The Housing Bubble

It’s Friday desk clearing time for this blogger. “Six months after the announcement of a 49-state settlement with lenders over mortgage foreclosure abuses, Florida still hasn’t done anything with its share, but a homeowner advocate said she was ‘cautiously optimistic.’ ‘Housing in Florida is still a mess, Cherie Faircloth said. ‘I have for sale signs all over my street, empty houses.’”

“She said after never missing a mortgage payment for 22 years her lender recently informed her that the value of her house had fallen below her loan amount. ‘I can’t fix my home, I can’t repair it, I can’t do anything, I can’t sell it,’ Faircloth said. ‘Basically I did everything right and I feel as a citizen that I have been taken great advantage of.’”

“Foreclosures continue to increase across Florida, potentially hurting home prices in the second half of the year, analysts say. Still, buyers and real estate agents insist the market can handle a wave of foreclosures. The number of homes for sale has dropped sharply in the past year, leaving buyers frustrated and, in some cases, prone to overpay. ‘I wish banks would release this foreclosure inventory faster,’ said David Dweck, president of the Boca Real Estate Investment Club. ‘Demand is so high that people are starting to pay too much again.’”

“Since the beginning of 2009, 11,895 homes were sold in Boone, Ogle and Winnebago counties. In that same time frame, there have been 10,951 foreclosure filings. The percentage of bank-owned homes sold has varied from 25 percent in a month to more than 40 percent during the crisis. Assume that 30 percent of the homes sold each month are bank-owned properties, and that means that more than 7,000 of the homes foreclosed on since the beginning of 2009 are still on the market.”

“‘It’s such a deep pool. A lot of these properties have been empty for two years or more,’ said Jean Crosby of Rockford’s Prudential Crosby Starck Realtors. ‘I don’t know many neighborhoods that haven’t been faced with one. We had a short sale where the homeowner hadn’t made a payment for two years,’ Crosby said. ‘The homeowner left the area and canceled the cell phone service. We got a great offer but couldn’t negotiate because we couldn’t find the owner. We called the bank to see what we could do and there was nothing. It’s still vacant.’”

“The rate of new foreclosure filings in Maryland far exceeded any other state’s this spring, a spike caused in large part by the national robo-signing legal settlement that unleashed a flood of new cases. ‘If you look at what’s going on in foreclosure starts, Maryland now has exceeded Florida, has exceeded Georgia — some of the states that have been up there at the top in terms of the percent of loans on which foreclosure actions have started,’ said Jay Brinkmann, the Mortgage Bankers Association’s chief economist. ‘Maryland dominates in essentially every loan type.’”

“‘The bottom line is, no matter what state you’re in, there are still millions of foreclosures ahead,’ said Ginna Green, a spokeswoman for the Center for Responsible Lending.”

“Whether the government should intervene or let the market dictate the pace of recovery confounds many in Nevada, and there’s little wonder why: The state leads the nation in unemployment, bankruptcies and foreclosures. And voters seem just as far apart on this solution as the candidates are themselves. ‘I couldn’t imagine us being able to get out of this cycle if we didn’t have that helping hand,’ said Nelson Araujo, an Obama supporter who runs a consumer credit counseling agency.”

“The race is likely to turn on the economy and, specifically, housing. Two-thirds of Las Vegas homeowners owe more on their mortgages than their homes are worth. Fearing the worst is still ahead, Las Vegas real estate agent Phil Perrine seems to share Romney’s position as he counters, ‘It’s important that the government help us by not helping us. There’s a huge shadow inventory of homes sitting back there that at some point is going to be dumped on the market,’ continuing the downward trend in property values, said Perrine, who supports Romney.”

“State lawmakers typically keep modest quarters near the Capitol to use when they’re in town, with help from their tax-free expense allowance of $28,000 a year. Assemblyman Tony Mendoza bought a three-bedroom home instead, paying $463,000 for it after his 2006 election. ‘If you bought property, property values would go higher,’ said the Democrat, whose main home is in Artesia. ‘So I figured as soon as I get there [Sacramento], I will buy the house.’”

“As Mendoza nears the end of his final Assembly term, he says he owes $150,000 more on his Sacramento home than it’s worth. He is one of at least 10 legislators who didn’t fare well in a real estate climate that once showed no sign of cooling. Assemblywoman Mary Hayashi (D-Hayward) and her husband bought a home in Castro Valley, in the Bay Area, for $698,0000 in 2004. When they put it on the market for $499,000 last year, it didn’t sell.”

“Westminster Republican Van Tran chose a different route out of his dilemma. He estimates that he and his wife lost $300,000 on their second home in a short sale when he completed his Assembly term in 2010. His bank also lost money, although Tran said he could not recall how much. Tran said the $783,000 Sacramento house seemed a safe investment after his election in 2004. But by the time he moved back to Orange County six years later, he could not sell it for what he owed.”

“But ‘geographically, physically and financially,’ he said, ‘it was untenable to hold onto the house.’”

“One former state lawmaker defaulted twice. U.S. Rep. Laura Richardson, a Long Beach Democrat, walked away from her debt on a $535,000 home in Sacramento after she left the Assembly for Congress. The house was sold at auction but was returned to Richardson after she complained to her lender, Washington Mutual. The congresswoman defaulted again and unloaded the property last year in a short sale for $320,000.”

“The nation remains in the grip of a foreclosure crisis if activists and politicians are to be believed, but this is a bit like saying America is suffering from a heat wave. A look at a national weather map shows areas that are red hot, some summer gold and others a cool green. How to explain the difference? One place to start is the rules governing mortgages, which vary by state.”

“In the states where there are real consequences to signing a mortgage note, by contrast, borrowers are more cautious. The connection between mortgage defaults and personal risk was established in a 2009 study sponsored by the Federal Reserve Bank of Richmond, Va., which found that borrowers are less likely to default on mortgages if they are personally responsible for shortfalls. The saying we use for discovering the obvious up here is ‘Dawn breaks on Marblehead.’”

“This would be of merely academic interest in prudent states except that the financing of home mortgages has been nationalized. Since the housing crisis began in 2008, total losses racked up by Fannie Mae and Freddie Mac, conduits of government mortgage funds, total $250 billion, about $1,300 per U.S. household.”

“Unfortunately, the young family scrimping to buy a home in Massachusetts has no say in laws of spendthrift states that raise borrowing costs for all. Texas, one of the lenient states, was founded by borrowers lured by the promise of debt relief. Maybe we can all go there to get our $1,300 back.”