‘Sellers Overestimating Appreciation’ In Washington
The Bellingham Herald has this update from Washington. “It appears the Whatcom County real estate market is continuing a transition from a seller’s market to one that is more balanced between buyer and seller. Inventory and days on the market continue to rise. Sellers sometimes must mark down original prices but are still getting offers slightly higher than last year, said associate broker Jim Pope.”
“‘It’s not because home prices are going down, but because sellers are overestimating the amount of appreciation,’ Pope said.”
“With more homes on the market, last year’s frenzy of multiple bids on just about any house up for sale hasn’t been repeated, some local agents said. That was a relief for Susan Burke. She is in the final closing process and plans on moving in later this summer.”
“‘When I saw how much homes were going for in Bellingham, I was concerned that we would be dealing with multiple bids,’ said Burke, who is an economist moving here with her family from Davis, Calif. ‘As far as I know, there were no other offers on the house we found. We spent more than we thought, but we are very happy to be moving to Bellingham.’”
“Although real estate agent Mike Kent believes Bellingham homes are overvalued, he doesn’t see prices going down. ‘There was a study to suggest Bellingham home prices will rise around 10 percent this year, and I think it’s right,’ Kent said. ‘We’re in for a more normal year in real estate. If buyers are waiting for the prices to go down, that would be a big mistake.’”
“Other factors involved continue to affect the market. The biggest, in Kent’s mind, is outside influences. ‘There continues to be a significant amount of people transferring equity into this market from places such as California,’ Kent said. ‘What makes Whatcom County different from other overvalued markets is that we don’t see as many homes being purchased and being flipped.’”
“Through April 30, 2,252 properties sold in Whatcom County. Of those, at least 341 were purchased by people outside of Washington state, according to statistics gathered by a real estate publication.”
“The number could be higher because it can be difficult to pinpoint where people are coming from, said publisher Bridget Witschger. Also, some people list the house they are buying as their address, rather than where they are moving from. Topping the list of out-of-state home buyers are people from California, followed by British Columbia.”
“With many new homes becoming available because of last year’s construction boom, supply has increased, creating a more balanced market, said Peter Roberts, president of the Whatcom County Association of Realtors. ‘Buyers believe it’s more a balanced market, while there are many sellers who believe it’s a seller’s market, so they are insisting on putting out higher asking prices, and those homes are sitting on the market longer,’ Roberts said.”
“‘I don’t believe there is a real-estate bubble here,’ said Roberts. ‘The only thing that is happening now is we’re getting back to a more normal year. We won’t see homes appreciate like they have the past few years, but they will still go up a little, but certainly not go down.’”
“‘If interest rates rise, I would be concerned about a bubble or a bunch of foreclosures if we lived in a community where we had a significant number of people leaving the area or there was a rash of flipping the home, but I don’t think we’ll see that,’ Kent said.”
‘With many new homes becoming available because of last year’s construction boom, supply has increased’
The last time I was in Washington, there was no apparent shortage of land. Perhaps locals can let us know what the prospects for construction are like and the rent/buy comparisons.
Susan Burke is a bagholder. She’ll figure out as much in about the next 12 months.
‘There was a study to suggest Bellingham home prices will rise around 10 percent this year, and I think it’s right,’ Kent said. ‘We’re in for a more normal year in real estate. If buyers are waiting for the prices to go down, that would be a big mistake.’”
Why, in God’s name, does any reporter even bother to ask a realtor’s opinion?
Because the reporters job these days is to help fill the newspaper with fluff and spin that pleases advertisers. Newspapers are businesses and they care about making money…period.
Ben,
OT, or possibly, a new thread:
http://houseoflabor.tpmcafe.com/blog/alex_s_gabor/2006/jun/25/america_s_fannie_has_been_spanked_but_its_name_is_mudd
I live in Washington in the greater Seattle area. There is not a lot of land available in western Washington to develop. The permit processes are stringent and time consuming dealing with environmental impact studies, etc. There, in turn, is not an overabundance of housing on the market right now. This market is not as “bubblicious” as others, that is for sure. That being said, there are still a lot of stupid prices which are totally out of line with wages, and first time buyers are being priced out a plenty. And as the article mentions, California equity locusts a plenty. I love when it rains like 30 days straight in the winter, and they get real depressed and question their ability to cope. It definitely is a different environment than they are used to. Some will exit stage left…
Bantering Bear-
Whatcom County is in a different ballgame from the rest of Western WA. The inventory here has sky-rocketed while the population has not.
If you look at the maps of “overbuilding” for the US, there is a dark red strip on the border between BC and WA. The dark red color means “severely overbuilt” (same color as Phoenix and Miami!) and that strip is Whatcom County.
BTW, they’re building the first high rise in the county this year. A 24 story condo tower downtown. Which makes it more than 5 times as high as any bldg. between here and Vancouver, BC.
I think it’ll look kinda cute.
I live in South Snohomish County. I agree with your assessment of the Seattle market. However, price/rents are still very high relative to historic norms. Another point I would make is that there certainly is NOT any shortage of land in Whatcom County. Furthermore, there is little or no industry to sustain the economy there. I think it is a market that is very vulnerable to price declines.
There is not a lot of land available in western Washington to develop.
Where specifically? Doing a quick search for the Bellingham area, I’m seeing hundreds of residential parcels for sale.
There is not a lot of land available in western Washington to develop.
Seattle has been (largely) “built out” since the 50’s. That has provided some protection from RE cycles, but most of Western Washington is not built out. True, some areas have restrictive growth legislation, but there is plenty of land available, especially if you divide it into 4K sq ft lots.
Browse around google maps a bit and see how much undeveloped or underdeveloped land there is.
Most amazing is the area around the new light rail line in southeast Seattle. If you’ve driven along MLK just east of north Beacon hill, note the large multi-acre parcels of trees and brush right along the road. Bordering on the brush are dozens of blocks of shanty type structures. With the light rail line, these neighborhoods are less than 10 minutes from downtown.
Southeast Seattle (aka the Central District) is and has been known to be home to Seattle’s low income, drug infested, gangster ridden population. Time will tell if the light rail line will do anything for it. Judging by other cities with mass transit systems, it had little effect on improving the neighborhoods around it.
Sure, western Washington has quite a bit of raw, undeveloped land. But is there a lot available for developing, building, use, etc.? I sure have not found that to be the case. I have been looking for acreage so I base my statements on my experiences first hand. I can’t speak for Whatcom but I have been looking in King, Snohomish, and Skagit. And furthermore, even if a parcel is for sale, does not mean building will be permitted. Snoop around, see for yourself, then get back to me. Satellite photos? LOL!! They don’t show wetlands, zoning restrictions, easements, etc…
“There was a study to suggest Bellingham home prices will rise around 10 percent this year, and I think it’s right,’ Kent said. ‘We’re in for a more normal year in real estate.”
The implication is that 10% nominal appreciation is normal and sustainable. That seems optimistic. Even including the outrageous runup the last five years nominal home appreciation in the US has been around 6-7% over the last 40-50 years. In my opinion it would take decades for anyone who buys today to realize a 7% nominal annual rate of appreciation. That’s gross without netting taxes, maintenance, interest, et al.
Real rates of appreciation might better make the point. 10% nominal appreciation implies about a 5% real rate of home appreciation. (I understand the gold bugs believe a 10% nominal rate implies a minus (5)% real rate but that’s for another thread.) 5% real appreciation is about 2-3 times the national historical average of a 1-2% real rate of home appreciation. This is not realistic.
But this place (WHATCOM county) must be really special. I have never been there, so what would I know.
Dotcom? No, Whatcom.
I live north of there.. Nothig at all special there guys. Far from Seattle (2-3 hours), close to Vancouver Canada (1 - 2 hours). The US equivalent of my neighbourhood.
Langley-
That’s what I’ve been wondering: why would a Canadian want to buy a home in Whatcom County?
It worries me that if the dollar keeps softening in relation to the Canadian $, Canadians will keep buying down here.
But the question remains, why would they want to? Same land, high home prices, same climate, and it’s not like B’ham is some hopping metropolis.
Any ideas on that? What’s the attraction to a Canadian?
Semiahmoo.
http://www.semiahmoo.com/?corpRef=semiahmoo
Really nice community in Birch Bay. Canadians love coming down to Bellingham to shop.
Many areas of Whatcom County have that quaint vacation town feel to them.
Land is not at all attractive to me as a Canadian. I am just tracking the market to see when the madness will end here north of the US. The only thing that is attractive to me in the US are cars and trucks as they are much cheaper due to the exchange rate.
I went to Bellingham once. It was a sh*th0le. The town smelled like puked beer and there were meth addicts walking around.
Joe, appreciate the comments. It’s true there is a dark side. The meth lab problems are legion in Whatcom County- it’s the poster child for WA State. Downtown, while revitalizing, can veer towards creepy at times.
But I grew up in the NE so it takes a lot to creep me out too bad.
I’m thinking when the market tumbles, B’ham will lose the revitilizing momentum and go backwards for several years/decades.
Then if the US ever gets back on it’s feet, B’ham will come back- probably right around when I’m 80 or 90 Y.O.
But I think it’ll be nice to live in an area that’s revitalizing when I’m slowing down.
Well, I lived there during the last down cycle, and it wasn’t that bad. In the early 90’s, there was zero gentrification of the downtown area, but it felt safer than Seattle.
Crime wasn’t a big issue, other than car burglaries. Most of the drug problems are out in the county, and still it isn’t as bad as Pierce county by a long shot.
None the less, it looks severely overpriced when the median income in Seattle won’t buy the median priced house in Bellingham.
But this place (WHATCOM county) must be really special. I have never been there, so what would I know.
Having lived in Bellingham during college, I looked up a few of the places I rented. In 1995, I paid $600/month for a 2 br condo. The identical unit next door sat on the market the entire school year priced at $65K. Currently, these units rent for about $800/month, and have recently sold for $180K. Other more desirable neighborhoods have seen even larger run ups. A Lake Whatcom view house I lived in was resold twice. In 1999 it sold for $180K. In 2005, $426K.
Among WWU alumni, I often hear people lament that they’d love to live in Bellingham after graduation, but there aren’t enough good paying jobs. This doesn’t seem to have changed.
As a side note, Whatcom County (population 185K) has as many properties listed in the NWMLS as the City of Seattle (population 560K). One of my friend’s dads has a rental condo for sale in Birch Bay. It’s been on the market for over 9 months with the initial asking price now dropped by $30K (down to $219K). There are 8 identical units available in the complex, average time on market is over 4 months.
Good info. Thanks!
(”If interest rates rise, I would be concerned about a bubble or a bunch of foreclosures if we lived in a community where we had a significant number of people leaving the area or there was a rash of flipping the home, but I don’t think we’ll see that,” Kent said. “This is a desirable coastal community that continues to attract people who want to stay here.”)
man, if I had a list of every area that was desirable. oh wait, I do!
“Both Sebastopol and Russian River remain attractive to families seeking homes and buyers from out of the area looking for vacation residences. With declining sales and leveling prices, agents and sellers are counting on the west county’s attractiveness for buyers to sustain demand.”
“‘People that have money have a wonderful area that they can come to. And it’s close enough to San Francisco and the peninsula that they can get away for the weekends,’ Young said.”
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There is nothing more attractive right now than Nevada.”
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While most of our Florida communities have seen sales activity below our expectations this year, we believe the historic economic and demographic drivers of the Florida homebuilding market will eventually overcome the ‘wait and see’ sentiment of many would-be consumers today.
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“Kevin Gill, a mortgage broker in Bradenton, is optimistic that the future rate of foreclosures won’t increase. ‘People want to move here. People want to live here. There’s never going to be a housing bubble in Florida or California because the demand here is too great.’”
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All their money is not earned here, but it spends very well. The houses get bigger and more luxurious and the roads are clogged with more and more high-end vehicles. It is a salesman’s paradise: affluent consumers everywhere.
So despite the cooling of the market, do not expect real estate prices to return to the halcyon days of the late 1990s. Too much outside money is lined up, seeking to move here and often retire here. These dollars will hold up the market, allowing softness but keeping prices relatively stable.
This is good if you are already a homeowner. You will very likely get to keep a good portion of the paper profit of recent years. That makes the home equity loan you took out to buy that boat a pretty good bet.
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‘We are not Reno and Vegas where they’ve overbuilt and it’s rampant speculation.’”
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In a real estate market that is in the middle of a correction, it’s interesting to note that the unique nature of Tucson real estate does not follow the average up and down cycles seen in many other communities,” said Paul Olson, president of the Multiple Listing Service. “Tucson real estate retains value.”
Stop it, John!….You know very well that every place is special, and retains value better than every other place.
In recent years, the leverage in Whatcom County has been with the seller. The median home price in Whatcom County has risen from $146,500 in 2000 to $265,000 in 2005.
While the median price has risen nearly 81 percent in the past five years, the median household income in Whatcom County has risen from $41,522 to $45,098, an 8.6 percent increase, according to the Washington state Office of Financial Management.
Nope, no bubble here.
almost 6X median income.
Lots of retirees moving in to Bellingham
QUESTION,
For folks who were paying attention to housing trends in pre-bubble days:
When an area of the country begins gentrifying and increasing in population, is it typical for rents and house prices to move in unison, or does one or the other tend to rise first?
My guess is rents rise first. Good people don’t tend to buy in crap neighborhoods, but they might rent there. After a long enough time period, the Bad people are gone.
Then the buyers arrive.
Whatcom county is lovely and lots of WWU students would like to stay here if they could find a decent job, but they can’t. So what will eventually hold up the ridiculous prices here?? I guess we’ll see.
Meanwhile, inventory for the county is 50% higher than it was in January.
I get the numbers from the local Keller Williams RE web page. This is all of Whatcom County, all types of properties (res, commercial, land…)
Jan 4, 2006 1,951
June 24, 2006 3,031
I have heard that there are out of state and out of country investors (speculators), not to mention the locals, may of whom have been buying second homes, or keeping their first homes as they move up. I have also noticed a number of empty houses when looking at RE for sale.
Meanwhile, prices still seem outrageous and new listings are pretty high for now. While I think they will eventually adjust, we have a while to wait. Lots of For Sale signs around, I a couple I am tracking have been around since late last summer.
I have been visiting Seattle for over a month, and looking at multi-family properties. Everyone seems absolutely convinced that there is shortage of land, that prices go up at least 10% a year and will continue to do so for at least another 5 years. Rents increase too. Was in Bellingham a few days ago, charming yes, but rents are low in most areas, especially student housing, only the asking prices are up. Hawaii is a better deal in my opinion. Ask anyone here, no chance of a bubble in Seattle.
Wow. Thanks for the article on Bellingham. I’m actually living here right now, waiting for prices to drop and scoping out neighborhoods.
I’ve been speaking with appraisers and RE agents here. So far, they have mostly been candid about their expectations for the market. Unlike the man interviewed in the article, they expect it to drop.
The ones who say it won’t drop are very interested in showing me condominiums (tons of newly-built condos here!)
The ones who are candid, take me to a private office where we can talk in private.
Here is some of what I’ve heard from candid RE agents;
“the top of the market was last winter.”
“There’s been a lot of “speculators and flippers, mainly from out of town, Seattle, etc”.
“Expect foreclosures”. (One agent is keeping his eye out for a foreclosure for me in a favorite ‘hood).
And from an appraiser: they are starting to have to be careful because appraisals are coming down, especially on empty land.
It is the most overbuilt area of Western WA. Much worse than Seattle.
It has had an influx of people over the past few years as Seattle RE got so expensive. However, there are not many jobs here so a lot of people move on after a while. The economy suffers from the same thing any overbuilt area suffers from: too much dependence on RE.
And now that B’ham RE has gotten so expensive compared to incomes, some people are going back to Seattle because the difference in RE prices is not that great considering the trade-offs.
It’s a pretty area so I’m sure we’ll be getting CA equity locusts for a while.
Last winter B’ham was on the overvalued charts at 46% overvalued. (Seattle was at 26%).
A couple weeks ago it was up to 51% overvalued.
It’s the last place on the west coast before you hit Canada so there was an incredible feeling of “boom times” here in the past few years and the RE market took off like a rocket. It went from “broken down Georgia Pacific Paper Mill town” to “last paradise stop before Canada”.
The MLS list grows steadily here, unlike Seattle where it tends to go up 2 steps forward, one step back.
But people will NOT lower their prices! There’s a ton of inventory in price reduction and sitting for months, but they only reduce by 5-10K.
I’m waiting for sellers here to “get it” and start reducing on Seattle levels.
But people will NOT lower their prices!
Like my friend’s dad selling the Birch Bay condo, 1 price reduction in 9 months? All he did was drop it in line with the asking price of several other units that haven’t sold.
He’s not an “active” RE investor/speculator. He bought the unit over a decade ago as a cash flow property.
Isn’t that funny? In Seattle, they knock 50K off after 2 weeks. They’ve been doing it all year!
But tiny B’ham they just wait and wait and wait and wait. Maybe because they never went through the sell in one day with multiple offers that Seattle did. Maybe they are used to RE sitting for months, then years on the market?
I really think though that when they get it through their heads that the RE party is over, RE will drop like a rock here. It’’s only been appreciating for a few years in B’ham so they haven’t been trained by 10 years of appreciation like Seattleites have.
Don’t think they are firm believers in “RE only goes up”.
“‘It’s not because home prices are going down, but because sellers are overestimating the amount of appreciation,’ Pope said.”
In what language is this man speaking?
He’s making up his own language. My friend’s three year old does it all the time.
He is speaking George Orwell’s 1984 novel language. New speak anglo-saxon. The language par excellence of “untruths” in 2006 and of your Washington crowd of political and business cronies.
Realtors are like dentists–they’re trained not to use certain words. Like “pain” (use “uncomfortable”), “dead” (”nonvital”) and “oops!” (silence).
I think he’s expressing the opinion that while prices are not declining in an absolute sense, the rate of price increase is decreasing. This opinion might be incorrect, but I don’t think it’s nonsensical.
“‘If interest rates rise, I would be concerned about a bubble or a bunch of foreclosures if we lived in a community where we had a significant number of people leaving the area or there was a rash of flipping the home, but I don’t think we’ll see that,’ Kent said.”
Time to get concerned, Kent:
Mortgage Rates Climb on Fed Rate Worries
By MARTIN CRUTSINGER
The Associated Press
Thursday, June 22, 2006; 2:53 PM
WASHINGTON — Mortgage rates rose this week with 30-year mortgages climbing to the highest level in more than four years on investor fears about inflation.
Freddie Mac, the mortgage company, reported Thursday that rates on 30-year, fixed-rate mortgages rose to a nationwide average of 6.71 percent, up from 6.63 percent last week.
It was the highest level for 30-year mortgages since they averaged 6.76 the week of May 31, 2002.
http://www.washingtonpost.com/wp-dyn/content/article/2006/06/22/AR2006062200983.html
I wish they’d raise .50 this week and get it over with.
Realtors in Seattle come on heavy with the “rates are going up! buy now!” hype and there seems to be a little uptick in sales the week before these “scheduled” .25 hikes.
Buyers seem to be in need of some real shock therapy to begin understanding the relationship between rising rates and falling prices. They’re so used to prices going up that the thought of another measly .25 just scares them into buying.
OT - This looks like a repeat show but I just tuned into CNBCs Survival Guide…Robert Shiller and others. Did anyone see the whole show when it first aired?
BayQT~
That’s a great show and should scare the bejeezus out of those who have recently bought.
Wish they’d air it on a station that more people watch.
i’m really disappointed no bloggers were there in the audience to ask the panel a real question. and what a waste of time for suze to be there. shiller seems neutral. the host was the only one who had guts, i like the jab at the end asking why commissions are still 6% to the century 21 guy. of course his reply- well we feel it’s a really good value for the big purchase, yada yada.
also crazy learah, his comment, “first, sellers shouldnt panic”…whoa that means panic!
I saw it, was disappointed with Shiller - he was nervous and ineffectual on camera, and he let Lereah get away with saying “it’s a slowdown in sales but prices won’t fall unless signficant job loss” - without pointing out the obvious, that a slowdown will precipitate significant job loss.
It was your typical white-wash.
It is quite interesting. I didn’t watch it from the beginning, but from what I did see (as someone mentioned in an earlier topic)it would have been nice to see Shiller shine a little brighter. I guess it’s tough when you have the panel that they did, plus the host keeps interrupting. And then there was Suze Orman. She’s funny. She tries to be humorous with her comments but she’s not funny at all. And the craziest thing about listening to her and others is that much of what they tell people is common sense….if you just paid attention and did your own homework. But I guess there is a benefit to have the Suze’s around to help those who can’t (or won’t) help themselves.
I agree with you that it would be much better to have a show like this on a more far reaching audience than CNBC. How about Dateline, 20/20 or Primetime? Talk about reaching a lot of viewers.
BayQT~
“‘It’s not because home prices are going down, but because sellers are overestimating the amount of appreciation,’ Pope said.”
I, myself, appreciate the amount of seller overestimation of home prices…
The English language has really become screwed up and trashed because of this bubble. Nothing makes sense anymore!
Geoge Orwell saw it coming. It’s 1984 at its best.
Yeah - the Queen called. She wants her language back.
Ah screw the Queen! They should do what they did in France. Cut their heads.
I think it got trashed when “like” replaced “ummmm” and became it’s own grammatical rule.
Like, you know like when the guys are like going to the store, like. And you like, have to tell them like 16 times like don’t forget the bread doofus.
Still waiting for the big drop in prices… people are still buying here in Portland, Oregon. I predict this fall will be murder with escalating energy prices. Hurricane season alone can cause a spike in oil and natural gas. Need more renewable energy such as (geothermal, biomass, solar, turbine and wave energy).
‘What makes Whatcom County different from other overvalued markets is that ……”
That explains everthing.
he’s probably just stating a fact. however, people may not be flipping, but they are holding the property as a “long-term” flip. something they bought because they got caught up in the bubble and plan to retire there in 5 years. real estate going down is not in their plans. a downturn or some other circumstances could cause them to sell. inventory is inventory, whatever the original intentions of the buyers were.
Actually, there is flipping here in B’ham. You can see it when you look through the MLS. Empty houses with granite counters, all spiffed up and ready to go. Just too expensive so they sit and sit.
I think the flippers here must know they’re screwed because the inventory is so high and rents being what they are, the cashflow cannot support mortgage, no way.
I’ve seen homes on the MLS with high prices, like 400K, that say “currently rents for 850/month but could get more”. !!!!! Right! I guess the new owner could try for 900/mo. and see what happens.
D’accord avec vous.
From what I can tell, the best indicator of an area’s likelyhood of tripling in prices is if I plan to move there….damn.
I’ve been looking at apartments to rent and the prices are fairly high. One of my co-workers is trying to decide wether it’s worth paying 200K for a “studio” condo. I enamored myself to her by asking if she and her boyfriend were smoking crack…..
While there is an ample number of people working in relatively high paying tech areas here there are a lot of people trying to make it on $12/hr etc. I just talked with a landlord with what sounds like quite a collection of properties….some of his rap was certainly hype and laughable if I hadn’t been attempting to be polite. Anyway, this landlord was claiming that rent’s would “skyrocket” this fall as 30,000 units had been lossed last year to condo building etc..
“It may seem expensive here now but when you consider that it’s basically just like San Fransisco, it’s pretty reasonable”, he informed me.
I resisted the urge to ask if he was buying his crack from the same place my co-worker has been.
I don’t wish anyone bad financial times but it’s comments like that that make me hope the Seattle market doesn’t just level off but goes down in flames.
Bellingham’s a cute little town….not bad at all, but it’s hard to imagine why people would pay these kinds of inflated prices there? I wouldn’t want to go back to some stretches of NE winter weather but it’s hard to think of better weather existing here after 30 some days of rain this winter (it wasn’t exactly sunny out outside of the thirty days either, just not raining). Even snowy days can be bright and crisp in other parts of the country.
Ya’ got me.
The Bellingham Herald has this update from Washington. “It appears the Whatcom County real estate market is continuing a transition from a seller’s market to one that is more balanced between buyer and seller.”
That is a lie. The market is so out of balance right now, it makes your head spin. There are so many more sellers than buyers right now, which means the market is un-balanced, which is the opposite of what this guy is telling us. Is he stupid or what?
No he is just damn liar, like your president and most of America’s CEOs and a lot of the scumbags working in the media.
Liar liar pants on fire.
OT This piece in the SHT this morning. Mortgage fraud anyone? But it’s not the banks fault.http://heraldtribune.com/apps/pbcs.dll/section?CATEGORY=BUSINESS
http://heraldtribune.com/apps/pbcs.dll/article?AID=/20060626/BUSINESS/606260482/1007
Took a while to get to that link. Excerpts follow, for those who want to just see it here:
_____________________________________________________
Melody Shimmell, the vice president of risk management and fraud at Century Bank in Sarasota, is one of the pre-eminent mortgage fraud experts in Southwest Florida.
She played a major role in last year’s arrest and conviction of Robert E. Colby, who presented false information in an attempt to obtain a $750,000 loan from Century Bank. Shimmell recently answered questions from staff writer Michael Braga about the recent increase in mortgage fraud.
Q: Can you describe the kinds of crimes you have encountered?
A: The crime I see with some of the highest risks to lenders is mortgage fraud, because mortgage lending and the housing market have a significant overall effect on the nation’s economy. Mortgages on commercial real estate are higher dollar loans, and if fraud goes undetected, the potential losses are substantially increased.
Each mortgage fraud scheme contains some type of “material misstatement, misrepresentation, or omission relied upon by an underwriter or lender to fund, purchase or insure a loan.”
The Mortgage Bankers Association projected $2.5 trillion in mortgage loans were made in 2005. Equity skimming, straw buyers, cash back at closing, property flipping and mortgage-related identity theft are just a few of the common scams. Cash-only transactions are particularly worrisome, as they allow for money laundering and are largely unregulated.
Cash back at closing seems like a win-win situation. The buyer offers you more than your asking price, and the seller agrees to kick back the surplus cash to the buyer. Unfortunately, as with most deals that seem too good to be true, cash back at closing schemes are just another way of scamming someone, in this case the lender.
Q: How difficult is mortgage fraud to detect? Why? What are the early warning signs?
A: It’s extremely difficult to detect. Gone are the days of the full document loans. So it is impossible to verify information you don’t ask for. Technology has made the preparation of falsified documents easy. First payment default is always a big clue.
Q: Can you describe a case of mortgage fraud that you were able to detect?
A: We had a borrower who applied for a loan and supplied a 1003 (standard mortgage application) that said there was over $100,000 in a nonexistent bank. There were even phony bank statements that had graphics and logos, but the routing and transit number on the phony checks didn’t exist.
Q: Do you think bank fraud has proliferated during the recent real estate boom?
A: Yes. The market is ripe for it, especially this area, with such rapidly rising values and low rates, is always a recipe for all of the scams. As long as the prices rise to cover the inflated prices or appraisals and everyone makes their payments, things roll along with no one the wiser. It’s when the market slows and rates rise and supply exceeds demand that the problems surface.
“Q: How difficult is mortgage fraud to detect? Why? What are the early warning signs?
A: It’s extremely difficult to detect. Gone are the days of the full document loans. So it is impossible to verify information you don’t ask for. Technology has made the preparation of falsified documents easy. First payment default is always a big clue.”
Ummm, how about just bringing back the full doc loan? Is that really such a tough solution to most mortgage fraud?
Thanks for the information. So fraud is difficult to detect?
The guys at Fannie Mae are pros at it. What a wonderful bubble has this been!
I read that in certain regions in the USA, 25% of the real estate deals have a fraudulent content. If this is true, the NASDAQ and the New eCONonmy fraud will ressemble to peanuts compared to the bricks and mortar fraud.
There is no bubble in Seattle, Tacoma , Everett & Western Washington. I know this because a fairly close neighbor ,around the corner, bought their home for $600K two years ago, today it’s on the market for $1.4 M. (30 yr old house, zero improvements since ownership). There is no bubble. Keep on buying folks, I’ll keep on closing the transactions.
Tell that to the unfortunate folks at 1919 Naomi Place.
Bought ‘05: 541K
Sold spring ‘06: 889K
Now on market: 882K
Doubling prices in a year doesn’t pan out indfinitely. At some point somebody’s holding the bag.
I’m not sure if you’re being sarcastic or not about the house for sale? In any case, just being on the market for double the price doesn’t mean it will sell. Just because it sells doesn’t mean there isn’t a bubble. Part of the phenomena is that stuff is on the market and sellling for ridiculous prices.
“The Summer of The Locust”….to be continued.
“Sellers must *sometimes* mark down their prices….”
That quote from the bullish RE agent just hit me.
Here’s the Zip Total/Price reduced for the three B’ham zip codes for June 25:
98225: 306/63
98226: 526/167
98229: 288/111
(SFH, condos, multi families). Looks like more than an occassional price reduction to me.