable loans. Put aside more money earlier in the year to deal with future losses. Raise new capital from investors. The getaway is a slow one, however, because of delinquent loans.”

“‘Non-performing loans are still the ball and chain around the banks’ legs,’ said Ed Sibbald, a local banking analyst. ‘Or maybe it’s more like the albatross around their necks.’”

“The community bank albatross is largely a product of pre-recession lending practices and the cataclysmic drop in property values. And Savannah’s community banks, like their peers across the country, guarantee most of their loans with real estate. ‘Most banks would prefer not to go the foreclosure route and work with borrowers to have the resolution because it’s in the best interest of both parties,’ Darby Bank CEO Ray Fisher said. ‘But there is a fine line there. At some point, you have no alternative but to go the foreclosure route.’”

“‘We’ve been in a long period of chasing values downhill,’ The Savannah Bank CEO John Helmken II said. ‘It’s like trying to catch the falling knife: Should you catch it or let it hit the ground?’”

“On May 31, Alex Pemberton turned on his computer, clicked on the New York Times website and read about a St. Petersburg couple who had stopped paying their mortgage yet were still dining on steak and enjoying weekends on their ‘gas-guzzling’ airboat. Like many readers, Pemberton was incensed by the tale of these apparent deadbeats.”

“‘If I didn’t know it was me,’ he says, ‘I would have been the one digging out the pitchforks and torches and knocking on my door.”’

“He says he and girlfriend/business partner Susan Reboyras have been out on their old yellow airboat exactly twice in the past 21/2 years. Acquired from his father’s airboat business on the Withlacoochee River, it’s been for sale for years. And Pemberton says he mentioned Outback and Hard Rock — where he sometimes plays the penny slots — only when the reporter pressed him for examples of what they might do for entertainment. ‘I want people to understand the real story,’ Pemberton said.”

“Records show that Pemberton lost another house to foreclosure in 2001. He says he had a chemicals business that failed, leaving him unable to repay a loan he got to repair the run-down house he inherited from his grandmother. For the past several years Pemberton has lived with Reboyras, her two daughters and a raccoon named Roxy in the 1,400-square-foot house that Reboyras bought for $135,000 five years ago.”

“She later refinanced for $195,000, using the money to pay off house and truck loans and to buy another truck as the prize in a contest for the animal trapper who referred them the most business. But as their restoration work slumped, she stopped making payments last June. They know they will probably lose the house in the end. But for now, they joke about their ‘mansion’ and readers’ mistaken impression of their lifestyle.”

“‘We’re not living high on the hog, as you can see,’ Reboyras said as a visitor nearly tripped over an old carpet remnant serving as a door mat. ‘If this is high on the hog,’ Pemberton chimed in, ‘I don’t want no part of it.”’