An ‘Amazing Dislocation’ For Some Arizona Borrowers: AG
A pair of reports provide an update on Arizona’s housing bubble. “Last month, Arizona was part of a multistate $325 million predatory-lending settlement with Ameriquest, the nation’s largest subprime lender. The agreement, which could result in hundreds of dollars in restitution for more than 14,000 Arizonans, was the second-largest consumer-protection settlement in U.S. history.”
“Arizona does not have an anti-predatory-lending statute. About half of all states do, and Arizona Attorney General Terry Goddard has been pushing for similar protection for Arizonans since taking office in 2002.”
“Question: What was Ameriquest doing wrong and what did they agree to change in the settlement? Answer: They gave managers extraordinarily rich incentives to meet certain deadlines and benchmarks. Like, you didn’t get a bonus if it was a fixed-rate loan, but you did if it was an adjustable-rate. You did if it was a three-year or more prepayment penalty program. Those incentives..drove individuals to cheat. For example, there were appraisers that pretty much did most of the work for the office even though they are supposed to be independent. If the appraisal didn’t come in where the manager thought it should be for the loan they wanted, they had them change it. And if they didn’t change it, they were told they’d get a new appraiser.”
“Right now, there are bad loans out there, which have not gone to foreclosure because the value of the underlying property has gone up so when people have gotten in trouble they could sell it and pay off their loan. When this problem is going to become most acute is if our market levels out or dips..We are going to have people that are in loans that they really shouldn’t be in, that they don’t have sufficient income to pay, and if property values drop even a little bit, they will find that the loan is bigger than the value of their house.”
“That is extremely dangerous, and it will cause amazing dislocation for people who are not going to just lose their house but end up with significant debts.”"Q: How common are these practices among other lenders? A: We are in investigations so I can’t specifically comment. But I can say this: The fact that these are practices that the two major lenders in the subprime market were engaging in, I think speaks profoundly to how widespread the practices are.”
And the Arizona Daily Sun is still oblivious to overbuilding. “Prospective homebuyers who didn’t want to pay $330,000 for the average Flagstaff house used to be able to wangle something cheaper to the west in Williams. Now some homes there that don’t even include water are coming in at an asking price of more than $350,000.”
“Padre Canyon Trails and its 660 homes will be built along the edge of its namesake canyon, 26 miles east of downtown Flagstaff, if the county approves necessary zoning changes. The development would be about the same distance from Flagstaff as Parks is to the west, and the first major subdivision to leap outside Flagstaff’s forest land along the eastern Interstate 40 corridor.”
‘Hundreds’ of dollars per family wronged. Wow, that’s really showing em.
I don’t know what’s wrong with the city officials in some of these northern Arizona towns. Where are the 600 jobs to pay for these houses? The Flagstaff paper now routinely has ads for brand new home rentals in Williams. Not sure if they have water. And this is on top of the 1000 houses approved on the edge of Flag.
I have a particular interest in Flag/Sedona/Carefree, etc. and really would want in this market if it gets real.
There is a disaster setting up in N AZ. There are 600 homes under construction in Clarksdale. Over 3,000 were calmly approved in Cottonwood. Three new subdivisions were recently started around Rimrock. A palpable fear is beginning as homes continue to flow onto the market while for-sale signs sit and sit.
This is the big problem. RE is the big driver of these local economies. There isn’t an industry to switch jobs to. And the other leg is tourism. With the HELOC/refi boom ending, I don’t see how this can end without a bust.
Isn’t that the case practically everywhere? I’m thinking that if I rent something from anyone who has owned the home for less than 5 years going forward, I am going to refuse to pay much money up front in the way of deposits, etc., or I am going to require that it go into some kind of escrow account that I have to sign off on for them to take it out. A lot of these people ask for 2 months rent plus a damage deposit up front (and I know why - it’s because they’re hurting for cash). They go out immediately and piss it away and if they go belly up, you have no ability to get it back.
I almost made a deal on a place in the Auwakee (?) area with a woman who had a really nice house. She paid 450K for it this summer, threw in the standard flipper upgrades, then got a new job and had to put it on the rental market. I assume it was the rental market because she thinks the price will go higher in the next few years and she can eat the neg. cash flow. I got her down $400 on the rent she was asking and asked for a purchase price option which she refused to give me. Obviously thought she’d be throwing away some ephemeral appreciation that will never heppen. Really stupid on her part. I walked the deal and she must have gotten the memo, becuase she’s been frantically emailing ever since.
Even realtors around here have said the rental market is soft; for years! Yes, you can negotiate rents down in even the poshest areas.
Piss on her! That greedy idiot! E-mail her back and drop another $400 from the rent.
You do provide a good point to would-be renters. Don’t put down a security deposit unless you know you can get it back.
Don’t trust some deadbeat landlord.
(Comments wont nest below this level) is missing an apostrophe. Know how to fix it, Ben?
cr,
No, sorry
and many tourists were/are actually RE investors or people like me who spent 6 weeks last year to find a place I wanted to move to.
Lived in Carefree,AZ for five years…along with CaveCreek its located in the northernmost reach of greater Phoenix (NE).
Sold and moved out in 2004…main reason, because of the town motto I
designated: “Carefree where old people go to visit their parents ”
(and I’m closer to 50 than 40).
A subdivision of 600 1/2-acre homes for $250-300K each in Twin Arrows? That these property owners think there is demand for such a development there is just laughable. This is absolutely out in the middle of NOWHERE–no grocery stores, pharmacies, or anything! (I know–I grew up on a ranch not far from Winona, which is 10-15 mi. closer to Flagstaff than this place.)
This crazy guy might end up spending lots of money for entitlements, etc., only to get slaughtered in the coming bubble burst, with his subdivision half-done. Another classic Arizona land swindler if I ever saw one.
There are water problems in the Williams area, with a lot of houses built back in the sticks forced to haul in water because the ground water is a mile down. I’d never buy in a situation like that. I lived four years in a place I had to haul water in from 25 miles away — never again.
Good grief!
I spent a couple of nights in Williams on the way to hiking in the Grand Canyon. It’s a small town!
I can’t imagine a house there being worth 6 figures, leave alone $350K. Who has the 6 figure incomes needed to pay that mortgage?
Absolutely absurd.
I remember when I hiked down Havasupai years ago. Cool place. But try to live or work around there?
” “Right now, there are bad loans out there, which have not gone to foreclosure because the value of the underlying property has gone up so when people have gotten in trouble they could sell it and pay off their loan. When this problem is going to become most acute is if our market levels out or dips..We are going to have people that are in loans that they really shouldn’t be in, that they don’t have sufficient income to pay, and if property values drop even a little bit, they will find that the loan is bigger than the value of their house.” ”
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An extremely important point that helps one understand why the foreclosure rate has just begun to soar. Lenders didn’t have to foreclose if an owner got into financial trouble and couldn’t make the mortgage payments. The owner just sold the house and usually pocketed a profit.
Now such owners are not able to sell for the amount of the mortgage and foreclosures are going to explode!
Twin arrows? 250K? I dorve by there several months ago and if I remember right there is only a trading post with a few mock TP’s.
The impoverished dine’ (navajos) aren’t going to buy there when they can live on the reservation in subsidized/free housing. this one really blows my mind.
I have only seen Williams and Flagstaff while driving on I 40 between SF and ABQ. If they are asking $350 for some $hitbox in Williams, they are nutes (ditto for Flagstaff). I don’t see any jobs that could support that kind of pricing, and not enough retirees flocking to there. Whatever jobs are for tourism and travelers along the interstates. The less affluent could homestead in a trailer in the many miles of open desert as far as the eyes can see between the two towns.
obviously, these new homes are perfect for speculators. They do have the 6 figure incomes (at least on paper) and having no water supply is no problem at all, because they don’t plan to live there …
I see the same problem in my area in the Netherlands. People from other provinces with high incomes are driving up prices in some small coastal towns like crazy. They visit there for maybe just a few weeks each year, and because the ‘foreigners’ keep pouring into the region, prices keep rising and local young people are leaving. Nobody worries about maintenance cost of their new cottage or the fact that all the shops in these towns are closed now because there are not enough real people living there.
This has been going on here for about 10 years already and no end in sight; prices in some of these towns are up more than 1000%. It will end badly, but I have no idea when.