The Housing Bubble

The Chicago Journal reports from Illinois. “Margaret Blakey took out a mortgage on her home in Bronzeville back in 1996, but unless she gets help now from the government and her mortgage lender, Wells Fargo, she won’t have that house for long. Blakey earns money as a singer, but has struggled to find work since the recession started in 2008 and has fallen behind in her mortgage payments. ‘Wells Fargo, my lender, they gave me the run around about giving me a modification,’ Blakey said. ‘You failed on the fact that your property is worth less than you owe on it — that’s really what they told me.’”

‘”I had just spent three months turning in all these papers,’ Blakey added. ‘They were asking for information that they didn’t require when I got the loan. I didn’t have to show my tax documents when I got the loan.’”

“Homeowners interviewed repeatedly mentioned the problem of their mortgage payments exceeding or about to exceed their property’s value. ‘I’ve tried refinancing my home — unfortunately my adjustable rate mortgage is about to go up in January,’ said Lebardo Olague, who bought a home for his family in the South Side’s Ashburn neighborhood in 2004. ‘My monthly salary is not enough — I’m already pretty much just bobbing my head above water and I’m about to go under.’”

“Asked about any signs of encouragement at a fair full of anxious homeowners, Attorney General Lisa Madigan’s office did note increased financial literacy. ‘We do see that consumers are more cautious with their finances,’ said Vanessa Zamora, a housing policy advisor for Attorney General Lisa Madigan. ‘They are more prone to read documents they’re receiving. Before some of them wouldn’t know what the interest rate was.’”

The Chicago Tribune in Illinois. “For most of the housing crisis, Chicago-area homebuilders and real estate agents have repeatedly said thank goodness they weren’t trying to do business in such housing boom and bust states as Florida, California, Arizona and Nevada, which experienced frenetic homebuilding and skyrocketing home values. If the most recent forecast from the National Association of Home Builders proves correct, they might want to eat those words.”

“From 2000 to 2003, before the bubble, the average number of single-family housing starts in Illinois was 44,431 annually. By the end of next year, Illinois will have recovered only to a point where builders are constructing 27 percent of that normal range, and starts will grow to 42 percent of normal activity by 2013.”

“The one piece of immediate good news in the forecast was that consumers who are buying are purchasing homes that are much more in line with their ability to afford them. Typically, people qualify for and purchase homes that are three times their income. That swelled to an unsustainable five times income during the bubble years but now is back to more realistic levels as a result of lower home values and tight credit underwriting. ‘There does seem to be some resettling of house prices down to what people can afford,’ said David Crowe, chief economist of the builders’ group.”

Chicago Now in Illinois. “In late July, the Chicago City Council passed an ordinance designed to clean up the thousands of vacant properties left decaying in the wake of foreclosure crisis. That ordinance would hold lender and mortgage servicers accountable for the maintenance of vacant homes, declaring them responsible for the property even before they legally took ownership when a foreclosure was complete.”

“I talked to Linda Koch, president of the Illinois Bankers Association. She said the new ordinance will make it too difficult for banks to make loans. ‘We already have bankers calling us saying, ‘How are we going to make loans anymore? How are we going to price our loans? How are we going to sell our loans to the secondary market?’ Koch said.”

“The problem with the ordinance, Koch said, is that it makes it impossible for lenders to estimate the risk of any given loan. ‘The cost is the cost of unknowns. No lender could know upfront whether that mortgage is going to go into foreclosures, consequently go into abandonment,’ Koch said.’Then add to that, when a lender is subject to penalties, fines, requirements and costs–putting a new roof, boarding up windows. All of those costs are completely unknown. That makes underwriting a mortgage and pricing a mortgage almost impossible.’”

“Would the regulation really stop the banks from lending? I took that question to Tom Feltner, vice president of Chicago’s Woodstock Institute. ‘I would take those claims with a grain of salt because we’ve seen several other consumer protections where lenders have made similar claims and they’ve continued lending,’ Feltner said.”

From KSAX in Minnesota. “The housing market remains slow across the country and Greater Minnesota is no exception. A new business in Alexandria is helping sellers set their home above the rest with staging real estate. Lecia Spellman of Act One Staging transforms cluttered and outdated spaces into sellable places. ‘It’s like fishing,’ Spellman said, ‘You’ve got to put the right bait on the hook to get them to even come look at the house once they’ve seen the pictures online. You’ve got a lot of competition.’”

“Spellman started her first staging project on a home that’s been on the market for over a year. Kitty Bundy was the lucky winner of a free home makeover with new flooring, paint, furnishings and landscaping. ‘This is a blessing and I know it will prove worthwhile,’ Bundy said.”

From CNN. “During an interview with a reporter from Minnesota television station WCCO, President Barack Obama was asked if he believed the country was ‘better off’ than it was four years ago, and he maintained it was because of policies he put in place. But Obama also conceded there was much more work to do, adding ‘I don’t think the country is stronger yet then it was when the economy was still booming and we didn’t have the Wall Street crisis, and we didn’t have the housing bubble burst. But, we’ve made steady progress; we just need to make more.’”

The Sunshine State News. “GOP presidential candidate Michele Bachmann blamed President Barack Obama for the $13 million in bonuses issued to Fannie Mae and Freddie Mac executives. ‘Mr. President, it’s time to stop paying off your friends at Fannie and Freddie and pull the plug on their bailouts and on their executives’ bonuses,’ the Minnesota congresswoman said in a statement.”

“Citing the $6 billion in bailout money sought by Freddie Mac, Bachmann said, ‘Fannie and Freddie have become our own Greece. While the world is watching to see if Greece will default on its debt, Fannie and Freddie, the epicenter of the financial crisis, continue to drag down the housing market and the American economy. They, like Greece, should be allowed to fail rather than asking the American people to bail them out.’”

“Calling Obama to account, Bachmann said, ‘The president has chosen to reward failure with his friends at Fannie and Freddie; at the same time he railed against bonuses for Wall Street. It’s time to end crony capitalism. As president, I will unleash the engine of the free market to solve the housing crisis, grow our economy and create jobs.’”

From the Pioneer Press in Minnesota. “Fraudulent sales of St. Paul condominiums were among the deals that earned John Anthony Spencer a 10-year, five-month prison term. The 31-year-old former mortgage broker was sentenced Monday for his role in a $7 million mortgage fraud scheme, which also included homes in North Minneapolis and Spencer’s own home in Albertville.”

“At the Fisk Street units, Spencer recruited Bryan Joseph Lenton, an appraiser, to assign inflated values to the properties. Spencer, at the time a mortgage broker at Minnesota One Mortgage, put together fraudulent loan applications for straw buyers. He also arranged to pay AC Standard Construction $227,800 for work on two of the units. But prosecutors said no work was done and that the construction company actually was a sham business set up to channel kickbacks.”

“In another incident, prosecutors said that Spencer defrauded Anoka Hennepin Credit Union when he borrowed $700,000 to purchase his Albertville home, receiving $73,000 back at closing without the credit union’s knowledge. The deals took place in 2006 at the peak of the housing market and involved two St. Paul condominiums — a fourplex on Fisk Street and four condo units on Dayton Avenue — and six single-family homes in North Minneapolis.”

“He was indicted in December along with Lenton and Patrick Arthur Dols, another mortgage broker. Lenton of Oakdale, pleaded guilty to one count of conspiracy on March 8. Dols of Minneapolis, pleaded guilty to the same charge on March 1. They still are awaiting sentencing dates. Each faces a maximum penalty of five years in prison.”

The Kansas Reporter. “Kansas community governments and the taxpayers who support them are headed for a financial jolt, some recent trends in home sales statewide suggest. Kansas home sales in September topped year-earlier levels by double digit percentages for a third consecutive month, the Kansas Association of Realtors reports. Federal homebuying tax credits included in 2009 stimulus legislation to spur sales ‘were expired for three months by this time in 2010, which means buyers are responding to incredibly low interest rates,’ said Association President Jamie Holt, a Coldwell Banker real estate agent in Wichita.”

“‘We know our market is no longer appreciating,’ said Sedgwick County Appraiser Michael Borchard, whose department is working on appraisals for Wichita and its suburbs due Nov. 1.”

“Reading home real estate market tea leaves also has become more difficult, because what the industry calls distressed sales — houses either in or near foreclosure — are a larger market presence. ‘Distressed sales, of homes selling 20 percent or more below their market value, were negligible just a few years ago before markets fell,’ said Walter Malloy, a spokesman for the National Association of Realtors. ‘Now they account for one-third of the market.’”

The World Herald in Nebraska. “There were a few things Omahan Marty Pitzel hadn’t counted on when he bought the fixer-upper house 10 years ago that was to be his retirement nest egg. He suffered a stroke that stole short-term memory and led to a job termination. Arthritis flared up in his fingers, rendering him unable to perform other labor. The housing market then collapsed, and the value of the home that Pitzel had remodeled plunged by perhaps 20 percent, he said. So instead of reaping profit from an investment property Pitzel assumed he’d have sold by now, he was facing a balloon payment that his reduced income couldn’t afford.’

“In Nebraska, 16 percent of residential properties are underwater or very close. In Iowa, it’s 13 percent, compared with the national average of 27 percent. Nearly 22,000 of 225,000 Nebraska mortgages are underwater, and 14,000 others have less than 5 percent equity. In Iowa, about 33,500 of 370,000 mortgages have negative equity, and 15,500 others are within the 5 percent range.”

“Pitzel actually met the restrictive guidelines of the original HARP — and recently refinanced his debt under that version. A decade ago when he bought the $44,000 house on a double lot, Pitzel was working full time and earning money on the side painting and plastering. Friends called him crazy for buying the place that hadn’t been occupied for two years. He, however, viewed it as an investment.”

“A few years later he refinanced to about $70,000 and added improvements including a deck, master bedroom, fireplace and siding on the house valued for tax purposes at $85,500. He also took out a second, $35,000 mortgage, agreeing to pay only interest for the first five years. Since he planned to have the house sold before the payoff date, Pitzel said, it made sense. ‘I just figured I’m going to sell this place and I’d be paid off.’”

“But in 2007, Pitzel’s leg went numb and learned he had had a stroke. Much of his short-term memory, he said, ‘went south.’ He lost his job and received unemployment for a year before being declared disabled and eligible for Social Security. Even if he were able to sell his house, Pitzel said, it wouldn’t produce a return on his investment because its value collapsed along with the housing market. ‘The equity was supposed to be my savings,’ he said.”

“Complicating matters further, the second mortgage payoff was due this past September. Pitzel knew he couldn’t pull it off. Even though interest rates were at historically low rates, Pitzel said he didn’t qualify for most conventional refinancing because of his lack of equity in the home appraised recently at $98,000. His elderly mom was dying at the time, adding to his stress. Enter HARP. Today his combined house payments are $731, about $100 less than before. ‘I felt like the weight of the world was lifted off my shoulders,’ he said.”

“Still, Pitzel is well aware how the unexpected — be it another health setback, water leak, furnace breakdown, etc. — could throw him off kilter again. And he awaits the day home prices will rise. ‘I plan to hang in there till this market comes back,’ Pitzel said. ‘That’s all I can do.’”