July 2, 2006

Borrowers ‘Don’t Have That Luxury’ In Massachusetts

A pair of reports on foreclosures in Massachusetts. “Sheila Farragher-Jemma of ForeclosuresMass.com says in the last year the number of foreclosures jumped 105 percent, and she expects many more in the coming months. ‘Thousands of people, they’re losing their homes on a daily basis,’ she says.”

“And it’s a trend that’s happening not just in Massachusetts, but throughout the country. Foreclosures jumped 28 percent nationwide over last year.”

“Analysts blame adjustable rate mortgages. Ned Tobey owned the house that was just sold on 29 Woodbury Avenue. ‘I kept falling behind and falling behind,’ he says. He financed the $300,000 home with an adjustable rate mortgage, as the rates went up, he found himself unable to afford the payments.”

“‘I went from a monthly payment of right around $2,100 a month to a little over $3,000,’ Tobey says.”

“With the Cape’s Barnstable County leading the way at 73.9 percent, foreclosure filings in the Pioneer Valley went up more slowly. In Franklin County, filings went up 21.4 percent from 126 to 153; Hampden County filings were up 20.7 percent from 1,129 to 1,363.”

“The number of foreclosure filings has been going up faster than he expected, said Jeremy Shapiro, president of ForeclosuresMass. ‘It’s surprising in terms of how fast the numbers have increased, it’s startling,’ Shapiro said. In May alone, statewide filings more than doubled, from 788 in May, 2005, to 1,613 this year, Shapiro said.”

“Linda Rotti, president of the Realtor Association of Pioneer Valley, suggested that the cooling real estate market could be making it harder for people to sell their houses quickly enough to avoid foreclosure. In the red-hot market of recent years, ‘if people got into financial trouble, they could just put their house on the market and get it under deposit in a short period of time,’ Rotti said. ‘Now with houses taking longer to sell, they don’t have that luxury.’”

“Karen Wallace, a Realtor in Brimfield, said she fears there may be more foreclosures as time goes on. ‘I have seen more people, when the market was going higher, they pulled a lot of equity out of their homes,’ she said. ‘They’re stretching themselves, then some small thing happens and they can’t pay for it any more. It’s very sad. Nobody wants to see that happen.’”

“Peter Gagliardi, director of (a) housing assistance agency, has also seen a few people whose homes are at risk because they bought two-family homes with overly ambitious rent expectations.”

“Shapiro said he believes the rising wave of foreclosures is ‘just the beginning here.’ Many homebuyers chose 1-year, 3-year or 5-year adjustable rate mortgages in the recent housing boom, he noted. ‘Some of those have begun to adjust, others haven’t. I think the next two years are going to see much more heightened levels of foreclosures than we’ve seen in the past,’ Shapiro said.”

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Comment by Ben Jones
2006-07-02 10:24:36

Some related links:

‘As a credit counselor in North Charleston, lately Michaele Pena’s seen a lot of foreclosures. Years of lenders pushing hybrid mortgages that start with low payments but increase after a set time have fueled the problem, experts say. Charleston-based attorney D. Nathan Davis of the Davis Law Firm said he has helped clients whose monthly payments have jumped $200 a month or more. Combined with monthly credit-card payments, rising gas prices and other expenses, when the ARM goes up, their world comes crashing down.’

‘The prospect of lower monthly payments early on is attractive, Davis said, but buyers should consider whether they can afford the payments in five years, not in five months. ‘They’re just pushing the problem down the road,’ he said. ‘They’re in a downward spiral and they don’t even know it yet.’

‘You might have noticed recent articles indicating Michiana has very low housing prices and an awful lot of foreclosures. About 50 percent of the foreclosures have been investor-owned properties that landlords simply walked away from when taxes became higher than they could collect in rent, says Karen Roush, a broker/associate in Mishawaka.’

‘Roush, who has handled mortgage foreclosures for Fannie Mae for 25 years, says she once used to handle only a couple of foreclosures a year. ‘Now, I carry an inventory of 35 homes at all times,’ she said.’

Comment by waaahoo
2006-07-02 11:15:54

What a bull$hit sob story example. If the guys $300k house sold at auction for 317K then why the hell didn’t he just sell it before he was forclosed? Maybe,…and I know this is gonna sound way out there,…t just maybe, he already pulled any equity he did have out of the house and spent it?

Comment by GetStucco
2006-07-02 12:19:00

If he did already spend all of his home equity wealth, I am sure that would be a one-in-a-million case…

Comment by Bubble Butt
2006-07-02 12:28:47

Maybe his negam mortgage spent it for him.

Comment by GetStucco
2006-07-02 12:16:52

‘They’re just pushing the problem down the road,’ he said. ‘They’re in a downward spiral and they don’t even know it yet.’

We describe these as “suicide” loans for a reason. But maybe a better term would be “involuntary financially suicidal time bombs.”

Comment by txchick57
2006-07-02 10:32:53

Maven: No House Party
By Marek Fuchs
Special to TheStreet.com
7/2/2006 9:30 AM EDT
URL: http://www.thestreet.com/comment/investing/10294799.html

The Business Press Maven, who owns an obscenely overvalued home, wanted nothing more than for the loft in real estate prices to, uh, loft forever. Or at least until I die.

You see, while planning to take it all with me, I do understand that no crypt could fit my three-floor beauty.

But The Business Press Maven is alive and — as always — kicking. And the real estate party is over. If you don’t believe me, just look at your favorite struggling homebuilder stock or bedraggled REIT or check the vast majority of increasingly grim housing numbers.

So where does that leave you, the investor? At high risk of being goaded into a mistake.

Let me explain. From the conglomerates of the 1960s on to the Internet of the 1990s and real estate of the current decade, overvalued markets are always justified by the business media with constant story lines about how different things are this time. Once it starts to become apparent (like now) that there is such a thing as gravity, we enter the classic second state of business media delusion. And it’s potentially more dangerous.

The Business Press Maven refers to this as the “‘Tis Only a Flesh Wound” stage.

Having justified the bubble for so long, the business media never simply walks away. What always comes, instead, are a series of articles about how the worst of the damage has already been done and that it’s no big deal, just part of the natural course of things — a flesh wound. Moreover, that there are safe havens amid the carnage or that there are actual bargains! The reasoning is formulaic and often heavy on buzzwords, jargon and quotes from people who have a reason to tout the lunacy back into existence.

Examples have been chronic in print and on television so let me touch upon a few so you’ll know what to recognize. After all, this is not a market to jump back into. The demographic push of baby boomers buying homes coinciding with the taming of inflation (and thus interest rates) over the past generation has been enormous. With baby boomers starting to downsize and inflation and interest rates trends, at best, in flux, this is a market that could very well not perform better than inflation over the next generation.

A key element to making the argument that there has been no true shift in the market is to deny the very fact that prices are starting to drop. This was done recently, in all its vacuous glory, by Samuel Lieber, the president of Alpine Mutual Funds, while speaking on CNBC. He sounded like a local real estate agent, trying to convince a young couple that they were not buying into a “down” market but an “adjusting” one.

“We are,” he said, “transitioning from a period where people had to pay the offer price or above to a period where they are looking at a more normalized bid/offer spread. It’s just they don’t know … where that proper pricing will be.”

Sounds like prices are plummeting, buddy.

The key step to assessing whether a market has hit bottom is to read and listen. When you hear people honestly assessing the damage and professing no hope — that’s a bottom. When people are in denial and are slinging jargon — well, we ain’t there yet.

Lieber continued, calling it a “unique time to be a buyer” (inventories rising, prices falling, demographics turning from help to horror — I’ll say it’s unique) and adding that the current numbers are not an indication of confidence but “a reaction to houses staying on the market longer.”

This bit of pretzel logic earns The Business Press Maven’s dreaded “Back of the Hand” award.

Pick up even the best business publications and they can sound the same way, like enablers. The Wall Street Journal went a common route, writing in an A2 headline, “Softer Housing Sector Is Seen, But Data Don’t Point to Collapse.” Of course goodness knows, and so does The Business Press Maven, that for investors, utter collapse is better.

Think of the Internet tumble. It was bad, but with nearly every stock in the sector at or near zero, bargains could soon be had. A long slow burn, caused by slowly unfolding demographic and inflation shifts leaves less room for opportunity.

Opportunity, the Journal pointed out in the first section of that same issue, might be big. An article called “Building a Case for KB Home” had a sub-headline that was flagrantly too positive: “Stock Could Be a Steal Amid Housing Slump.” That sounds like the hot stock tip spam I get so much of.

Remember, loyal Business Press Maveniettes, how in the wake of the Internet collapse, we saw legions of articles about stocks that were steals because though they had started getting hit, they would offer safe haven because of their strengths.

That’s why, for the first time, I’m going to grant a TheStreet.com staffer — Nick Yulico — the coveted Business Press Maven “Nod of Approval.” It’s for a story called Builders Still No Bargain and centers on the hairy fact that builder’s profits are being hit by lower home prices and higher land costs that will be expensed in coming years which — and this is key — they haven’t acknowledged openly yet.

Until such troubles are spoken about openly, a bottom is not in sight.

By the way, before we continue this “adjustment” any further, are any of you gullibles out there interested in a three-floor beauty? Good schools and the neighbors are usually tolerant. Since I can’t take it with me, I figure I’m better off with immediate cash.

Comment by still not time
2006-07-02 11:18:39

txchich could you repost the banks with high percentages of mbs to cd’s/


Comment by TomfromNY
2006-07-02 11:25:06

A short personal anecdote about buying the tops in residential real estate in NYC. In 1989 I bought a townhouse in the Park Slope section of Brooklyn for $470,000, knowing I was doing so at the top. (Did it for family reaons and without undue financial stretching, but knew it would not be a good “investment” in financial terms). The sellers had bought the same house (no meaningful improvements) for $65,000 in 1978 — i.e. at the previous bottom.
In 1995 the house was appraised (in those more honest days) for $505,000 — a grand 7% appreciation (pre-inflation) in 6 years.
Meanwhile, my inflation-adjusted cost (not including the constant maintenance that a 110 year old house requires) has risen to $767,000. Add that maintenance and the number is probably crowding $900,000. I just might be able to get a bit above that if I rushed today, but that’s not my motivation for owning it.
With the dislocations inevitably coming to NY’s main industries relevant to this kind of housing — finance, professional, advertising, etc. — I think I will be lucky to break even in real terms when I sell it to retire in 5 to 7 years. And during this period (1989-2006) NYC has gone from strength to strength in terms of an attractive place to live for certain kinds of people, so the fundamentals have not been the issue.
I think that anyone looking to time the bottom should be thinking 3-5 years from now. And to avoid the itchy finger, just remember that the bottoms last a long time.

Comment by Judicious1
2006-07-02 12:26:59

“The key step to assessing whether a market has hit bottom is to read and listen. When you hear people honestly assessing the damage and professing no hope — that’s a bottom. When people are in denial and are slinging jargon — well, we ain’t there yet.”

Probably 3-5 years away…prudence will be rewarded.

Comment by Lake Hills Renter
2006-07-02 10:44:59

Thus begins the Great ARM Reset.

Comment by Mo Money
2006-07-02 11:02:10

‘They’re stretching themselves, then some small thing happens and they can’t pay for it any more. It’s very sad. Nobody wants to see that happen.’”

Geez, tough cookies. Sorry, no sympathy here . Stop spending, live within your means. Why is every dumb schlub with a pulse entitled to a big house, a new car, a boat and a motercycle plus home theater ? The world needs renters too.

Comment by Housing Wizard
2006-07-02 11:16:13

And the world needs landlords that can afford the payments ,so renters don’t get jacked around .

Comment by homoaner
2006-07-02 12:25:52

“Geez, tough cookies. Sorry, no sympathy here . Stop spending, live within your means. Why is every dumb schlub with a pulse entitled to a big house, a new car, a boat and a motercycle plus home theater?”

People have needed to do this in order to preserve the delusion that they’re increasing (or at least maintaining) their standards of living. Once the music stops and millions of people realize all they’ve got to show for years of work is a future blighted by ruinious debt, there’ll be some rumblings. Folks have been cheering on the tax breaks and deals for the wealthy because they’ve believed they, too, will eventually join their ranks. Once they realize they’re going backwards, not forwards, we’ll be seeing a shift in attitudes. It could get quite ugly.

Comment by CA renter
2006-07-03 00:46:59

Quite true, IMHO!

Comment by Mort
2006-07-02 11:22:45

Nobody wants to see that happen.

Ms. Wallace, you have no idea how wrong you are. I could start ripping off a good one right about now (rant off) whew!

Comment by Jaz
2006-07-02 11:32:01

It looks like a classic Ponzi Scheme.

Comment by ocbroker
2006-07-02 11:33:02
Comment by michael
2006-07-02 11:35:45

I wonder how the taxes got out of hand so that landlords couldn’t afford the places that they bought.

Comment by Mo Money
2006-07-02 13:13:52

Unless you have Prop 13 limiting the increases the cities are all too happy to re-assess your new property value and jack up your taxes accordingly. Goodbye positive cash flow.

Comment by michael
2006-07-02 15:04:51

I guess that this happens in cities where you don’t have real accountability. One advantage of living in a small town where individual votes do matter. We’ve had a few tax revolts in my neck of the woods recently which would have been much harder to pull off in areas with much bigger populations.

Comment by GetStucco
2006-07-02 11:43:57

“In the red-hot market of recent years, ‘if people got into financial trouble, they could just put their house on the market and get it under deposit in a short period of time,’ Rotti said. ‘Now with houses taking longer to sell, they don’t have that luxury.”

Further, they don’t have the luxury of using home equity cashout financing to help make mortgage payments in a pinch, nor to refinance, as the monthly payment on a fixed-rate amortizing loan would be even higher than on their reset ARM…

Comment by CA renter
2006-07-03 00:51:15

Yep. I have yet to meet someone who was intelligent enough to actually SELL their “gold mine” when they realized they couldn’t afford it.

I’ve seen LOTS of folks who do the refi/HELOC thing in order to pay off credit cards (over and over again) and make mortgage payments. Unfortunately, I’ve known quite a few who started out with reasonable 30-yr FRMs, only to do serial refis and now only be able to get through each month by making minimum payments on neg-ams.

Comment by NickV
2006-07-02 12:21:44

Story of what high housing prices are doing to a renter (not me) in the Boston area: Apartment Fury”/a> (from Best Of Craigslist, Boston).

Comment by NickV
2006-07-02 12:24:10

Sorry about the formatting on that link… but it seems to work anyway (at least in FireFox). We need a preview or edit function.

Comment by Mort
2006-07-02 12:47:03

Great rant!!! :D

Comment by Chip
2006-07-02 13:01:12

His definitions at the end are pretty funny. Wouldn’t want to be his neighbor or cellmate.

Comment by robin
2006-07-02 19:07:57

That seems like a “biiter renter” poster child. Sad thing is, he has many good reasons to be bitter.

Comment by Bryce Mason
2006-07-02 12:47:39

Huge rises in foreclosures might be trigger I’m looking for in the MBS market meltdown. Banks offer insurance to the buyers of their MBS, who pay a guarantee premium, which basically guarantees that even if homedebtors stop paying, the banks will pay the interest on the MBS as if they had made their payments on time. Now I’m trying to figure out if the CFC’s of the world self-insure, or if they contract with some company like AIG to cover. They wouldn’t answer my question, either.

Comment by michael
2006-07-02 15:06:07

RDN and PMI do PMI insurance. Not exactly what you’re looking for though. Perhaps M & T bank? Probably AIG. Not sure about BRK/A.

Comment by denverKen
2006-07-02 15:40:26

“Analysts blame adjustable rate mortgages.”

Man, I am so sick of reading this sentence. The BLAME goes to the borrower who didn’t THINK ahead! They took out an ADJUSTABLE mortgage…that should have been a clue that the rate could change and the payment rise.

Knowing that, wouldn’t the potential borrower take a look BEFORE signing the mortgage at what the payments might rise to under difference rate scenarios down the road? Would the loan still be affordable under a rising rate case? If not, the house is not affordable and you can’t buy it!

My guess is many of these buyers were just barely able to make the initial payment and any increase would spell doom for them. In that case I can’t feel sorry for them. They were stupid, didn’t think ahead or plan, now they lose their house.

Comment by CA renter
2006-07-03 01:10:27

Yes, but…if I were a lender, I’d make darn sure the borrower could pay back the money based on the worst-case scenario. If the lifetime cap on a mortgage is 10%, I’d calculate the borrower’s ability to pay based on the 10% fully-amortized payment. And I’d make sure it wasn’t more than 30% (tops) of their gross monthly income (higher, for people earning over $200K).

Oh, and that would be VERIFIED income.

Comment by Joe Momma
2006-07-02 20:41:55

I imagine a lot of people got suckered when they asked how much the loan could go up, and the broker said “no more than 2% a year”. Unfortunately a lot of people probably thought “2% isn’t bad” without realizing that could equate to a 50% increase in their monthly payment.

This could only happen in a country loaded with stupid people.

Comment by crashmaster101
2006-07-03 06:36:19

Hey, where are all the Boston homeowers who told me that Boston home prices would never drop? Some idiot grad student kept repeating that Boston was strong. Another fool convinced himself to buy at the peak.

Crashmaster is here to tell you that he is still looking at a 50% drop in Boston. Condos will get crushed. Sorry. But all those DINKs who squeezed into their first Boston condo will get riped a new one. They could have waited and invested their extra cash each year, then bought a nice place with no mortgage in 5-10 years.

But no, they needed the mortgage deduction to offset their ridiculously high duel incomes!! HAHA Idiots.

Comment by Randy
2006-07-03 09:50:26


This housing bubble will result in a national, if not international, depression. It’s everywhere and has permeate markets which would never have had any housing appreciation on their own. There’s no connection between housing and its respective regional job market in any manner. I think Bakersfield CA is one of the best cases for this point.

My advice to fellow renters, with enough of a savings to put in a 20% down payment after a 40+% correction, is to not bother. You’ll need that money to survive periods of joblessness in the decade to follow. Cash is king during a deflationary cycle.

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