The Housing Bubble

The St. Augustine Record reports from Florida. “A leading national economist said Friday that the St. Augustine housing market is recovering. ‘Locally, the market is beginning to stabilize,’ Lawrence Yun, National Association of Realtors chief economist and senior vice president of research, told an audience of Realtors, community leaders and Chamber of Commerce members. That’s a notion that area officials want but are hesitant to believe. The St. Johns County Property Appraiser’s office has said it’s too soon to tell, and so do area taxing entities, which have seen property tax revenues drop.”

“Though good news peppered the rest of the talk, the positives quickly gave way to a more sobering picture: a fragile national housing market that could easily be wrecked by spiking oil prices and Washington policy decisions. Yun said some policy decisions have helped the housing market, like the home buyer tax credits. He gave two scenarios for the next couple of years — one positive, one negative. In the positive scenario, rents continue to squeeze renters, who decide to buy; foreign investors continue to take advantage of the weak dollar in order to buy homes and lending standards continue to loosen. ‘Normalized’ lending standards could spur a 15 percent to 20 percent increase in sales, he said.”

“In the negative scenario, Democrats and Republicans alike implement policies that Yun calls harmful to the housing recovery. If Republicans are successful in their bids to increase required down payments to 20 percent for government-backed loans, that would stymie the recovery, he said, because it would take the average family 14 years to save up enough. The GOP’s effort to lower loan limits would also hamper a housing recovery, he said.”

“And Democrats who go after the rich by limiting mortgage interest deductions for high incomes and second homes could also crunch the market. So would Dems going after ‘tax cheats’ by forcing small business to file massive amounts of 1099 paperwork and to hire IRS agents. ‘I hope the people in Washington don’t put too many obstacles in the way of the housing recovery … in its current fragile state,’ Yun said.”

“But Yun told the audience that the only way for national and local markets to fully recover is to eliminate the large number of homes glutting the market. ‘Absorbing the inventory is critical to a housing recovery,’ Yun said. In Florida, there are 1.5 million vacant houses.”

The Palm Beach Post. “Federal mortgage giant Fannie Mae more than doubled the amount of time Florida attorneys have to complete a foreclosure, acknowledging the reality of the state’s overwhelmed court system and problems with foreclosure paperwork. Law firms now have 450 days (about 15 months), up from 185 (six months), to move a foreclosure from the first referral to an attorney to a foreclosure auction before fines can be levied.”

‘As of the end of 2010, Fannie Mae had $184 billion in unpaid home loan principal in Florida with a seriously delinquent rate of 12 percent. Whether the longer deadline will have any impact in Florida remains to be seen. RealtyTrac estimated last month that the average Florida foreclosure takes 619 days from the initial court filing to bank repossession.”

“‘They can’t get foreclosures done in 185 days and I don’t think they can get them done in 450 right now,’ said Boca Raton-based foreclosure defense attorney Ron Kaniuk. ‘They can tell the bank attorneys whatever they want, but without funding, the courts are going to grind to a slow, pathetic halt.’”

The Miami Herald. “More than 400,000 South Florida homeowners owe more on their mortgages than their properties are worth, a new quarterly report by research firm CoreLogic shows. In Miami-Dade, 236,103 homeowners were underwater during first quarter of this year, a rate of 46.6 percent. That’s down slightly from the fourth quarter of 2010, when 245,530 properties had negative equity, a rate of 48.2 percent. In Broward, the underwater rate is 49.4 percent, for at total of 212,606 properties.”

“‘People who had a second mortgage were more than twice as likely to tbe undewater,’ said Shari Olefson, a Fort Lauderdale attorney. ‘You went from an 80 or 90 percent loan-to-value [ratio] to 100 percent so automatically you’re going to see more people underwater when values started going down.’”

“In Florida, there are more than 2 million underwater homes, equal to 46.1 percent of all mortgages.”

The Tampa Tribune. “In the Tampa-St. Petersburg-Clearwater area, 17.05 percent of home loans were 90 days or more delinquent in March, according to CoreLogic. Matt Larson, a housing analyst for Weiss Research in Jupiter, said the data is a reflection of the overall trouble in the housing market.”

“‘If you want to call it a double-dip you can,’ Larson said. ‘Many think we never really actually rebounded at all.’”

From Florida Today. “The economic downturn has left community banks struggling, largely because of real estate and business loans gone bad. The impact has been felt on the Space Coast and throughout Florida. In the past two years, 45 Florida-based banks have failed. The vast majority was smaller, community banks, and independent analysts say many other banks are in poor shape.”

“The housing bust led to an economic downturn that hampered businesses across the spectrum. That in turn led to increasing defaults in both business and consumer loans. And the value of the real estate backing those loans typically fell far below the loan amounts. ‘We are seeing real estate appraisals coming back now at less than half of what they were when we started,’ said Kevin Sacket, president and CFO of Sunrise Bank in Cocoa Beach. ‘So, yeah, a lot of our troubles are directly related to that.’”

The Herald Tribune. “Dennis Fullenkamp, a prominent Southwest Florida real estate investor who made tens of millions of dollars buying and selling land from Cape Coral to North Port, has filed for Chapter 11 bankruptcy protection. Federal court documents prepared by his Naples attorney, John S. Sarrett, say that Fullenkamp filed for protection ‘on account of the distressed Florida real estate market and its impact upon his investments.’”

“Considered one of the savviest long-term investors in the region, Fullenkamp made a fortune buying land in Cape Coral a decade before bulldozers arrived there, and repeated that same formula in North Port and Port Charlotte. In 2005 and 2006, he spent more than $30 million to buy nearly 4,500 acres of prime land along U.S. 17, just south of Arcadia in DeSoto County.’

“Evidence of his financial problems began to appear in court records two years ago when Florida Community Bank foreclosed on a 165-acre golf course in Rotonda West that he was planning to develop with a group of investors.”

“A development company controlled by The Carlyle Group has sold the 44-unit Hyatt Siesta Key Beach condo complex to NS/CSE Siesta Key LLC for $32.3 million. CRP/Triton Siesta Key Property Owner LLC bought the property at 915 Seaside Drive for $3.35 million in May 2007 and completed the 152,000-square-foot, luxury resort in 2009. In addition to its $32.3 million purchase, NC/CSE also assumed responsibility for a $57 million loan that the original development group borrowed in March 2008.”

“Here is what Harold Bubil wrote about the resort in August 2009: ‘The resort is run by Hyatt like a four-star hotel, with concierge, maid service, catering and upscale amenities. The apartments are not glorified hotel rooms. If they were being sold as single-owner condos, the biggest units, facing the Gulf, would be priced in the millions. They have Sub-Zero/Wolf/Miele/Fisher & Paykel kitchens, Carl Ross-designed contemporary-casual décor, double-master suite layouts, fine linens, and spacious floor plans of 1,865 to 2,920 square feet.’”

“‘A buyer estimated that nearly two dozen people have put pen to paper, some of them responding to recent price cuts that put prices for the smallest units at $137,500 for three weeks (two fixed weeks and one floating week). There are 352 deeds available among the 44 apartments. Owners — most of them all-cash buyers — can stay for a total of three or six weeks throughout the year.’”

The Sun Sentinel. “The Boca Raton/Deerfield Beach area has a serious oversupply of unsold condominiums, according to an analysis by CondoVultures, a real estate consulting firm. At the current sales pace, it would take nearly 19 years to find buyers for all the unsold condos built or created since 2003, CondoVultures said.”

“‘More than one out of every three condos created in the Boca Raton/Deerfield Beach market during the boom have not yet sold,’ Peter Zalewski, a principal with CondoVultures, said in a statement. ‘The biggest factor driving this trend is the unwillingness of developers to slash prices.’”

The News Press. “The City of Fort Myers is considering whether to purchase riverfront property that was foreclosed on during the market crash. Initially, the six parcels to the west of Centennial Park were intended for a luxury, high-rise condominium complex called The Vue, but those plans fell through.”

‘Now, the $1.5 million price tag is about one-sixteenth of the original purchase price.”

From WINK News. “Floridians who walked away from their homes hoping also to walk away from their debt may still be on the hook for what they owe. Bankruptcy attorneys say they’re seeing more and more banks filing for something called a deficiency judgment. In the state of Florida, creditors like banks have up to five years to file for a deficiency judgment. Now some Floridians who lost their home in foreclosure or by short sale years ago are just now receiving those judgments.”

“Bankruptcy attorneys say if you don’t have that waiver and didn’t declare bankruptcy and get the debt dismissed, you could still be on the hook for the money. Bankruptcy Attorney Carmen Dellutri explained to us what that could mean for a former homeowner, ‘If a creditor had a deficiency judgment against me, they could try to garnish my wages. They could go after bank accounts. they could go after any equity in my vehicles and do what they call a replevin action. They could put a lien on any real estate other than my homestead. So if I had a vacant lot in Cape Coral, they could put a lien on that.’”

“Dellutri says Florida’s laws make it very easy for creditors to take action once they have received a ruling from a judge. ‘It’s instantaneous. It is fast. The most likely one is garnishment of the bank accounts.’”

“Bankruptcy attorneys say the banks don’t have to file for that judgment right away, so they’re seeing people who lost their home as long as two years ago come to their office trying to figure out how to deal with this issue.”

The News Herald. “Lindsay Hall took out a $200,000 loan in 2005 on her paid-off beach house with the understanding that her $600 monthly Social Security check would cover the mortgage payments. When her interest rate jumped more than a year ago, it raised her mortgage payments to $1,500. At that point, Hall started the fight to save her home.”

“Hall has negotiated with her loan servicer, IndyMac Mortgage Services, to modify her loan payments multiple times. Each time she negotiates payments within her $600 budget, the modification is rejected and the mortgage payment jumps back to $1,500 a month, she said. After loan modification talks failed, Hall tried to change her loan through the Home Affordable Modification Program. For the past three months, she was able to make payments of $585. Hall, who continues to work, received a letter informing her that she no longer qualifies for the program based on her income and that her payments will jump back to $1,500 a month.’

“Hall purchased her two-bedroom beach house in 1970, paying $38,000 for the property with the income she generated from owning and operating a dance studio in Dothan, Ala. At the time, her mortgage payment was $103 a month. When Hall semiretired in 1994, she moved to Panama City Beach as a full-time resident.”

“Hall took out a $50,000 loan in 1994 to update the property, which she paid off. In the 2000s, Hall’s elderly mother moved into the home, and in 2005 following the advice of a friend, Hall took out a $200,000 loan on her beach house, which was valued at $400,000, to convert the garage into a mother-in-law suite, add central heating and air, reroof, pay off credit cards and purchase a vehicle.”

“‘I didn’t have a fixed rate, which I know all about now,’ she said. ‘I’m one of those dummies that should have known better. Now, my $400,000 house is worth $180,000 — if we were lucky.’”

“‘If you miss three payments, the bank passes off the case to a law firm to begin foreclosure proceedings,’ said Florida foreclosure defense attorney David C. Hicks. ‘People are getting a false sense of security from banks.’”

“Mediation, like in the case of Hall, does not typically produce a positive outcome for homeowners. ‘What we have seen is that mediation has not done a great deal,’ said Hicks, who is based out of Tampa. ‘For one reason, there’s no principal reduction, so if you are upside down in equity there is no way to get out from under it.’”

“Hicks explained that homeowners are still responsible for the outstanding loan, even if a property goes into foreclosure and is sold. ‘The biggest mistake you can make is getting a deficiency judgment,’ Hicks said. ‘The loan follows the person, not the property. The property secures the loan, but that does not stop banks from being able to garnish wages and other assets.’”

“A big misunderstanding with loans is that the institution to which a mortgage payment is made out does not own the loan; it is servicing the loan. In many servicing agreements, there are clauses that allow banks to make more money on a foreclosure than on servicing a 30-year loan, Hicks said. ‘They don’t care about loan modifications,’ Hicks said.”

“In the cases where loan modifications are granted, 60 percent of the homeowners are in default again within nine months, Hicks said. Hicks recommended legal aid or hiring a professional attorney. ‘Victory depends on the equity status of the house,’ Hicks said. ‘You can’t expect miracles. … Do not expect the federal or state government to help.’”

“The News Herald wrote a story about Hall and several other local individuals dealing with foreclosure in March 2010. After the article appeared, Hall said her borrowers started calling her and working toward a loan modification, a task that has yet to be completed. ‘I goofed up and borrowed more money than I should have,’ Hall said. ‘It would be much easier to give up. I need some help, people.’”