The Housing Bubble

The Green Bay Press Gazette reports from Wisconsin. “Craig Haskins remembers when the lobbies of Knight Barry Title Group bustled with homebuyers and sellers optimistically waiting to finalize a new chapter in their lives. That was before 2008 — when the housing bubble burst and sent the real estate world and eventually the overall economy into a tailspin. ‘I used to walk into the office and there’d be people sitting in our lobby waiting to use our conference room to buy a house. We don’t have too much of that anymore. I don’t think people have used some of our lobbies for a while now,’ said Haskins, an executive VP of the company.”

“After a respite in late 2010 and early this year, foreclosures again are surging, and real estate experts don’t expect the numbers to improve in coming months. A telling statistic about the housing market is in the growth of Knight Barry. With the glut of foreclosures, many banks need analysis of titles to homes with underwater mortgages. Many have turned to Knight Barry to fill this growing niche. In 2010, the company performed 10,000 of these title analysis reports. It performed 50 in 2006. ‘I’m not trying to be funny, but you would think we’re almost running out of people to foreclose,’ he said.”

From Bridge Michigan. “Michigan home- and business owners have lost an astounding $180 billion from the value of their properties over the past four years. Adjusted for inflation, property values have plunged 27 percent since 2007. In other words, Michigan homeowners and businesses have lost about $1 in every $4 of property value they once possessed. The $180 billion loss in value is an amount five times larger than General Motors’ market capitalization.”

“Booming home prices and the easy availability of home equity loans in Michigan once allowed big-spending homeowners to use their property as virtual ATM machines. They pulled out hundreds of millions of dollars in equity to buy cars, big screen televisions and other purchases that kept the economy humming. Not anymore. The crash in the value of Michigan’s homes and other property shut off the lights at this party.”

“Kelly Sweeney, CEO of Coldwell Banker Weir Manuel, said the number of sales and prices of owner-occupied homes in Oakland County has started to rise as Michigan has added about 70,000 jobs this year. But bank-owned foreclosures are offsetting those gains. He said about 50 percent of homes for sale in the county are owned by banks or government-owned lenders Fannie Mae and Freddie Mac. How the government acts to dispose of those properties will determine how quickly residential values will recover, Sweeney added. ‘Everybody’s worried about Freddie and Fannie,’ he said.”

The Star Tribune in Minnesota. “Home buyers can no longer assume that it’s easy to buy a cheap house in a good location. New local listings are down 17 percent in the Twin Cities over the past year, as would-be sellers are holding on to their homes until the market improves. Barb Duthler, a sales agent with Re/Max Results in Minneapolis, said the primary problem in the market is that prospective sellers aren’t listing because they owe more than the house is worth. This points to deeper trouble in the market, said Jeanne Boeh, an economics professor at Augsburg College. ‘The average person who doesn’t have to sell is looking at it this way: ‘If I don’t have to sell why would I?’”

“Wayne Hartmann and his wife never thought they’d have trouble finding a decent house in the western suburbs for $500,000, but about a quarter of all the houses they saw were foreclosures or short sales in terrible condition. They eventually made an offer on a short sale in December. The homeowner agreed to the deal, but it fell apart after never getting a response from the lender. Not wanting to risk losing out on record low mortgage rates, they ended up spending about $200,000 more than they planned to get the house they wanted.”

“The good news: Hartmann got the lowest rate he’s ever had. ‘I almost can’t believe it,’ said Hartmann. ‘But it is a frustrating market from a buyer’s perspective to wade through all of the turmoil that’s out there.’”

Minnesota Public Radio. “A new report on the housing crisis shows foreclosures have disproportionately affected low income and poor communities in St. Paul. The neighborhoods of Dayton’s Bluff and Payne Phalen on the east side, and Thomas Dale — also known as Frogtown — saw home values drop about 50 percent since 2006. That’s almost double the drop in the more affluent Mac-Groveland, Highland and St Anthony Park neighborhoods.”

“Kate Hess Pace, ISAIAH organizer said low-income and minority neighborhoods were more likely to be targeted for risky subprime mortgages, and the instances of foreclosure was more severe in these communities. ‘It’s actually been widening disparities between people of color and whites in terms of how it’s impacted neighborhoods, home value, the amount of vacant homes and generational wealth,’ Pace said.”

“‘We’ve got vacant houses that are sitting there. They’ve got the city placard on the front door so folks know that it’s vacant. They are being vandalized,’ said Jill Henricksen, director of the Greater Frogtown Community Development Corporation. ‘They are being broken into. Garbage is being dumped. We are seeing an increase in prostitution. We are seeing an increase in theft. All kinds of things around these properties.’”

“Many remaining homeowners in the neighborhood owe more on their homes than the homes are worth on the market.”

The News Leader in Missouri. “Phyllis Ferguson has a home in Woodland Heights, owns rental property and is an advocate for her northside neighborhood. In a 1.763-square-mile area that has nearly 51 percent ‘absentee owner-owned’ houses, her biggest concern is the condition of much of that rental property. She is also seeing more vacant houses, some through foreclosure but others the result of a depressed market.”

“‘I think we are seeing more houses available for rent, and that can impact if the landlords aren’t able to keep their houses rented,’ she said. ‘If their income is not as great, they’re not able to keep them up.’”

From Cincinnati.com. “An estimated 2,500 struggling homeowners in Greater Cincinnati and Northern Kentucky have received rewritten mortgages this year to avoid foreclosure. Nine out of 10 of them ended up owing more than when they started. Rather than reduce the principal amount owed and waive penalties, lenders are bundling everything due together and then extending payments, new government data shows. Most homeowners get a smaller monthly mortgage bill - but a new loan that might stretch out for a once-unheard-of 40 years. A few end up with bigger monthly payments, too.”

“‘I don’t believe there’s any way around it - the housing market keeps getting worse, and we’ll continue to see it get worse,’ says Sister Barbara Busch, executive director of South Cumminsville-based regional housing advocate Working In Neighborhoods.”

The fight against foreclosures continues to muddle and underwhelm: Only 310,000 American households received a mortgage modification in the first six months of this year, while nearly double that number fell into foreclosure, the new data from the Office of the Comptroller of the Currency shows. Also discouraging: One of every seven homeowners with a rewritten mortgage fails to make at least two payments in the first six months.”

“Housing advocates say lenders need to do more. ‘Principal reduction is something that would work, but banks don’t want to hear it - it’s really taboo,’ says Marilyn Evans, a board member of South Cumminsville-based Communities United for Action. ‘They figure they’ll lose money on it, but they lose money on a house if it goes into foreclosure.’”

“Lenders say hard choices are ahead. ‘Banks are trying very hard to help people, but if someone can’t afford to stay in their home it doesn’t do anyone a favor by delaying the inevitable,’ says Steve Wilson, CEO of Lebanon-based LCNB National Bank and chairman of the American Bankers Association.”

“Even if lenders would consider giving up principal, their hands might be tied. Since many banks resell their mortgages and only retain servicing rights, they may not have the authority to take such action. For instance, mortgage giants Fannie Mae and Freddie Mac own more than 60 percent of all U.S. home loans, and they forbid principal reduction as a workout option.”

“The Federal Housing Finance Agency, which put Fannie and Freddie into a conservatorship in 2008, indicates it can’t afford to let modifications be more generous without outside funding. It notes that taxpayers already have injected $169 billion to prop up the housing giants.”

“Shaun Bond, director of the University of Cincinnati Real Estate Center, acknowledges that homeowners’ struggles with foreclosures and sagging prices have stalled the nation’s recovery. But lenders and regulators are properly hesitant to embrace broader debt forgiveness for fear of encouraging bad loans and irresponsible borrowing, Bond says. The cost of debt forgiveness ultimately would be passed along to taxpayers and consumers, he says.”

“‘If people feel they can renege on the original debt agreement, they would be tempted to borrow more than prudent. The moral hazard is a very real concern,’ he says.”

‘But Alan White, a law professor specializing in real estate and financial services regulation at Valparaiso University in Indiana, says banks risk a continuing crisis and steeper losses by not writing off more bad debt. ‘Unless you address the underwater homeowner, you’re just kicking the can down the road,’ White says.”