February 26, 2012

A Useful Working Assumption

Readers suggested a topic on used house salespeople. “How about how Realtors are Liars? They’re out there advising the public to buy housing while prices are falling, attempting to create a sense of urgency by suggesting sales increasing rapidly when in fact they’re at 14 year lows and flat. These people just lie and lie and lie yet whenever their corrupt behavior is mentioned, the issue is redirected onto ‘banksters’. Why is that?”

A reply, “Because the Realtor® lies only steal 6% at a swipe from the sheeple loanowners while the banksters steal millions. Also the ‘nesting instinct’ which leads sheeple to commit financial suicide just so they can paint the walls any color they want. Sheeple love what they perceive as success/confidence, see also the furry-eyebrowed Realtor® in the movie ‘American Beauty’.”

One said, “We never hear about the realtors and all the non-banker people that are lying about real estate. Whenever you buy or sell a home, there is a long line of people demanding their cut for overpriced or completely unnecessary services. These things are borderline if not outright fraudulent. There’s no movement to go after them so they will still be around long after the bankers are gone.”

Another had this, “This is from my realtor could it be a lie?”

‘ - I’m super happy to say that we have some feedback from the lender on XXXXXXX. Believe it or not, this is lightening speed for a lender in a short sale…’

‘As in every short sale, the lender completed their own value assessment of the property. It appears that their assessment came back at a much higher value than the $399,000 list price. This can be considered great news for any buyer of this property when looking for an opportunity to purchase a property with existing equity.’

‘Fortunately, the lender is not requiring that the list price be increased for approval, but they have countered your $XXXXXX offer price. In a nut shell, we will need to increase your offer a bit in order to secure an approval. This does not mean we need to go over the asking price, but we need to be closer to the $399,000 list price. - ‘

“In all fairness this is a BANK lie being passed on to me by a Realtor like I am so stupid to think I have instant equity in a possibly still falling market and can’t use the internet to find what similair homes sell for which is about 400K except ‘as is’ foreclourses they are about 380K because they are trashed. Have to see the house again and decide if I want to increase offer. Its empty now so I can see it better. I can also use a home inspection report to drive price back down again if there is anything wrong. Don’t know what the bank will say to that but I don’t want to buy a house that’s got problems. NO need to reply too quickly to a bank in any case.”

To which was said, “You do realize that normally what the bank gets on these properties is a BPO—a ‘broker’s price opinion.’ In other words, it is just a number that one particular realtor thought would be a good value to put on the property. It is not the same as a good appraisal showing multiple recent sales as comps.”

“Short-sales are strange beasts, because everyone knows that the listing party (the nominal ‘owner’) is not the party that will have to approve the sale in the end. I mean, the owner COULD sell at a below-mortgage price, assuming they were willing to bring lots-o-cash to closing. But since they don’t have the means, the listing price is kind of a strange fiction.”

“I don’t think it’s ‘fraudish’, but it’s definitely different from a normal sale where a full-price offer would presumably get an acceptance. But since everyone knows that it is different, and they make sure to explicitly list it as a ’short sale’, I think it’s ok…”

And finally, “(This) is a constant and therefore unlikely to be part of the explanation for the RE bubble. It is NOT the case that every salesman is a lying sack of sh!t. But it IS a very useful working assumption. And always has been. Frankly weren’t we supposed to figure that out at the age of 8 after watching Saturday morning commercials?”

The Rock River Times in Illinois. “According to the Illinois Association of Realtors’ (IAR) fourth-quarter 2011 report, Illinois home sales (single family and condominiums) totaled 25,394, up 14.8 percent from 22,114 home sales in the fourth quarter of 2010. The 4Q11 statewide median home sales price was $128,000, down 10.8 percent from $143,500 in 4Q10.”

“‘Chicago continues to show an absorption of properties in the market by aggressive buyers seeking great opportunities to purchase now,’ said Realtor Bob Floss, president of the Chicago Association of Realtors and broker-owner of Bob Floss and Son Realty. ‘The decrease in median price and increase in units sold continues to show the downward pressure distressed sales still have on property values across the city. With interest rates at historic lows, and sellers and buyers looking to make real deals close, 2012 remains an excellent time for first-time, right-size buyers, or investors to get off the fence and make long-term investments in real estate.’”

The Chicago Tribune in Illinois. “‘If you’re selling your place, right now you’re in a beauty contest and a pricing war,’ said Tommy Hicks, an agent at SouthportSotheby’sInternational Realty in Chicago. ‘The really good stuff goes in a week,’ said Hicks, who with his wife has been looking for three months for a $1 million fixer-upper in Chicago’s Lincoln Park neighborhood. ‘People seem to be catching on to the fact that if you bought something in the last seven to eight years, you probably can’t sell it for what you bought it for.’”

“‘Realtors are busy like the old days,’ said Bob Floss, president of the Chicago association. ‘They’re saying, ‘We’re working like dogs but for a third of what we used to make.’”

“At this point, Floss said, it’s a pretty cut-and-dried conversation with homeowners interested in listing their home for sale. ‘If you want to sell, this is what we got now,’ he said. ‘And if you want to wait, wait, but how long is the wait? (Sellers) are saying ‘OK, we don’t like it but this is what it is.’”

The Nashua Telegraph in New Hampshire. “According to RE/MAX of New England, which releases a regional housing report each month, in January 2012, more housing units were sold in the state than in the same month the previous year, but the median sale price dipped almost 3 percent. The median price of units sold in New Hampshire dropped from $185,000 in January 2011 to $180,000 in January 2012. Still, that 2.7 percent decline was one of the smallest in New England. Only Maine saw a smaller decline, of 2.3 percent. Connecticut and Rhode Island saw the biggest median price drops over the period, with declines of 12.2 and 12.3 percent, respectively.”

“‘The slight uptick in sales is encouraging as it means buyers are active in the market, however we are still trying to find a balance between buyer expectations and market realities when it comes to pricing,’ said Jay Hummer, executive vice president of RE/MAX of New England.”

December 31, 2009

One Word For The Decade

I realize this isn’t the end of the decade, but so many papers have articles like these, I decided to run with it. Tomorrow we’ll have a predictions thread, and this is a Thursday desk clearing post. “This was the year, finally, that promised relief, opening with foreclosure moratoriums and a highly touted Obama administration initiative to keep millions of desperate borrowers in their homes. But 2009 ends with the same old troubles. Woodland, Calif., borrower Jennifer Quigley made six months of trial modification payments to Wells Fargo, only to get a permanent modification offer that raised payments to 54 percent of her family’s gross monthly income, not the targeted 31 percent.”

“‘I said, ‘This isn’t our income.’ They said, ‘That’s what’s in our computer,’ said Quigley, laid off a year ago from UC Davis. ‘We’re right at the end of our sanity. Come January we’ve been doing this for a year with no resolution.’”

“A’Leah and Randall Knight, of Bend, built their 1,700-square-foot home practically themselves five years ago. An appraiser valued it at $350,000 just two years ago. The market was booming and investing in a second home made sense. Even worse, her husband recently had a severe pay cut, and their renter stopped paying rent. They sold the rental house. Now, trying to short-sell their home to help pay off their $300,000 debt, they have it on the market for $136,900.”

“”We bought a rental house, and then the market just crashed,’ Knight said.”

“First came foreclosure sales, then short sales. Now Central Florida is seeing more half-finished homes for sale: bare-stud, bare-yard houses abandoned by their builders and left to languish on the market. ‘If I had known three years ago that my business would be based on selling short sales, foreclosures and half-built houses, I would have told you you were smoking crack,’ said Kelly Price, a veteran real-estate broker based in Winter Park.”

“It’s been a wild and eventful past 10 years in the East Valley. Nothing defined the decade more than the area’s housing bubble. The double-digit appreciation rates during the first half of the decade had real estate agents driving investors through neighborhoods while they snapped up houses in hours or days. It was said agents for buyers and sellers were so hot to move on deals they were filling out the paperwork using car trunks as desks. Buyers didn’t think twice about the home’s condition, and sellers did dances over the amount of money they were getting.”

“Then the crash came. And house prices slid for most of the rest of the decade. Foreclosures led to blight in many neighborhoods. There are still about 50,000 homes on the market in the Valley.”

“Call it the end of the age of exceptionalism, Flagstaff-style. Entering 2009, Flagstaff appeared to cling to the notion that somehow the Great Recession was going to pass it by. It was only a matter of time before Flagstaff’s government- and tourist-dependent economy went on the ropes, too. The first signs early in the year came as housing values declined, making new home equity lines of credit harder to come by. That caused retail spending to plunge by double-digit percentages compared to the previous year. Flagstaff’s municipal budget went into a tailspin.”

“The idea that Flagstaff could somehow remain above the economic fray was wishful thinking that, in hindsight, might have cost the region valuable time in confronting and coping with the recession’s major impacts.”

“After decades of leading the nation in growth, Nevada may now be losing population. A new report from the state’s demographer estimates Nevada lost more than 27-thousand people in the year ending July First. ‘This is a new phenomenon for Nevada.’ says state Demographer Jeff Hardcastle . ‘We used to joke Nevada was the one state in the nation where a three percent growth rate was a recession.’”

“‘We peaked in about 2006 with construction employment,’ says Hardcastle, ‘and if you recall we got hit by the housing bubble in 2006, then got hit by the gas price surge in 2007 which deteriorated the tourism industry and then got hit by the Lehman Brothers and financial crisis nationally.’”

“I’ve come to visit a brand new housing development, just off the main street of a small town 17 miles from Dublin city centre. The signs at the entrance promise ‘The Best of Everything’. But there’s no one living here. It’s a scene replicated hundreds of times around the country. As the New Year approaches, the question is: What do we do now with these ghost estates?”

“First, you have to ask why we were mad enough to build all these surplus homes in the first place. Let’s go back to 2006 when the Central Statistics Office identified 266,000 empty residential properties — representing 15pc of all homes. It was obvious that supply already exceeded demand and yet, in that same year, property fever still gripped the nation, and people slept in their cars overnight to be first in a queue to buy within commuting distance of Dublin.”

“As the first decade of the 21st century draws to an end, many Northern San Joaquin Valley residents say: Good riddance. This decade has been so economically brutal that most can’t wait for it to be over. Lots and lots of homes were built. In Stanislaus County alone, about 25,000 homes and apartments were constructed. BATs — ‘Bay Area transplants’ — swooped in to buy those homes. Those newcomers inspired commercial developers to erect shopping centers throughout the region.”

“When the inflated housing bubble burst in 2006, the Northern San Joaquin Valley’s entire economy imploded. Since then, more than 51,000 homes in Stanislaus, San Joaquin and Merced counties have been lost to foreclosure, costing lenders more than $19 billion in unpaid mortgages. About one in eight homes in the region have been repossessed, the worst foreclosure rate in the nation.”

“We’re also worst when it comes to home value declines. From the price peak in December 2005 to this spring’s bottom of the market, homes lost about two-thirds of their value. Because of that, more than 81 percent of the region’s homeowners owe more on their mortgages than their houses are worth.”

“And unemployment during 2009 has been more than double what it was at the start of the decade. Stanislaus’ rate in November 2000 was just 7.7 percent, but it reached 17.2 percent last month.”

“A decade ago, people’s biggest fear was Y2K. Let’s hope something so trivial will dominate the news in the decade to come.”

“How did Fannie and Freddie help cause the crisis? In 1990, outstanding mortgage debt held was $3.805 trillion. Then, Fannie and Freddie weakened lending standards by handing out unsecured loans to unqualified borrowers. And, by the end of 2007 as the crisis was reaching its peak, total mortgage holdings had risen to $14.568 trillion, a staggering 383 percent jump.”

“Today, total mortgage holdings stand at $14.418 trillion. A full 75 percent of that—roughly the amount Fannie and Freddie are responsible for financing—is $10.8 trillion! Add to that the securities which were sold by the GSE’s, and it’s larger than the Gross Domestic Product. Taxpayers could never, ever possibly cover losses on that scale.”

“There are actually more losses on the way. Reported Business Week yesterday, ‘Foreclosure filings in 2009 will reach a record for the second consecutive year with 3.9 million notices sent to homeowners in default, RealtyTrac said Dec. 10. This year’s filings will surpass 2008’s total of 3.2 million.”

“The government shouldn’t reward liars. But that’s the effect of changes to the Obama administration’s failing program to help homeowners modify their mortgages. Until recently the rules were clear: if you grossly understated your income to qualify for the program, you had to restart the loan modification process. It made sense. After all, we got into this housing mess partly because too many people were dishonest about how much they made.”

“Fast forward to today. The federally funded Home Affordable Modification Program was aimed at getting banks to rework mortgages for homeowners in order to slow the pace of foreclosures. The program isn’t working like it’s supposed to. Since March, just 31,000 homeowners have won permanent relief. One big reason why is that lenders are doing what they should have been doing all along - requiring things like proof of income.”

“How’s the government responding? By letting homeowners who fudge their income numbers off the hook with little more than a wink and a nod. ‘This isn’t the kind of person the government should want to help,’ said Dean Baker, co-director of the Center for Economic and Policy Research.”

“Fitting that while the first decade of this century was dribbling away, the mendacious Eldrick “The Weasel” Woods (The Golfer Formerly Known as Tiger) was watching his marriage and his endorsement deals fall apart, the Heenes were preparing for jail, Bernie Madoff was already in jail and George W. Bush was as invisible as it is possible to be for a man who was president of the United States only 11 months ago.”

“Such is the unravelling of the Decade of Deception. Of fabrication, mendacity and untruth. Of Enron and Bernie Madoff, Earl Jones and Vincent Lacroix. Barry Bonds and Roger Clemens. And the filthy rich bankers of Wall St., who came up with a filthy lie – renamed toxic assets as ‘derivatives’ and very nearly brought the global economy to its knees.”

“At the beginning of this decade, I wondered aloud what we were going to call the first 10 years of the new millennium. The Aughts? Naughts? Zips? Nothings? After 10 years of systematic, percolating, corrosive lies, the appellation is simple. The only name that fits the past decade is the Zeros.”

“As the first decade of the 21st Century ends, a whopping 50 percent of Americans have a negative impression of the past 10 years, compared with 27 percent who hold a positive view. In a survey released this month, the Pew Research Center for the People & the Press found results ‘in stark contrast to the public’s recollection of other decades in the past half-century.’”

“The decade was speckled with both bubbles of prosperity and high-profile, high-dollar cases of white collar crime that wiped out consumers, investors and workers by the billions. The breadth and depth of discontent with the current decade is reflected in the words people use to describe it, Pew researchers found.”

“‘The single most common word or phrase used to characterize the past 10 years is downhill, and other bleak terms are common. Other, more neutral, words like ‘change,’ ‘fair’ and ‘interesting’ also come up, and while the word ‘good’ is near the top of the list, there are few other positive words mentioned with any frequency,’ the study said.”

“Wealth manager Paul Schatz said there were multiple bubbles and busts over the decade involving the so-called dot.com frenzy over Internet startup companies and technology stocks, housing prices, mortgage derivatives, over-leveraged investment banks and commodities. ‘My one word for the decade: bust,’ he said.”

December 4, 2009

So Far Underwater, The Fish Have No Eyes

It’s Friday desk clearing time for this blogger. “Rex and Sarah Fritchey drove from Lehigh Acres to North Naples to take advantage of a free workshop. The Fritcheys, both 71, hope to modify their mortgage and save their home. The couple, who retired in 1986 from their landscaping business of 23 years, are struggling to afford their monthly payments. They were relying on income from other investment homes in Lehigh Acres to cover their bills, but that income has dropped drastically because rents have fallen so much with a real estate slump. One rental house that used to fetch them $1,200 a month now brings $850, Rex Fritchey said. ‘We refinanced the house and now we are upside down,’ Sarah Fritchey said. ‘It’s like you’re in a free fall. Someone has to stop and catch you.’”

“The vacant house next door has been gone more than a year, but Patricia Beck still has to deal with the consequences. The now-empty lot beside her home in Norfolk’s Lindenwood neighborhood has attracted drug users and vagrants, trash and trouble. Beck would like to buy the lot, but there’s a problem: No one will claim ownership. The company’s bankruptcy has dragged, leaving creditors unpaid and some investors with houses they don’t want.”

“‘We just want this done,’ said Karen Crowley, an attorney representing two brothers who at one point owned 48 properties in Hampton Roads through CM Development. Her clients have lost an amount approaching $1 million.”

“Two more lawsuits were filed electronically Wednesday in Pitkin County District Court from prospective buyers of Viceroy condo hotel units seeking to break their purchase contracts and get their deposits back. That brings the total number of such lawsuits filed since early October to 19 — representing roughly a quarter of the units that were put under contract mostly in early 2008 when the local real estate market was hot.”

“The picture has changed substantially for Base Village since then, when it was anticipated the entire 600-unit project would be done in 2011, and people were signing up daily to buy units — which would mean more people to pay into the infrastructure taxes and assessments levied on the project. The things making the base a tourist attraction and promised to hotel unit owners — an arrival center, plenty of retail and restaurants — were in the works then, but on hold now.”

“Asked if he was willing to negotiate should the developer approach him, the plaintiff answered, ‘I’m an avid believer in Snowmass as a great family and vacation spot, but the situation at the Viceroy that exists today is very different than what I bought into two years ago. I simply want out of the project. This is not merely a tactic to renegotiate a lower price.’”

“Fort Worth’s riverfront plan promises to create development on the Trinity that will double the size of downtown. Is that a good thing? And can Fort Worth pull it off? Former Republican County Chair Steve Hollaren, an accountant, points to high end condos near downtown that sit vacant and questions whether there’s a market for more on the water.”

“Steven: ‘The high-end condos have been overbuilt. You’re talking about putting properties in there that the average citizen is not going to be able to afford. A lot of developers that have high end projects - I’m talking about a half million to million dollar condos- in the city right now are having trouble moving them.’”

“House Financial Services Committee Chairman Rep. Barney Frank (D-MA) issued the following statement regarding recent press reports on FHA loan limits: ‘The reason Congress recently changed FHA (and GSE) practices to allow higher cost loans was to ensure that affordable mortgage credit was available to middle income families in areas with higher priced homes…Instead of representing a financial threat to FHA, allowing these higher priced loans allows for more geographical diversification for FHA. And, the just recently completed audit of FHA concluded that higher cost loans actually have a lower claims rate than lower cost loans.’”

“At a realtor tour meeting of the Silicon Valley Association of Realtors last week, California Association of Realtors Chief Economist Leslie Appleton-Young told realtors…(she) expects the jobs sector ‘will get worse before it starts to get better.’ She doesn’t see that happening unless new jobs are created.”

“On the plus side, sales are rebounding and it’s a bonanza right now for first-time homebuyers. However, Appleton-Young remains concerned about financing issues, including financial literacy. She wonders how the market will do ‘without (the) training wheels on the bike’ provided now by federal government programs such as the tax credit. She is also concerned about financial literacy, as 21 percent of this year’s homebuyers admitted in a survey they did not know or were not sure about the terms of their loan.”

“‘This is just unacceptable,’ she said.”

“Most years, the Charlotte Chamber’s economic forecast has offered a low-key, collegial atmosphere. Not so today, as Duke Energy CEO Jim Rogers offered a harsh assessment of the fledgling recovery and contradicted the rosier scenarios outlined by the president of the Richmond Federal Reserve and the top executives at Bank of America and Wells Fargo & Co.”

“Rogers described Wall Street and Washington as too narrow-minded to make the tough decisions required to cut deficits and lay the foundation for long-term growth. ‘What we have had an incredible duty to is put our head in the sand,’ Rogers said of the past few years in business and politics.”

“Despite being part of a panel that included major bankers, Rogers showed no heistancy to find fault. And Jeffery Lacker, the Richmond Fed president’s presence failed to dissuade him from making the assertion that the Fed and Washington politicians will only ‘print more money’ rather than enact more rigorous policies as circumstances demand. BofA’s Ken Lewis and Wells Fargo CEO John Stumpf and Lacker conceded some of Rogers’ points even as they defended their positions that the economy will make some strides in 2010. Failing that, they turned to gallows humor.”

“‘Remember The Gong Show?’ Lewis asked after Rogers closed his remarks. ‘If he starts that again next year, give him the hook.’”

“Sen. Bernie Sanders upped the ante on congressional Fed-bashing Wednesday, seeking to block Ben Bernanke’s nomination to a second term as chairman of the Federal Reserve Board mere hours before his confirmation hearing. ‘“The American people want a new direction on Wall Street and at the Fed,’ Sanders said. ‘They do not want as chairman someone who has been part of the problem and who has been responsible for many of the enormous difficulties that we are now experiencing. It’s time for a change at the Fed.’”

“The signatories make up a mind-bending group: on the right, conservative kingpin Grover Nordquist and Phyllis Schlafly; on the left, liberal economist Dean Baker. ‘This situation was totally preventable if [Bernanke’ just took the housing bubble seriously. I simply cannot understand how he thought the economy could withstand the collapse of an $8 trillion housing bubble without serious consequences,' Baker said in an e-mail, calling Bernanke second only to former Fed Chairman Alan Greenspan in terms of blame for the crisis. 'If a Fed chair doesn't get fired for bringing the economy to the edge of collapse and for leading it to double-digit unemployment, what do you have to do to get fired from this job?'"

"In recent months there have been a growing number of public notices of 'foreclosure sales' of homes in Buffalo published in the Buffalo Bulletin, but local bankers do not see the problem as being as serious as it was during the recession of the 1980s. Dean Bjerke, retired banker who was an officer with the Buffalo Federal Savings and Loan Association (now known as Bank of Buffalo), said the bank took ownership of more than 40 homes when the economy tanked in the early 1980s."

"'Sometimes we found the keys to a home in the night-deposit box along with a note that the owners just couldn’t make any more payments and were leaving town. We knew a ‘fire sale’ of these houses would have a devastating effect on the local real estate market, and bank directors and officers decided to simply rent most of them out until the market improved,' says Bjkerke."

"President of Buffalo Federal Savings and Loan at the time was Bill Perry, and Bjerke said Perry was adamant in his opposition to forcing an immediate sale of all of those homes. At the time they were getting pressure to market them immediately from bank regulators."

"The company held a meeting with local realtors, put all the properties in a hat and let them 'draw' for the rights (listings) to sell those homes as they could without placing prices under the current market values."

"This was done to avoid driving down property values in Buffalo and to reduce losses to Buffalo Federal Savings and Loan."

"There is nothing abnormal for corporate borrowers the world over to ask for rescheduling their debts, says a financial expert and economist from Saudi Arabia. Talking in the context of the state-owned Dubai World without naming it, Dr Mohamed Al Jebreen told The Peninsula late on Tuesday: 'Companies usually reschedule their debts.'"

"In remarks on the phone from Dubai where he was on a brief visit, Al Jebreeen said no lender ever gives corporate loans without adequate collateral. In the case of Dubai, the assets of the borrowing entity, which is presently in the throes of a controversy, should have pledged its assets (properties for whose development loans have been sought) as collateral with the lenders."

"'But the problem is that property prices are currently down almost 50 percent the world over, so they can’t be sold off to repay debts,' said Al Jebreen who holds a Ph D from a prestigious US university. 'I am sure that due to the slowdown in the real estate market globally the value of properties that are pledged as collateral with lenders are much less now than when the loans were taken.'"

"His argument implicit in the above statement is that Dubai’s debts can be rescheduled until the time the property market recovers so that it benefits both the borrowers and the lenders. Even in the US, especially Florida and California, property rates have declined by almost 50 percent in the aftermath of the world financial crisis. Some lending banks in the US are seizing properties which were pledged as collateral with them and selling these off at 50 percent lower rates to recover debts, he said."

"'So lenders in the case of Dubai can wait. The assets can be sold at a later date (when the market has improved). If these assets are sold right now, they (the lenders) aren’t really going to get anything, he said.'"

"Home, the aphorism tells us, is where the heart is. And when you own your home instead of merely renting it, your heart is supposed to swell with the pride of accomplishment. Purchasing a roof under which to rest your head is an essential part of the American Dream, we're told, a prerequisite to lasting happiness. But for others, the dream has turned into a nightmare. The housing boom, built largely on a shoddy foundation of unsustainable borrowing, has gone bust, leaving millions of Americans 'underwater'—meaning the money they owe on their mortgages exceeds the value of their homes."

"Statewide, foreclosures shot up 134 percent in October compared to the same period last year. And plenty of other Hawaii homeowners are clinging on by their fingernails. One of those people is former MauiTime graphic designer Kellee LaVars, who moved to the Mainland earlier this year. In 2003, she bought a condo in Kihei priced at $230,000. She says her lender sold her on a two-part, no-money-down adjustable rate loan and convinced her that 'the beauty of this loan was that as the property appreciated over the first two years we could [refinance] and roll both into a single loan with a fixed rate based on the equity we would accrue. He made it sound easy and logical.’”

“Shortly after she bought the condo, Kellee lost her job. She stayed on-island working as a freelancer, but then came word that the monthly payments on part of her loan were going to rise from $1,000 a month to almost double that. Kellee says it was ‘a huge shock,’ as she’d been assured her payments would never go that high. She went looking for refinance options, but found it nearly impossible to qualify since she was recently self-employed. A spiral of missed payments, paperwork and unfulfilled promises followed, and Kellee now jokes she’s ’so far underwater, the fish down here have no eyes.’”

“I ask her who she blames. She says she puts ‘a lot of it on the brokers who were willing to tell us anything to sell the loan,’ and characterizes them as ‘charlatans at best, liars at worst.’ At the same time, she accepts responsibility ‘for taking their word and not reading the loan [documents] thoroughly.’ Ultimately, she says, she was another victim of the failing economy: ‘It’s hard to pay a loan or get a new one when you’re underemployed or unemployed.’”

“Some will say it’s a matter of personal responsibility, that people who got in over their heads should have known better. There’s truth in that. But take a society that promotes home ownership as a noble goal laced with tax incentives, add aggressive lenders peddling too-good-to-be-true deals and mix in a dash of good, old American get-rich-quick fever and you’ve got a recipe for the crisis we’re currently facing.”

“In the end, making a major financial investment because it’s what you’re ’supposed’ to want or because some broker has put dollar signs in your eyes is irresponsible at best. Home may indeed be where the heart is. But sometimes it’s better to use your head.”

February 16, 2009

A Bandage On A Blown-Out Tire

The Gazette reports from Colorado. “When Kelly Deutsch and her husband began having financial trouble late last year, they did what many families have tried to do - refinance their two mortgages, both of which have adjustable rates. Deutsch lost her job as a medical assistant in September. Her husband brings in about $2,000 a month. Their initial house payments to Countrywide had been roughly $1,000 a month, but their rate has jumped twice, raising the payment to $1,180 a month and then to $1,300. With the second mortgage, the couple, who has a 9-year-old son, was looking at $1,700 a month in mortgage payments. That left almost nothing for groceries and other bills.”

“After months of asking for a loan modification that would lower the payments, Deutsch was finally told by a Countrywide customer service representative in December that she didn’t have to send a check in that month, and that she qualified for a payment program…A month later, Deutsch said, she found out she’d been lied to. A letter from Countrywide arrived Jan. 2, informing the Deutsches that they didn’t qualify for reduced payments.”

“Deutsch was told she should be ‘ashamed that we can’t make our house payments.’ Deutsch said a service rep named Marguerite, who wouldn’t give her last name, said ‘that they would rather take the keys back to the house than let us keep it,’ and that the Deutsches’ loan ‘means nothing to (Countrywide).’”

“When Deutsch asked about being told in December that a payment wasn’t necessary, she was told by yet another customer service rep that there are ‘a lot of liars in the company.’”

“The Deutsches are two months behind on their mortgage payments and even selling wouldn’t get them out of a hole: they owe $25,000 more than their home is worth in today’s real estate market. On Friday, Bank of America, which has taken over Countrywide, announced at least a three-week moratorium on foreclosures on all its mortgage loans.”

“For Deutsch, the bottom line on Countrywide promising to help borrowers is simple. ‘I just don’t trust them.’”

The Arizona Republic. “Phoenix grew into the nation’s fifth-largest city through a reliable pattern: Build affordable homes on the metro area’s edges, welcome waves of new buyers, and then roads, schools and retail centers follow. Home buyers relied on that pattern. Buy an affordable home on the edge, watch it quickly appreciate, then sell at a good profit and move again to a bigger home in an established area.”

“One reason the current housing collapse has been so brutal in Phoenix is how suddenly that pattern broke down. In only a couple of years, the breakdown trapped people in unfinished communities much like a fast-moving landslide buries people in their tracks.”

“‘We have too many empty and foreclosed homes in our neighborhood and not enough stores and jobs. I have to do a lot of my shopping online,’ said Jennifer Barber, who lives in Goodyear’s Estrella Mountain Ranch. ‘The way we are growing is not working. We aren’t getting many of the basic things we were promised.’”

“On the same streets where stranded homeowners watch home values plummet, builders can’t sell the vacant homes next door. Businesses that did move in are struggling. Others have decided not to come. Cities and towns that counted on tax revenue from new residents and business have seen their budget plans fall apart.”

“‘We can’t keep doing this,’ said Shannon Scutari, Arizona’s policy adviser for growth and infrastructure. ‘Our method for growing is broke, and there’s no quick fix. We must have sustainable growth and solid ways of tracking and supporting it.’”

“(A) Goodyear shopping center on Estrella Parkway, has only one tenant, a pizza parlor that opened last year. The center sits near hundreds of new homes. The next closest place to shop and eat is a few miles away along Interstate 10. Karen Madison lives in the neighborhood. She shares a car with her husband, who works during the day.”

“‘I feel stranded most days because there’s nothing close enough for me to walk to,’ said Madison, who sometimes walks a few miles, pushing her daughter in a stroller, to fill prescriptions. ‘We were so excited when we saw the shopping center go up just a few blocks away. But there’s nothing there.’”

The Arizona Daily Sun. “The trouble started when Vice Mayor Al White uttered the phrase ‘urban growth machine.’ White said members of the ‘machine’ rarely needed to worry about affordable housing, while teachers and police officers consistently struggled to stay here in Flagstaff. ‘The machine isn’t a bad thing — it just is. It is the Realtors, it is the homebuilders, it is the architects, it is the engineers, it is utilities, it is the chamber boards, it is title companies. And when they can, by electing council people, it is also government,’ White said.”

“Added White: ‘When we identify the people who are on the affordable housing list and we ask who they are, firemen, policemen, teachers, mid-managers come up. Who is conspicuously absent from that list? Builders, Realtors and those folks.’”

“This brought an angry response from Councilmember Scott Overton, a contractor. ‘You stereotype me, you are putting me in a group that, in your opinion, has done things that are bad,’ he said. ‘Al, I go to work every day, I make about $40,000 a year, and I feel the pinch, too.’”

The Nevada Appeal. “Declining apartment rents and increasing vacancy rates have property managers across the region scrambling to keep existing tenants and provide higher levels of tenant service — and some property managers are even reducing existing rents to keep or lure new tenants. Len Ramos, first vice president with the multi-housing group with CBRE, says managing occupancy is of utmost importance in a time of declining rents and rising vacancies.”

“‘That is the key; maintaining occupancy is the bottom line,’ he says. ‘Managers are saying they are meeting more with their tenant base and are just staying closer to them to make sure they don’t leave.’”

“Don Wilkerson, president of Gaston and Wilkerson Management Group, says the most typical concessions are a month off a year lease, or a reduction in required deposits. And in worst-case scenarios for property owners losing tenants to other properties, managers are cutting rents unbidden. ‘I have heard of managers that have gone to their residents and say, ‘I am going to lower your rent by $5 or $10 for remainder of your lease. In case of one owner they were losing residents to other properties that were offering big discounts.’”

“‘Amateur hour is over. What is it going to take to keep apartments full is good strong property management, and that is more than collecting rents and paying bills,’ he said.”

The Reno Gazette Journal from Nevada. “Some folks dream about making it big in a big city. Others pine for fame and fortune. In the case of 33-year-old Erika Hernandez, her dream stands on an acre and a half of land just north of Reno with three horses and a miniature pony in the back. For more than five years Hernandez and her family have called their Red Rock house home — a source of shelter and pride for Hernandez since 2003.”

“‘This house means a lot to me,’ Hernandez said. ‘When I look at it, it’s like, ‘Oh my God, I did it.’ It’s like a dream.’”

“What Hernandez did not know is that the price for keeping her dream was about to get steep. Acquired through an adjustable-rate mortgage, Hernandez was informed late last year that her monthly house payment was set to jump from $1,785 to as high as $3,200 once her loan fully resets.”

“By the time February rolled by, all the stress and shame about potentially losing her house, compounded by cuts to her hours at work, left Hernandez emotionally shaky. ‘I can’t sleep,’ Hernandez said. ‘I’m afraid my husband would divorce me because he’s really stressed about it and he’s always blaming me (for the loan). He says, ‘You’re the one who speaks English. You should have read what you were signing.’ It’s been really tough.’”

“Last December, 54 percent of all closed transactions for homes in the area involved bank-owned properties, said CalNeva Realty owner Mitch Argon, who tracks and publishes a report on local foreclosure inventory. Add the 12 percent accounted for by short sales and you have distressed properties making up 66 percent of closed transactions for the period, Argon said.”

“‘Banks are really motivated to sell these properties, and it’s reflected on their price and the disproportionate amount of activity around them,’ Argon said. ‘Banks are really reducing prices aggressively.’”

“Even the best designed loan modification, however, can’t solve one problem: unemployment. Ultimately, the overall health of the economy may have a bigger say on the true impact of resetting Alt-A’s than the ARMs themselves, said Mark Carrington, director of analytics for First American CoreLogic. ‘People think it’s the loans causing all the problems, but the real trigger event is the economy,’ Carrington said. ‘Job loss is the biggest reason that people can’t make their mortgage payments. It always has been and it still is.’”

“Hernandez, who has spent the past few months fighting to keep her house, knows full well about the impact of the current recession. A waitress who works in the now struggling casino industry, Hernandez has seen her hours cut and a week’s vacation taken away along with her holiday pay. The bad economy also means customers don’t have as much disposable income, causing Hernandez’s income from tips to nosedive.”

“Hernandez also finally got some good news on Feb. 9 while shopping for groceries. The person helping her with her mortgage called to say Wells Fargo approved her loan modification. The increase in her monthly house payment was less than $200.”

“‘Oh my God, I could sleep now,’ said an ecstatic Hernandez over the phone shortly after hearing the news. ‘It just shows that there are people out there who will help you. I love this house, and I was willing to do everything to keep it. Now I just want to cry. Oh my God, I can’t believe I saved my house.’”

The Las Vegas Sun from Nevada. “Boosters of down-payment assistance programs that had benefited poorer homebuyers before they were abolished by the Bush administration are lobbying for their revival, saying they could help rejuvenate the distressed housing market.”

“Under the programs, the buyer’s cash burden is eased because the seller contributes from 3 percent to 6 percent of the purchase price toward the buyer’s down payment and/or closing costs, and the nonprofit organization donates up to 3 percent. But the Bush administration reasoned that if homeowners didn’t use their own money for down payments, they were less financially committed to their homes and thus more likely to default.”

“The Housing and Urban Development Department lobbied Congress last spring to stop insuring loans where the programs were used, and Congress did so in July. The ban took effect Oct. 1.”

“Area real estate agents who specialized in such down-payment assistance programs say their reinstatement would also stanch their falling incomes…Agent Teresa McCormick says, her income has dropped by two-thirds. McCormick disputes the notion that down payment dictates the odds of default. ‘I put a lot of money down on my house, but I can’t pay my mortgage right now,’ she says, noting that she’s two months behind. ‘If I can’t pay the bills right now, I can’t pay the bills. It doesn’t matter how much you put down.’”

“New homeowner Susan Nagata concedes the seller of the four-bedroom house she bought through Nehemiah last year probably tacked the closing costs onto the asking price, but doesn’t regret the transaction. At about $1,000, her monthly mortgage is $300 less a month than what she and her husband had paid for an apartment. Had the Nagatas looked for a house today, Nagata is convinced she and her husband would still be renting.”

“‘I had figured I’d never own a home again,’ the 58-year-old says, noting their $1,500 savings at the time they bought the home.”

In Business Las Vegas form Nevada. “Signature Homes founder Richard Plaster is calling on the federal government to use its power of eminent domain to help ease the housing crisis. Plaster says he is worried about home-owners walking away from their homes en masse because they are underwater - they owe far more than the homes are worth.”

“If something isn’t done, that will add to the large number of foreclosures already on the market, he says. He adds it makes no sense for a homeowner to stick around when they are underwater by more than $100,000, as many people are.”

“‘There is going to be real social change where people walk from houses on a wholesale basis,’ Plaster says. ‘What I am concerned about is when (the homeowner) wakes up because so many people feel so dutiful about debts that they need to repay them. But I am afraid if something is not done immediately, that characteristic of paying your debts is going to be meaningless to somebody who is totally buried in his house.’”

“Plaster calls himself ‘a little left wing’ and big supporter of Democrats, but says something must be done. ‘We have a treacherous couple of years, and unless public policy gets in there and saves, to my mind, what has made America great - this ability for people to be flexible and to grab a piece and be optimistic. What we are doing right now because of the way this housing bubble burst is that we are getting people to a very pessimistic state of mind. That could be disastrous for us. So what undoubtedly will be a difficult two years, could be a tough 10 or 20 years, and I don’t want to see that.’”

The Review Journal from Nevada. “Las Vegas home foreclosures declined 20 percent in January to 2,609 from 3,283 the previous month, Foreclosures.com reported Friday. However, the number increased 48 percent from 1,763 in January 2008. Las Vegas had 31,416 real-estate owned, or bank-owned, homes in 2008 and some analysts are projecting as many as 50,000 foreclosures this year.”

“REO specialist Troy Kearns of Gavish Real Estate said he took on 60 new foreclosure listings in the past week and now has 350, up from 250 a month ago. He has two properties in foreclosure at more than $1.5 million. ‘What happened is Fannie Mae’s moratorium is over and they flooded the market,’ Kearns said. ‘I know some guys who got slammed who are handling Fannie Mae properties and they hadn’t done anything for two months. Watch February and March take off.’”

“Las Vegas-based research firm Applied Analysis also reported a drop in lenders taking back homes. January foreclosures totaled 1,124, down from 1,712 in December, but up 16.2 percent from 967 in the same month a year ago. There were 6,171 active foreclosures, or units in the foreclosure process, but the title has yet to go back to the bank. ‘That tells us there’s a significant number likely to be taken back,’ Applied Analysis principal Brian Gordon said. ‘Looking at the data, it would appear foreclosures remain elevated and we haven’t seen a significant correction yet.’”

“The Obama administration announced a $50 billion initiative this week to help strapped homeowners. Some say banks are worsening the foreclosure crisis and undermining the government’s efforts to keep people in their homes.”

“‘I don’t know how that’s going to play out,’ Kearns said of Obama’s plan. ‘If it slows things down, it’s only a bandage on a blown-out tire. At a certain point, you’ve got to let the market correct itself. Things are selling. People are still buying homes.’”

“The…tax break for homebuyers approved by the Senate last week should help to revitalize the downtrodden housing market, said Sue Naumann, president of the Realtors association. A bigger issue, she said, is for banks to release their stranglehold on lending practices.”

“‘We’ll have to see what transpires. Just like everything, when the government tries to get in the middle with intervention, they don’t know the business,’ Naumann said. ‘I don’t see how they could stop a foreclosure. That would be contractual interference. The only thing they can do is make it easier to refinance at a fixed rate and keep more people in their homes.’”

August 29, 2008

You Just Don’t Know When The Rolling’s Going To Stop

The Aurora Sentinel reports from Colorado. “When local Realtor Sunny Banka shows any home to a potential buyer, she immediately heads downstairs. As the number of foreclosed and abandoned properties boom with the current housing crisis, copper wire, piping and other building materials are valuable commodities, and often disappear with former owners. ‘The first thing I do is I go to the basement,’ Banka said. ‘Do we have copper plumbing? Do we have a furnace? Do we have a water heater?’”

“A measure proposed by Councilman Bob FitzGerald and drafted by assistant city attorney Jack Byron would target lenders in order to enforce maintenance standards. ‘I’ve talked to people that are really upset, because there are five or six foreclosures on various stretches of various blocks,’ FitzGerald said.”

“For properties with two mortgages from two lenders, Banka said, the problem would be in assigning responsibility.”

“‘A lot of these properties … have two mortgages, there are two lenders. Who is responsible?’ Banka said. ‘A lot of these foreclosures were bundled in with other securities … They were sold as investments on Wall Street.’”

The Deseret News from Utah. “Utah’s economic outlook is grim, and relief may not be on its way any time soon, economists at a conference hosted by the Utah Association of Appraisers said Wednesday. Jim Wood, director of the University of Utah’s Bureau of Business and Economic Research, told the audience at the summer symposium in downtown Salt Lake City that the current economy is ‘a recessionary environment.’”

“‘I’ve been following the housing market for 35 years, and I’m as pessimistic today as I’ve ever been,’ Wood said. The current downturn rivals the economic woes Utah experienced during the 1980s, he added.”

“‘Construction employment is just killing the job numbers,’ he said, noting that the state has lost about 15,000 jobs in that industry alone.”

“Rick Lifferth, president of the Utah Association of Appraisers, said that many people in his industry are feeling pressured to inflate values in order to please lenders and sellers. He said the practice of padding property values is so pervasive that it is almost commonplace, and it is hurting the credibility of his profession.”

“‘In the residential business, it’s become more of the norm than the exception,’ he said. ‘You come up with any number the customer wants, to keep the business.’”

“Wood said that the number of foreclosures in the state would likely rise significantly in the coming months.”

“‘Right now, we’re at about 4,000 foreclosure filings in Utah’ in 2008, Wood said. ‘I don’t think there is any way we’re going to keep that below 12,000 or 13,000′ in the next year, he added.”

The Arizona Daily Star. “The question of whether we’re at the bottom is of special importance to one group of players in the real estate market: land investors. Seeking big returns down the line, hedge funds and other big investors are eyeing Arizona’s acreage and waiting for the market to drop to its lowest possible point before making a move, said Will White, a Tucson broker for Land Advisors Organization. That’s the good news.”

“The bad news is they aren’t in any mood to start buying yet, he said.”

“Prices for new homes - a prime indicator of land values - are still falling. Once considered a fairly scarce resource, land suitable for development looks a lot more plentiful now, White said.”

“The average selling price for new single-family homes in the first six months of this year dropped 19.6 percent from the first half of 2006, according to Hanley Wood. The average price per square foot dropped 11 percent over that time, according to the data.”

“Sahuarita and Green Valley: New-home sales are still pretty strong, but prices have taken a big hit, mainly because of heavy competition among builders, White said. Hanley Wood data show an 18.8 percent drop in the average new-home selling price from 2006. The average price per square foot fell by an even steeper 19.5 percent.”

“Southwest Side: Prices were sharply inflated here and are falling hard as builders discount heavily to get rid of inventory, White said. Development may take a while to pick up again as builders work through remaining lots, he said. The average new-home selling price fell 23.1 percent this year from the first half of 2006, according to Hanley Wood. The average price per square foot fell 21.8 percent.”

Las Vegas Now from Nevada. “Home prices may be off nearly 30-percent in Las Vegas, prompting many to predict the worst of the housing crisis may be over. But some Realtors know another round of foreclosures may happen in the next few months, flooding the valley with vacant homes. And people have two things to blame: liars and ninjas.”

“They may be new terms for a lot of us, but liar loans and ninja loans helped push the housing market to the brink of collapse. Now the rates are changing again in September and the scars from those liars and ninjas run deep.”

“Many consider them the villains in the housing crisis, and Realtor Cynthia Glickman says their reputation has been tarnished, ‘Oh yeah, look at these people, you know. They’re liars. They’re getting what they deserve.’”

“‘They assumed the values of the homes were going to go up. So they figured, what’s the worst that could happen?’ said Glickman.”

“The lenders were caught up partly in greed, partly in speculation, hoping the sky-high housing market would keep rising. Now the market seems headed for recovery, but Glickman warns the liars and ninjas have one last sneak attack. ‘There’s going to be another wave of people for probably another good three years,’ said Glickman.”

CNBC on Nevada. “It turns out Las Vegas isn’t recession proof. High gas prices affecting critical tourism from California, airlines cutting back flights, a housing boom burst like a Cirque de Soleil show gone bad, and the seizing up of the credit markets have combined to create what Mayor Oscar Goodman describes as riding out an earthquake in a very secure building: ‘You know you’re going to be safe, you just don’t know when the rolling’s going to stop.’”

“Off the strip, in the residential neighborhoods where the housing boom once burned hottest, realtors say the market is starting to reach equilibrium. That is, the number of homes going into foreclosure every month is almost matched by the number of homes being sold out of foreclosure.”

“Michael Antos of Prudential Americana Group just sold a home out of foreclosure for $350,000 that originally sold for $579,000. To sell the house, the bank not only slashed the price, but put in new carpet, hardwood floors and appliances.”

“‘The market is absolutely great for buyers,’ he said.”

“Trump Tower up the road is reportedly struggling. Trump, like others, built a ‘condo hotel,’ a development which includes hotel rooms and also condos which could be rented out as hotel rooms. Many of these, including Trump’s, were announced as 100 percent sold before a shovel went into the ground.”

“The problem is that many of the buyers were investors who couldn’t get financing when it came time to close the deals. Claims of 100 percent sold fell to more like 50 percent … or less.”

The Las Vegas Business Press. “The most shocking part of a new report on the Las Vegas resort development pipeline isn’t that, despite the economy, there are still more than 40,000 new rooms expected to be built by the end of 2012. The stunner is the dominance of high-end rooms.”

“A new report by Deutsche Bank quantifies the Strip development pipeline and points out that 89 percent of the new supply will be in the luxury category. ‘It is too much,’ says analyst Bill Lerner, who wrote the report.”

“According to the report, nearly 36,000 rooms added from 2008 through 2012 will be luxury. Those include more than 3,000 at Palazzo and nearly 1,300 at Trump Las Vegas, both of which are already open.”

“After that, the projections get dicey. They include nearly 10,000 rooms at the proposed Plaza and Elvis hotels, neither of which is off the ground. It also includes 5,300 at Echelon, which is now on hold.”

“When asked why resort developers would invest so much money in a market when they know competitors are building similar projects, he said the answer was simple: Everyone thinks their project will be the best. The problem is only one will be right, and the rest will be scrapping for business from a finite pool.”

“‘The view is that it is always somebody else’s problem,’ Lerner said of over-saturation. ‘A lot of these firms are willing to slug it out.’”

“The bankrupt $2 billion City Crossing project in Henderson has been effectively declared dead, but disagreements remain over how to bury it.”

“At the formal meeting with creditors on Aug. 14, developer William Plise made a passing reference to finding new equity partners to restart construction, which halted shortly after the Chapter 11 filing on June 2. However, the reorganization plan filed in July mentions only selling the 126-acre site.”

“At this point, lawyers for City Crossing and its lenders are trying to negotiate a settlement of the two major differences between them: How to sell the land and how to deal with Plise’s guarantees to cover any shortfall between the value of the land and the mortgage balances.”

“‘The future sale and development of City Crossing as a whole far outweighs the value of liquidating the project site to discount shopping buyers that are presently in the market,’ according to court documents filed by City Crossing. ‘Importantly, the sale of the property on a parcel by parcel basis will result in a loss of entitlements, which will result in the loss of value to creditors.’”

“In this case, fetching the highest possible price is important not only to the lenders, a mix of banks, individuals and trusts, but to Plise himself because he personally guaranteed all loans. In the event the land sale does not repay all the loans in full, he would have to dip into his own bank accounts or sell other properties he owns to cover any shortfall.”

“In its most recent version, the master plan called for 1 million square feet of offices, 1 million square feet of shopping, two hotels and 2,500 condos and apartments.”

“As the various loans came this year, Plise found it ‘impossible’ to round up fresh financing. ‘The perception among lenders has changed and the lending environment is gone,’ he said.”

August 4, 2008

The Price Of A Dream

The Great Falls Tribune reports from Montana. “A subdivision slated to be developed on 58-acre piece of land fell through and the land is back on the market. A buyer from California was looking to develop a subdivision on the land, but the sale never came to fruition, said Dick Seim, the listing real-estate agent for the property. The land is listed for $1 million, and the ad says there’s room for 90 or more lots.”

“The land is a natural fit for homes…he said. The soon-to-open ice rink also will be nearby. ‘It’s a choice piece of property,’ he said. ‘It’s got some beautiful lots.’”

The Missoulian from Montana. “In the first half of 2008, local home prices have cooled slightly, there is greater inventory and homes are taking longer to sell, according to data compiled by the Missoula Organization of Realtors.”

“Jody and Brittany Tait listed their four-bedroom house west of Missoula for sale in early July. So far, they haven’t received any phone calls or inquiries about the house. The Taits, who’ve lived in their home for 23 months, wanted to try and sell their home themselves instead of paying fees for a real estate agent.”

“‘If we want to get any of our equity, then we have to sell it ourselves. So we’re trying this at first,’ said Jody Tait.”

“Don Cole, an agent and a loan officer, said he gets two to four people into homes each month with lease options. ‘With the lending programs changing, we just don’t have the options,’ he said. ‘Probably more than half of the people going into lease options could have bought the homes outright a year ago.’”

“Asked to characterize the local market, Cole said, ‘Missoula is not really in the dumps. It isn’t where it was, but nobody is. We are better off than many places.’”

The Idaho Statesman. “Real estate agent Janet Parsons is proud of the deal she wangled for her client, a 26-year-old first-time homebuyer. Parsons helped Brandon Beveridge through a seven-month process of buying home through a ’short sale.’ She said similar homes are selling for around $170,000; Beveridge got his for $133,500.”

“Beveridge, a computer programmer, is glad he waited. If housing prices continue to tumble, he said, he’s not going to worry much because he paid less than market value to begin with.”

“‘I had a bunch of friends who told me especially right now I would be stupid not to buy,’ he said.”

“In 2005, Jenni and Ryan Kroon traded the 1,100-square-foot, three-bedroom, two-bath home in Boise they shared with their two children for a 3,500-square-foot, seven-bedroom, four-bath home in Nampa that cost $200,000. Although financed with a 30-year, fixed-rate loan, the move still tripled their monthly mortgage payment to about $2,100.”

“That’s when the problems began. Jenni Kroon’s diabetes took a turn for the worse, requiring increased out-of-pocket outlays for doctor visits and expensive medicines. Then Ryan lost his job when his brother’s residential construction company folded.”

“‘With every month, it was more and more obvious that we had bitten off more than we could chew,’ said Jenni Kroon.”

“Today, the Kroons rent a four-bedroom, two-bath home in Nampa’s Royal Meadows subdivision for $895 a month. ‘My children and my husband hate it because it so much smaller, but I’m grateful for the cover,’ Jenni Kroon said.”

“Lance Churchill’s company…specializes in acquiring foreclosures. That door is likely to stay open awhile. Five-year ARM adjustments are still to come. Plus, there are homeowners who took interest-only loans, option-rate loans with payments that might not even cover the interest due, and so-called ‘liars loans,’ where borrowers’ income was never verified, Churchill said.”

“Originally, it was estimated that the five-year loans would not begin resetting until March 2009. That’s not the case anymore, Churchill said.”

“‘If the value of the home falls beneath what’s owed on it, the lender has the right to immediately adjust the interest rate and demand that you pay full price,’ he said.”

“As a result, some homeowners with five-year adjustable rate mortgages saw their payments begin to skyrocket as early as last April, Churchill said.”

The Daily Journal of Commerce from Oregon. “For the last year and a half, Herb Giffin has kept a steady stream of work flowing into his architecture firm. But with the economy slowing down, that might change soon. ‘Around this fall, we will be looking at beating the bushes and responding to more public RFP’s,’ said Giffin.”

“At Otak Inc., principal Dennis Haden said the firm’s condo design business ‘has slowed way down.’ Otak has worked on condo projects in some of the regions hardest-hit by the housing collapse - Arizona, Nevada and California.”

“Developers are ‘trying to figure out what’s gone wrong’ and re-assessing projects that are on the boards, Haden said. In some cases, they’re even switching condo projects to market-rate apartments.”

“‘The (Arizona) market went so far down, I don’t know how long it will take for it to come back,’ he said, referring to condos.”

The Bend Bulletin from Oregon. “The rise and fall of Bend’s real estate economy has resulted in foreclosure proceedings against The Shire, a village-themed concept in southeast Bend patterned after J.R.R. Tolkien’s ‘Lord of the Rings’ series.”

“The Shire concept originated with Ron Meyers, who sold his share in the development for an unspecified amount to Dr. Lynn B. McDonald - a former emergency room physician at St. Charles Bend. McDonald died July 7.”

“‘It basically destroyed my life financially, but that’s the price of a dream,’ Meyers said. ‘The development wasn’t able to materialize fast enough before the market crashed.’”

“”Jan McDonald is trying to sell the 14 developed lots, one house and additional land before the 6-acre property goes to public auction in December, she said. The family owes Umpqua Bank $3.4 million on the project, according to the default notice.”

“‘It was Ron’s concept, and it was a good one,’ Jan McDonald said. ‘Had the market not gone to where it went, it had the potential to be successful.’”

“The Shire began to unravel in summer 2007 when the subprime mortgage crisis began to dry up credit sources, Meyers said. ‘Banks were getting nervous,’ Meyers said. ‘They’re still nervous.’”

“‘Some people were turned off by living in ‘Disneyland,’ he said. ‘It’s more of an artists’ community for a certain market segment that wanted something different. There’s been enough people that have come through that would say, ‘What a wonderful concept.’ But then the market crashed, and everyone (went) home.’”

The Bellinham Herald from Washington. “Last week Gragg Miller of Coldwell Banker Miller-Arnason released his mid-year report about the state of local real estate. What caught my eye, however, was his comments at the beginning of the report. The biggest challenge these days, he said, is pricing a home.”

“‘For this area, I don’t think we (the industry) are doing a good enough job with pricing. It’s a little less challenging now, because new sellers understand that the market is different now and are not insisting on the price appreciation their neighbor may had seen a couple of years ago,’ Miller said. ‘Still, it’s important to look at how comparable homes are sold a week ago; looking back six months or more won’t cut it for most homes.’”

“For used or existing homes, the Meridian area has 20 months of supply, while the Deming area has 8.5 months of supply. In Bellingham neighborhoods, Happy Valley has 12.5 months of supply.”

“In the second quarter of 2008, there were 1,206 overall properties sold in Whatcom County, continuing a downward trend from the peak in 2004, when there were 2,587 sold in that same quarter.”

“Listing a price too high is much more a problem in the current climate, he said. The buyers have much more to choose from in every home price level, so if they think it’s too high they can keep browsing. There is no competition among buyers for houses viewed as overpriced. Once the seller starts reducing the price, buyers are in a position to wait to see how far the price will fall.”

The Olympian from Washington. “A new Honda scooter, a trip to a Caribbean destination and a chance to win free gasoline are just some of the incentives that South Sound real-estate agents are using to entice prospective buyers in a slower housing market.”

“Tamera Strawn of Riley Jackson Real Estate is working with a Tacoma builder giving away Honda scooters for sales at The Overlook, a new 138-lot development at the top of Tumwater Hill, she said. ‘We’re just looking for something new and out of the box,’ Strawn said about the promotion.”

“Real-estate company John L. Scott offers visitors to its open houses the chance to enter a drawing for a trip to a Caribbean destination or Hawaii, said Eric Shull, broker of John L. Scott’s Olympia office.”

“Although the Thurston County housing market has slowed to the point where incentives are common, the market is nowhere near as slow as it is in California, he said. Shull said some homes in California are being marketed with BMWs.”

“Homeowner Karen Scherf of Chehalis and her husband, Scott Mattoon, each owned a home before they got married. Mattoon sold his house in Rainier, and Scherf still is trying to sell hers in west Olympia with real-estate agent Mark Plowman’s help. Today, she and her husband live in Chehalis, Scherf said.”

“She said she is grateful they’re not paying three mortgages, but Scherf still is eager for a sale.”

“Her 3,000-square-foot house has been on the market since April, and she’s hoping to sell it before she has to drop the price again. She also is considering renting the house, although Scherf added that she’s not particularly interested in becoming a landlord.”

The West Seattle Herald from Washington. “Area 140’s biggest economic downers over the last year were not home prices but rather inventory, and its troubled twin, ‘Days on Market.’ ‘I sometimes feel like a taxi driver showing property around,’ said Jennifer Suemnicht, with Re/Max Metro Realty in Seattle. ‘Buyers are shopping around more than a year ago.’”

“Of course, feng shui and accent pieces only help if the potential buyer has the money for the home in the first place. ‘You’d be surprised how many people don’t have any savings,’ said Ginny Lee of a privately owned mortgage bank near Safeco Field.”

“‘Lenders want to see you spend no more than about 36-percent of your net household income on your mortgage payment,’ said Kevin Ehlers of Cobalt Mortgage, Inc., in Kirkland, who specializes in ‘Area 140′ homes.”

“‘The average-priced West Seattle house the first five months of 2008 was $465,000,’ he said. ‘Your total payment at that price would be about $2,700 with 20-percent down with a 6.25 (percent) 30-year fixed rate. You’d need to net $90,000 a year, about one Microsoft salary. I realize that’s a lot of money. And if you only put 3-percent down with an FHA your monthly payment goes way up.’”

The Seattle PI from Washington. “Michelle Miran didn’t realize that there was something wrong with her mortgage until the interest rate reset last year. Her truth-in-lending statement noted a 30-year fixed rate with monthly payments of $1,311 for 359 months. But two years into it, her monthly payment shot up to about $1,700, and she and her husband fell behind.”

“They’re now fighting foreclosure on their Tacoma home and fighting back in court, suing the mortgage broker and lender.”

“Deb Bortner, head of the Department of Financial Institutions’ consumer services division, said the agency has been able to scrutinize lenders better over the past two years because of an increase in enforcement staff and examiners, along with a shrinking field of consumer loan companies.”

“And more charges are in the pipeline, she said. ‘I see more problems coming up. There’s a credit crunch, so I think each mortgage broker and each consumer loan company is struggling to maintain their business,’ she said.”

“Ari Brown, the Mirans’ attorney, and others say the increased oversight comes too late for thousands of borrowers who were duped by unscrupulous lenders and brokers.”

“Miran said the loan officer rushed her through the closing process, sending her a 2-inch- thick stack of documents while she was out of town on business. Miran signed the documents alone in her hotel room, and not in the presence of an escrow agent, even though an agent’s signature appears on the documents, according to the lawsuit.”

“Miran and her husband were able to make the mortgage payments on their three-bedroom home until the loan rate reset. The increase of about $400 a month, coupled with a maternity leave, made it difficult for them to keep up with payments.”

“‘I’m worried, knowing that I’m going to lose my house,’ said Miran, who works two jobs. ‘It’s going to be very hard for me.’”

May 14, 2008

This Tsunami Of Economic Insanity

Some housing bubble news from Wall Street and Washington. Bloomberg, “U.S. foreclosure filings climbed 65 percent and bank seizures more than doubled in April from a year earlier.More than 243,300 properties were in some stage of foreclosure, the highest monthly total since RealtyTrac began in January 2005. Nevada, California and Florida had the highest rates. Filings rose 4 percent from March.”

“‘Loan modification isn’t working,’ said said Ira Rheingold, executive director of the National Association of Consumer Advocates in Washington. ‘It’s extremely difficult for a homeowner to talk to a servicer and even if they do, it’s hard to get the servicer to change the terms. You get voice-mail hell, they don’t return calls, you can’t get a live person on the phone.’”

“The median price for a single-family home fell 7.7 percent in the first quarter, the National Association of Realtors reported yesterday. There were 4.06 million U.S. homes for sale at the end of March, 40,000 more than the prior month, the Realtors association said in an April 22 report.”

“‘Inventory levels have soared to unprecedented levels’ Brian Fabbri, chief North American economist for BNP Paribas, said in an interview. ‘Builders and homeowners have to lower their prices significantly to sell that inventory out.’”

From Realty Check. “So what about all the reports that borrowers are being helped, and all those programs to find and refi borrowers, and what about the word from some other sources that foreclosure numbers are actually dipping?”

“Apparently the system, that is whatever court or clerk or local bureaucratic office is stuck with recording all this stuff, is stressed. In Ohio, for example, I’m being told that it can take two to six months to get your filings in the system.”

“‘In states like Michigan, we’re hearing from some of the trustees who actually do the foreclosures that the lenders have asked them to slow down because they don’t want to process any more into a market that won’t absorb the properties back through sales,’ says Rick Sharga of RealtyTrac.”

“In Florida, a St. Lucie County court actually added a night shift to handle the massive backlog of foreclosure filings. The clerk of the courts was quoted as saying the caseload has become, ‘just horrendous.’”

“The court used to handle about forty filings per month. In January they were tracking 715 foreclosure filings. Some are reporting lower numbers because the numbers simply can’t get into the system.”

The Arlington Advocate. “With the pace of foreclosures continuing to break records, lawmakers attempted Tuesday to stanch some of the bleeding, offering a trio of bills that drew throngs of supporters to Beacon Hill. All three were sponsored by Sen. Dianne Wilkerson, D-Boston.”

“Rep. William Brownsberger, a Belmont Democrat, argued that major lenders and other large companies get federal assistance when on the verge of collapse. ‘We bail out Chrysler, we bail out Bear Stearns,’ he said. ‘Now we’re talking about neighborhoods that are going down. It’s time to change the deal.’”

“Rep. Elizabeth Malia decried what she called ‘this tsunami of economic insanity.’ ‘Allowing the termites to get fat, eventually the house is going to come down on our heads, literally,’ she said. ‘We’re rewarding [lenders] by not legislating them any further and by not protecting the homeowners and the tenants.’”

National Mortgage News. “As the fallout from the mortgage meltdown continues, pundits are scratching their heads as an increasing number of borrowers ‘just walk away’ from their homes.”

“It should come as no surprise that families who purchased homes at the height of the market would walk away when declining market prices left them upside down on their loans. This is especially true for those whose purchases were funded using 100% financing with interest-only teaser-rate ARM loans that are now resetting.”

“What is surprising is the alarming number of walk-aways who have loans a year or more away from a rate reset. Welcome to the hidden world of occupancy fraud, the ‘x’ factor in the meltdown.”

“For many years, occupancy fraud was tolerated by lenders so long as the mortgage payments were made. Speculators and investors, who played a significant role in the inflation phase of the housing bubble, took advantage of this fact by misrepresenting their intended use of the property, especially in South Florida, Arizona, Nevada and California.”

“It’s no wonder that these four states lead the nation in defaults and foreclosures, or that they sit atop the fraud indices, as these liars just walk away from their bad — and intentionally hidden — investments.”

“Does it make sense that a borrower in a 3,000-square-foot, $700,000 home in California would buy a 1,700-square-foot, $150,000 second home in Between, Georgia? Does it make sense for a borrower to own multiple properties in the same area? Of course not, especially when the ‘residence in question’ is only three miles away from the primary residence and the borrower says he’s sometimes ‘too tired to go home after working out in the gym’ (true story!).”

The Australian. “Looking to charge into the red-hot US business of sub-prime debt two years ago, Mizuho Financial Group’s brokerage poached 11 bankers, traders and salespeople, headed by structured finance ace Alexander Rekeda, from investment bank Calyon. Mizuho wanted to quickly build up its business of packaging mortgage loans into collateralised debt obligations.”

“When Mizuho releases earnings today, it will project that its losses from mortgage-related investments will total at least $US5.1 billion. ‘We wanted to take our business global,’ a Mizuho Securities spokesman said, explaining why the bank chose to enter the CDO market.”

“Mr Rekeda made frequent media appearances to promote his fledgling team. ‘The 2007 vintage of residential mortgage-backed securities is looking to be one of the best vintages in 10 years,’ Mr Rekeda said in one interview in April last year.”

“As Mizuho’s team stepped up its trading last year, signs of trouble were brewing in the market. Undaunted, Mr Rekeda and his team marched on.”

“‘There is very little trading in CDOs going on,’ Mr Rekeda acknowledged in mid-July. Nevertheless, his group put together a large CDO that month, and even managed to increase its size to $US1.6 billion from an initial $US1.2 billion, citing strong investor demand.”

From MarketWatch. “Freddie Mac…the mortgage-finance giant, posted a loss on expenses related to ‘challenging’ housing and credit-market conditions, as Freddie Mac’s CEO predicted that continuing weakness in the U.S. housing market would hurt the company’s bottom line for the year.”

“The company said difficult housing- and credit-market conditions were behind a $1.2 billion provision for credit losses taken in the latest quarter.”

The Baltimore Sun. “Home sales fell faster in Maryland than in any other state in the nation in the first three months of the year, dropping more than even in hard-hit spots of the country such as California, a Realtors group said yesterday.”

“The median price of single-family homes fell 3 percent in the Baltimore metro area in those months, which was middle of the pack in the country. In the Washington metro area, which includes parts of Maryland, the price fell 13 percent, still a far cry from the drops on the West Coast. Sales prices fell more than 25 percent in both Sacramento and Riverside, Calif.”

“Marc Witman, a partner with Yerman Witman Gaines & Conklin Realty in Baltimore, strongly suspects that Maryland home sales are falling so fast because prices aren’t.”

“‘There’s a disconnect between what the buyers expect to see and what the sellers expect to receive,’ he said. ‘It’s like the buyers are the only ones reading the newspapers. I think when you see the median price come down 10 or so percent, then you’re going to see more buyers come off the sidelines.’”

“Amna Kirmani, a marketing professor at the University of Maryland who specializes in consumer behavior, calls it the ‘my house is different’ phenomenon: ‘People are anchoring on their own love for their houses instead of anchoring on what the market is doing right now. We never think it applies to us.’”

“Some sellers, particularly those who bought in the past few years, think they have no choice. If they lower their asking prices, they’ll get less than they owe on their loans. ‘It’s a challenging time right now,’ said Keith T. Gumbinger, a VP with financial publisher HSH Associates.”

“Maryland rode the wave higher than most: Prices here rose 21 percent in 2005, according to the Office of Federal Housing Enterprise Oversight - a bigger increase than all but three states and the District of Columbia. California’s increase was just slightly smaller.”

“‘Our prices went up most precipitously, and the prices aren’t coming down’ to the extent that they are in California and the D.C. area, said Witman, the real estate broker. ‘Witman’s theory’ is the prices ran up so quickly that we need to give something back.’”

The Bucks County Courier Times. “Nervous homebuyers looked but didn’t buy during the second quarter, cutting Toll Brothers’ homebuilding revenue by 30 percent.”

“‘When we have held promotions, buyers have come out to play and put down deposits,’ CEO Robert Toll said during a conference call Tuesday with investors. ‘Often, however, a lack of confidence in the direction of home prices overcomes their enthusiasm and they don’t take the next step of going to contract.’”

“Toll also said potential homebuyers are afraid they won’t be able to sell their existing homes.”

“Sales contracts after cancellations totaled 929 homes for $496.4 million, a decline of 44 percent in number of homes and 58 percent in dollars from the same period last year.”

“‘It’s clearly a buyer’s market, but buyers can only take advantage of it if they buy,’ Toll said. ‘Sooner or later they will, but unfortunately, we can’t predict when.’”

“Toll said most U.S. home markets have weakened. But a surprising high point has been Naples, Fla., an area that’s among the hardest hit by the housing downturn. He gave the area an A-minus, while all other markets in Florida were given an F. He said Philadelphia suburbs are a C-minus, but the Pocono Mountain region is an F-minus.”

“‘You can’t give away stuff in the East right now,’ he said. ‘It’s very surprising.’”

The Street.com. “Blaming the media for the fractured state of your business is lamer than the retail industry’s fallback excuse of too hot/cold/rainy/dry weather. It is also an indication that your troubles are far from over.”

“Enter Robert Toll, CEO of the estimable Toll Brothers, flapping his gums about how media reports about falling house prices are scaring customers away from buying.”

“Said Toll, while announcing anemic preliminary quarterly results: ‘We believe there is significant pent-up demand which is growing. When we have held promotions, buyers have come out to play and put down deposits. Often, however, a lack of confidence in the direction of home prices overcomes their enthusiasm and they don’t take the next step of going to contract. They, like all of us, read the papers and watch TV, both of which keep advising them that home prices are declining.’”

“This has become quite a go-to line for the leader of an overextended company, one whose products customers can’t afford based on carrying costs.”

“Last quarter, while reporting the company’s worst results in two decades, he said: ‘Ceaseless talk of a recession continues to dampen the mood of consumers. This drumbeat, coupled with concerns over mortgages, the direction of home prices, and foreclosures has kept pent-up demand on the sidelines.’”

“Got that? It’s not that a recession is (probably) at hand. Nah. It’s the media talking up a recession, probably because they want the newspapers they work for to go Chapter 11 even quicker.”

“Let’s count the ways that Toll’s sad little mantra is misleading: 1) I don’t remember Toll crediting the media during the ridiculous housing run-up for chasing real estate advertising money with 1,423,789,678 happy profiles about people in houses that they had redecorated and were going to increase in value forever. Remember? The word ’subprime’ was literally not in the journalistic vocabulary.”

“2) Since the housing downturn began, a good portion of the media has been busily predicting its recovery. Watch The Wall Street Journal build an entire imminent recovery story on a single statistic: from a realtor trade no less.”

“Or witness The New York Times not even mentioning the role of the strong dollar in temporarily propping up New York City housing prices. Or that widespread declaration of a recovery before the downturn had hardly begun when existing home sales blipped up for a grand total of two months in a row. Usually it takes three to declare a false trend, but they made an exception for real estate at two.”

“The irony is that the media, so cowed by fear, eager to shift story lines and write real estate recovery stories and apt to report in an on-the-one-hand-on-the-other-hand fashion, which gives a free showcase to any ridiculous claim, does not call this for what it is: a hustle job.”

“Look closely at Toll’s quote at his company’s most recent disaster of a quarter. He mentions people reacting to promotions, but not going all the way to closing. Anyone in any business will tell you this: If people are getting intrigued by discounts and promotions, but not yet making it all the way to the cash register, guess what it means?”

“The discounts and promotions are not steep enough and prices have to come down by another 20%. And that ain’t the media’s fault.”

From CNBC.com. “The Federal Reserve may start using regulation or even interest rates to fight asset-price bubbles, instead of trying to limit the damage once they burst, as it has done until now, the Financial Times reported on its Web site.”

“One option is for the Fed to set interest rates higher than they would otherwise be when asset prices appear to be rising beyond levels justified by economic fundamentals, the paper said.”

“Fed Chairman Ben Bernanke, who rejected this approach in 2002 after the dot-com bubble burst and endorsed Alan Greenspan’s view that the Fed should not ‘lean against the wind,’ is now willing to reevaluate it in the light of the housing and credit crises.”

March 17, 2008

A Falsehood Bigger Than The Fed

Some housing bubble news from Wall Street and Washington. Bloomberg, “JPMorgan Chase & Co. agreed to buy Bear Stearns Cos. for $240 million, about 90 percent less than its value last week, after a run on the company ended 85 years of independence for Wall Street’s fifth-largest securities firm. The Federal Reserve is providing financial backing to JPMorgan, the second-biggest U.S. bank, and also cut the rate on direct loans to banks in its first emergency weekend action in almost three decades to stave off a broader market panic.”

“JPMorgan Chief Executive Officer Jamie Dimon bought Bear Stearns, once the biggest underwriter of U.S. mortgage bonds, for less than the value of its real estate after clients, alarmed by speculation about a cash shortage, withdrew $17 billion in two days.”

The New York Times. “Investors remain fearful that a panic in the credit markets, which threw Bear Stearns to the brink of bankruptcy and forced a sale to JPMorgan Chase, could spread to other big brokerage firms with extensive exposure to toxic mortgage-backed securities.”

“‘The problem is bigger than the Fed,’ said Meredith A. Whitney, an Oppenheimer financial services analyst. ‘Trillions of dollars of securities were underwritten on the false assumption house prices could never go down on a national basis. That falsehood has put the entire financial system in a tailspin.’”

“Federal Reserve Chairman Ben S. Bernanke may be facing something worse than a loss of personal credibility on Wall Street and in Washington: waning faith in the ability of the institution he leads to turn around the economy and the financial markets anytime soon.”

“‘The Fed has been playing the equivalent of Whac-A-Mole as financial turmoil keeps cropping up in new and unexpected places,’ says former Fed Vice Chairman Alan Blinder, referring to the arcade game where players try to hammer down plastic critters that randomly pop out of holes. ‘Yet many of the problems facing us are beyond its reach.’”

“Home buyers are unlikely to put down offers on houses that they think will lose value — no matter how much the Fed does to lower mortgage costs. Banks with mounting loan losses will shy away from lending to borrowers they think might go bust — no matter how much money the Fed pumps into the financial system.”

“Falling asset prices erode borrowers’ net worth and make lenders even more reluctant to give them money. Countrywide Financial Corp., the biggest U.S. mortgage lender, made no subprime loans last month, down from $2.6 billion in February 2007.”

“Investors have become gloomier about the outlook for house prices since the start of the year, according to trading in futures based on the 10-city S&P/Case-Shiller price index. Traders see prices tracked by the index falling 13-1/2 percent by November, more than double the drop foreseen in early January.”

“‘It’s not showing any signs of letting up,’ economist Robert Shiller, one of the creators of the index, told Bloomberg Television Feb. 27. ‘If anything, it’s accelerating downwards.’”

From Reuters. “A lot of people lost a lot of money: Entrepreneur Joseph Lewis, a reclusive Englishman who made a fortune trading currencies, bought a stake of about 10 percent in Bear and stands to lose around $1 billion.”

“The jittery mood means even well positioned banks may be reluctant to take advantage of acquisition opportunities, bankers and analysts said.”

“‘I think M&A is too difficult now,’ a London banker said. ‘This is about catching a falling chainsaw. It’s not just about cutting yourself if you get it wrong, it’s about losing a limb.’”

“Lewis, a former currencies trader who was born in an apartment above a pub in London’s East End, declined to comment through a spokesman. The loss is almost half his $2.5 billion fortune, as estimated by Forbes magazine in its 2007 survey.”

“Mutual funds run by investment bank Morgan Stanley were the third-largest Bear Stearns holder with a 5.4 percent stake and may have lost about $546 million since Dec. 31. Bear’s fifth-largest shareholder, Baltimore-based Legg Mason Capital Management, a unit of Legg Mason Inc. run by Bill Miller, may be down $493 million.”

“‘This was done in the market’s best interests,’ said David Hendler, an analyst at a financial-research firm in New York. ‘Unfortunately Bear Stearns shareholders are at the short end of the stick and they only got this token payment.’”

“James Cayne, Bear’s former CEO and fourth-largest holder with a 4.9 percent stake, saw the value of his holding drop by $504 million.”

“Warren Spector, the former bond chief who calculated complex securities trades by hand…shared a passion for bridge with Bear’s CEO, Jimmy Cayne. Both men lost their jobs after bets on subprime mortgage bonds soured. They were at a bridge tournament in Detroit last week, as Alan Schwartz, the CEO for two months, fought a run on Bear’s cash brought on by widening subprime losses.”

“‘The people who did this are Jimmy Cayne and Warren Spector,’ said Richard Bove, an analyst at Punk, Ziegel & Co.”

“Last month, Cayne paid $27.5 million for two adjacent 14th-floor condominiums at New York’s Plaza Hotel overlooking Central Park, according to city property records. The new digs may not insulate him from scrutiny as regulators try to determine who’s at fault for the expanding credit crunch, Bove said.”

“‘It will be interesting to see what kind of iron doors Cayne puts on his new apartment,’ he said.”

The Associated Press. “Bond Insurer FGIC Corp., which is owned by mortgage insurer PMI Group Inc., said Monday it lost nearly $2 billion in the fourth quarter and continues to seek a reorganization of its insurance operations and to raise capital to shore up its financial position.”

“The loss resulted primarily from writing down the value of securities guaranteed by FGIC that are backed by subprime and second-lien mortgages, the company said. The company said it stopped writing new financial guaranty business for now in order to hold onto capital.”

The LA Daily News. “It’s become clear that financial shenanigans are partly to blame for bogging down the mortgage industry. Interthinx, an Agoura Hills-based company that provides risk-mitigation and regulatory-compliance tools for the financial-services industry, says the hole is pretty deep.”

“Company analysts found that in the last half of 2007, about 42,000 mortgage applications for property valued at $11 billion misrepresented the borrowers’ earned income.”

“‘For the first time, the industry is getting a real-time look at the scope of mortgage fraud, and these numbers are staggering,’ said a statement by Kevin Coop, president of Interthinx, which has about 1,400 clients nationwide, including 15 of the top-20 mortgage lenders and three of the five largest financial institutions.”

“Interthinx VP Jeff Moyer said the analysis was generated using an ‘income alert,’ a software program that warns when a borrower submits multiple applications in which his or her reported income jumps by at least 15 percent. Moyer said he was surprised by the number of alerts the program flagged. ‘It should not be that high.’”

“The problem spiked as the market boiled over in the early 2000s and then exploded starting in the latter part of 2005. The company found that 24.4 percent of home loans examined in the third quarter of 2007 were deemed to have a high risk of fraud.”

“‘What you are hearing is that there was a significant amount of (loan application) misrepresentations,’ said Jack Kyser, chief economist at the Los Angeles County Economic Development Corp. ‘The joke was, if you had a pulse you could get a home loan.’”

The LA Times. “Freelance financial watchdogs who examined the paperwork on sub-prime home loans being sold to Wall Street had an inside view of the boom in easy-money lending this decade.”

“The reviewers say they raised plenty of red flags about flaws so serious that mortgages should have been rejected outright…but the problems were glossed over, ignored or stricken from reports.”

“In interviews with The Times, eight experienced loan reviewers said that as marginal lending increased, quantity took precedence over quality. Squads of 10 to 15 veteran loan checkers gave way, they said, to packs of 40 to 50 mostly novice reviewers posted at or near sub-prime factories such as now-defunct Orange County lenders New Century Financial Corp. and Ameriquest Mortgage Co.”

“Loan reviewer Jana Lujan recalled showing a file to a supervisor in 2004, during a check of sub-prime mortgages made by a Brea bank that regulators later cited for unsound lending. A title report showed a tax lien on the property.”

“‘I said we needed evidence it had been paid off and released,’ to ensure against foreclosure, Lujan said. ‘And he said: ‘Just go ahead. Assume it’s being taken care of.’”

“The biggest problems, the reviewers said, were appraisals that looked inflated and ‘liar’s loans.’ ‘You can’t tell me a Kmart or a Wal-Mart or a Target floor worker is making $5,000 a month, or a house cleaner is making $10,000,’ said former loan reviewer Irma Aninger of Palm Desert, a 40-year financial services industry veteran.”

“Aninger, who did work for Clayton and Bohan, said she tried repeatedly to have such loans marked as unacceptable but was overruled by supervisors, who were known as project leads. ‘The lead would say, ‘You can’t do that. You can’t call these people liars,’ Aninger said.”

“One such supervisor was Clayton’s Ed Peek. He denied discouraging the rejection of ’stated income’ loans. ‘Many, many, many stated income loans were rejected,’ he said, but the loan buyers often bought the rejected mortgages anyway.”

“From his perch, Peek said, he could see the deterioration of overall standards. ‘I had been looking at sub-prime mortgages since the beginning,’ he said. ‘When it started, you couldn’t get a sub-prime loan for over 80%’ of a property’s value.”

“‘But the guidelines loosen, and the investors would still buy,’ Peek said. ‘They loosen up some more, and investors still buy,’ until highly risky loans for 100% of a home’s value were pushed through.”

“‘Everyone knew this was a bubble that couldn’t last,’ he said. ‘We all could see this coming.’”

The Financial Times. “‘The current financial crisis in the US is likely to be judged in retrospect as the most wrenching since the end of the Second World War,’ former US Federal Reserve chairman Alan Greenspan said in a Financial Times commentary published on Monday.”

“‘Particularly hard hit will be much of today’s financial risk-valuation system, significant parts of which failed under stress,’ said Greenspan, who some have criticised for contributing at least in part to the current crisis by being too lax on monetary policy whilst head of the Fed. ‘The crisis will leave many casualties.’”

“‘It will end eventually when home prices stabilise and with them the value of equity in homes supporting troubled mortgage securities,’ he said.”

“‘In the current crisis, as in past crises, we can learn much, and policy in the future will be informed by these lessons. But we cannot hope to anticipate the specifics of future crises with any degree of confidence,’ he said.”

“‘Thus it is important, indeed crucial, that any reforms in, and adjustments to, the structure of markets and regulations not inhibit our most reliable and effective safeguards against cumulative economic failure: market flexibility and open competition.’”

December 13, 2007

The End Is Nowhere Near In California

The North County Times reports from California. “Real estate agents and builders need to modify their business models in order to survive the current mortgage crisis, senior real estate executives said during a conference Wednesday. The suggestions ranged from copying car sales strategies to conducting more honest assessments.”

“‘The one thing I can tell about you Realtors is that you’re all liars,’ said Joseph Anfuso, president of Florsheim Homes, a builder in California’s Central Valley.”

“Anfuso told agents during a Wednesday real estate conference at the University of San Diego that they need to stop inflating or hiding sales numbers and swallow a hard dose of reality on their cash flow if they expect to remain in business as sales continue to plummet.”

“For real estate agents to survive this downturn, they need to know where their businesses are going over at least the next five years, said Jason Hall, co-owner of RE/MAX Associates in San Diego.”

“‘With fewer transactions, it’s going to be a professionals-only field….If you don’t know where your next five transactions are coming from, you won’t be around next year and should start thinking about what you used to do,’ Hall said.”

The Union Tribune. “Optimism was largely absent yesterday at the University of San Diego’s annual residential real estate conference. Survival through the next 12 to 24 months figured into almost every speaker’s perspective in the half-day session held on the Linda Vista campus.”

“Over the next year, home prices, which have dropped about 11 percent since their all-time peak median of $517,500 in November 2005, may drop further to approach the 17 percent peak-to-trough decline experienced in the last downturn from 1990 to 1996, said USD economist Alan Gin.”

“That is a relatively small correction considering that prices have jumped more than 250 percent in the past 10 years, he said.”

“Robert Kleinhenz, chief deputy economist for the California Association of Realtors, painted a relatively bleak picture through next year. The Federal Reserve, Kleinhenz noted, ‘knows the end is nowhere near’ on housing’s downturn, and positive mortgage-investor confidence is ‘a ways from happening.’”

“Joseph Anfuso, president of Florsheim Homes, said that when prospective buyers come window shopping at a development, ‘treat them like a rich grandfather, as if you’re in the will.’”

“In an answer to a question about the availability of jumbo loans for mortgages exceeding $417,000, Steve Atwood of National City Mortgage, said large money-center banks appear to be the only reliable source.”

“But their capacity to absorb many more such loans into their portfolios ‘is not going to last much longer.’ Previously, such loans were sold off as packaged securities on Wall Street.”

The LA Times. “In Stockton, real estate agent Cesar Dias believes there are fortunes still to be made. That’s why he leads the weekly Repo Home Tour, filling two 18-seat buses with prospective buyers eager to view foreclosed houses that can be snapped up at dramatically reduced prices.”

“Dias said that when he started the free tour in September, some residents criticized it as a tasteless marketing gimmick. But as headlines announce record foreclosures and weeds sprout in the yards of abandoned homes, their tune has changed.”

“‘We’re bringing in homeowners to get the grass green again,’ he said. ‘At this point, I wish the foreclosures would dry up. We could use an end to the free-fall.’”

“At the waterfront Stockton Arena on Dec. 1, about 500 anxious residents lined up at a foreclosure workshop to see loan counselors. Pete Ponce de Leon said he and his wife were barely keeping up with their monthly mortgage payments, which shot up from $1,700 a year ago to $2,500 now.”

“He said he cashed in two IRAs, sold his tools, sold a truck and was bracing for another rate increase this month. Along the way, he lost his job, and his lender refused to cut him a break. ‘Why don’t they just screw us all at once instead of a little at a time?’ said Ponce de Leon, who has found another job and hopes to renegotiate his mortgage.”

“Asked whether the higher payments took them by surprise, Ponce de Leon struck the same note as many other homeowners in trouble. ‘We just thought we’d be OK,’ he said, explaining that he and his wife had planned to use what they’d expected to be the rising equity in their home to refinance the adjustable loan at a lower rate.”

“It was a bet that backfired. Like homes almost everywhere else in California, the Ponce de Leons’ lost value and their interest rates kept going up.”

“Monaliza Botello said she was surprised when her father, who brings in $4,500 a month, last year secured a loan requiring a $4,000 monthly payment.”

“The idea was that Monaliza’s father would own the new $495,000 four-bedroom for a year or two, at which point she and her husband, could afford to buy it from him with a refinanced loan. But the three of them, who were all living there, fell behind in their payments, and Monaliza lost her dream home.”

“‘It still hurts,’ she said. ‘We were getting phone calls and notices from the lender: ‘If you give us the balance in full, you can keep the house.’ It was nothing like ‘Call us and we’ll see what we can work out.’”

“As home prices plunged, Botello’s cousin around the corner also went into foreclosure, as did her godmother — a real estate agent nearby. ‘Everyone was going, ‘We can’t refi? How can we afford this?’ she said. ‘Everyone was just shocked.’”

“Occupied by Monaliza’s family for just seven months, the Botello home in Lathrop, just south of Stockton, is on the market for $300,000.”

“‘Not to be callous about it, but what goes up must come down,’ Dias said, adding that he expected the market to boom again in a year or two.”

“Dan Noel and his wife were checking out homes for themselves. In fact, the Noels, who live in a one-bedroom apartment with two teenage sons, had already put money down on a home they discovered on a previous tour.”

“‘We’re so excited we can hardly contain ourselves,’ said Dan Noel, who said their full-price offer of $179,450 for the three-bedroom house beat seven others.”

The Orange County Register. “Real Estate Disposition Corp. tonight in Long Beach will peddle 22 converted condos from the Monterey Villas in Santa Ana. Nineteen are 2-bedroom, 2-bath units with opening bid from $179,000 to $209,000, or about half the old prices.”

“According to a February ‘06 news item from CoStar, ‘Pacifica Cabrillo LLC purchased the 272-unit apartment complex…in Santa Ana for nearly $51.73 million, or $190,165 per unit. The buyer intends to convert the apartment complex into condominiums.”

“SoCal bankruptcies were up 73% in the third quarter vs. a year ago. The rest of California’s bankruptcy courts saw 10,053 filings in the third quarter, up 69% in a year.”

The Desert Sun. “Home sales in the Coachella Valley continued to fall in October, with 564 properties being sold, or a 43 percent drop from last year. The median price also declined 7.9 percent to $350,000, according to DataQuick.”

“The only bright spot was the condo resale numbers, which grew 15 percent on sales of 138 units. However, the median price of condos dropped to $292,000, down 14.1 percent.”

“Patrick C. Veling, president of Real Data Strategies Inc. of Brea, says the monthly data ‘points out the flaw in using median price for anything except real macro analysis. ‘The statistical sample (of homes sold) is now small enough that the median price misrepresents what buyers and sellers are dealing with.’”

“The DataQuick data for October saw sales range from a low of $180,000 in Thermal to $7.2 million in Indian Wells. The median price per square foot also showed a drop of 12.7 percent to $204 across the valley.”

The Press Enterprise. “The Federal Reserve surprised the financial world Wednesday by announcing a plan to inject cash into the international banking system. Banks have been reticent to finance business investments in recent months because of the dramatic increase in foreclosures in this country, because many loans for new investment are backed by mortgages held by people on Main Street.”

“Inland Southern California saw 31,661 foreclosure-related filings in the third quarter, including defaults, foreclosure auctions and lender repossessions. That was one filing for every 43 households, more than four times the national average.”

“Redlands-based economist John Husing said the inclusion of foreign central banks underscores how serious Federal Reserve now views the meltdown of the subprime mortgage market.”

“‘It’s the issue we did not see,’ Husing said of the international credit crunch. ‘We thought that mortgages were all about the regional housing market. But, internationally, it’s much bigger and much scarier.’”

October 15, 2007

The Beginnings Of That Moment Of Truth In Florida

The News Press reports from Florida. “WCI Communities Inc. is the latest developer to be targeted by homebuyers trying to get out of deals now that prices have fallen drastically. A federal class action lawsuit filed recently claims there’s a fatal flaw in the contracts used by the Bonita Springs-based developer to sell the 116 units in its luxury, 21-story condo tower Florencia — now some buyers want their deposits back.”

“The lawsuit is one more symptom of a softening housing market. The median price of an existing condo in Lee County has fallen 38 percent from February 2006, at $353,900, the highest on record, to $218,800 in August 2007, the last month available, according to the Florida Association of Realtors. For single-family homes, the price has fallen 22 percent from the all-time high of $322,300 in December 2005 to $250,800 in August 2007.”

“In this case, David Berry and John Schrenkel want out of the contract and their $115,000 deposit returned. But WCI attorney Thomas Roehn told Miami-based attorney Robert Cooper, who filed the suit, in a letter that it’s all just a misunderstanding. ‘WCI looks forward to Mr. Schrenkel and Mr. Berry closing upon their purchase of Unit 1202 at Florencia.’”

The Palm Beach Post. “Behind doors in Palm Beach County and along the Treasure Coast, from the meanest fixer-upper to the glitziest gated community, thousands of homeowners are struggling to make the mortgage.”

“Between Jan. 1 and July 1, homeowners in Palm Beach, Martin and St. Lucie counties defaulted on 4,318 mortgages worth $1.05 billion. That’s a 311 percent increase in defaults from the 1,051 recorded during the same period in 2006.”

“Loans in tony new communities crashed just as disastrously as homes in Counterpoint Estates, the aging middle-income subdivision just down the road from Versailles’ golden gates. Condos that once generated traffic jams of eager buyers went dark.”

“The $1.05 billion would buy the net assets of Florida Atlantic University — twice. And the number of soured mortgages adds up to one for every man, woman and child in Juno Beach.”

“Millions of dollars in mortgages collapsed before a single payment was made. Borrowers holding pre-construction loans defaulted on dirt before homes could come out of the ground.”

“‘This is all new territory,’ said Jessica Cecere, president of Consumer Credit Counseling Services of Palm Beach County and the Treasure Coast. ‘Two years ago, we could see it coming and thought it would be a disaster, but not this.’”

“This is staring her in the face the minute she leaves her house: A half-dozen homes in her neighborhood are in foreclosure.”

“Michael Sichenzia, lead investigator for (a) Deerfield Beach law firm, noted the media frenzy accompanying the boom. ‘Every book that was written, every time you read the paper … all you heard was flipping your way to wealth, borrow your way to wealth,’ he said.”

“That’s the environment in which mortgage broker Micki O’Callaghan snapped up two homes in Andros Isles and three in Terracina in West Palm. Same thing for Demetrius Walton, a 24-year-old South Florida man, who managed to purchase two Wellington homes and a housing lot with roughly $2 million in loans and no money down.”

“That sort of exuberance, irrational or otherwise, is the sort of thing loan officers and lenders once walked away from.”

“To keep the roof over her head, cancer survivor Deborah Tipton is squaring off with one of the largest banks in the world. Global powerhouse Deutsche Bank never wrote a loan on her modest Greenacres condo. It never saw her credit score, checked her baby-sitting income or requested an appraisal.”

“Tipton admits her $100-a-week baby-sitting wages should not have qualified her for a home loan in January 2006. But when her abdomen ruptured and herniated, a life-threatening post-cancer complication, she had no health insurance. She needed money. After 12 lenders turned her down, Fremont Investment and Loan Co. and QuoteMeARate.com Inc. said yes.”

“In broker documents, there’s no mention of Tipton’s meager wages. Instead, the paperwork says Fremont made a call to Wyn Solution Services Inc. of Sunrise, which said Tipton worked there as a district manager, earning $3,800 a month.”

“Deutsche Bank, which purchased Tipton’s loan along with millions of others and sold them to investors, declined to comment, citing the pending foreclosure. Deutsche Bank holds roughly $154 million in Palm Beach, Martin and St. Lucie county mortgages that defaulted between Jan. 1 and July 1, more than any other lender.”

“‘We all own a piece of this mess,’ said Bill Davis, former president of the Palm Beach County Mortgage Brokers.”

“In Anthony Groves near West Palm Beach, a half dozen homes on Berenger Walk defaulted on mortgages between Jan. 1 and July 1. In Counterpoint Estates in Royal Palm Beach, Oliver Lane had defaults; in Lake Worth, Wauconda Way; in Riviera Beach, West 30th Street.”

“It’s economics 101, Davis said: Prices are a function of demand. In Palm Beach County, the number of homes for sale in August rose to a three-year supply at the current pace of sales. In August, 33,708 houses and condos were for sale in Palm Beach County, according to Illustrated Properties.”

“‘My neighborhood is a classic case,’ Davis said. ‘Three years ago, you could put a for-sale sign out, and in three days you would have a contract and two backups. Now, houses are still listed for 12, 18 months. They don’t even have open houses anymore.’”

“‘The first part of this year, we started to see an increase, a lot of layoffs, even with the smaller contractors,’ said Steve Munnell, executive director of the Florida Roofing, Sheet Metal and Air Conditioning Contractors Association.”

“Not only is construction of new homes off but also homeowners looking to put their homes on the market are more likely to repair or replace tiles and shingles. Now, though, ‘people are not putting their homes on the market because there is no market,’ he said.”

The Orlando Sentinel. “More than 11,000 homeowners in the seven-county Central Florida region have defaulted on their mortgages through August. As in other communities walloped by the nation’s mortgage crisis, real-estate agents say Osceola’s foreclosure boom is fueled by small-time speculators and buyers who got no-money-down mortgages at teaser rates — and then got trapped when home prices fell.”

“‘If a buyer’s looking for a house and they have 100 homes to look at, and 10 or 15 of them are bank-owned properties that are well below market value, those are the ones they’re going to buy,’ said broker, Bryant Tutas.”

“Leonardo Calvo, a carpenter in East Hampton, N.Y., thought the house would be an easy investment. Years earlier, his friend bought a house in the Kissimmee area for about $150,000 and sold it two years later for more than $200,000.”

“The broker who sold him the house said he could get $2,000 a month by renting it. But Calvo never got close to that. He tried to sell the house for a year before giving it back to the bank. ‘It was a big mistake,’ Calvo said. He also blamed real-estate agents for misleading him.”

“‘Those guys are liars. They said this is a good deal, you can do this, you can do that. They say everything is easy, and you’re going to make a lot of money,’ Calvo said. ”When they give you the keys and they say, ‘Congratulations, goodbye,’ by that time, you’re going to be in trouble.’”

“For every Poinciana house sold in August through a real-estate broker, more than three homeowners entered the foreclosure process.”

The St Petersburg Times. “Tampa Bay area home sales keep probing new bottoms. September’s totals were off 39 percent from the none-too-spectacular sales of September 2006. That part about probing bottoms sounds proctological, but the market is about as savory as a barium shake.”

“Why aren’t people buying? Prices have retreated up to 20 percent. Builders are giving away the kitchen sink, along with Jacuzzis and hard-wood floors. Banks are dumping repossessed homes at discounts.”

“Many buyers wait for home prices to strike bottom, whenever that might be. They assume prices have room to fall, so why buy a diminishing asset?”

From Reuters. “Workers are painting, patching stucco and peeling protective plastic from gleaming panes of balcony glass at a new 1,000-unit condo called The Plaza, two towers that rise 43 and 56 stories over Miami’s bank district.”

“The opening of a raft of big complexes has analysts predicting the market, fueled by a frenetic construction spree that saw cranes sprout like mushrooms on the skyline, is edging toward a cliff.”

“In August, condo sales in Miami-Dade County dropped 44 percent, according to the Florida Association of Realtors. But the number of condos on sale has climbed to 25,000, a 36-month supply.”

“Some analysts believe 2008 will be the turning point, when pre-construction buyers are forced to pony up the full purchase price or walk away from deposits, speculators feel the pain of holding too many properties and developers need to dump excess units at discounts of 30, 40 or even 50 percent.”

“At the peak some 60,000 units were under construction, planned or permitted in the city of Miami, whose 400,000 people represent only 16 percent of Miami-Dade County. Some of those projects have been canceled. But the ones already underway and soon ready for residents are shrouded in uncertainty as buyers look to back away from contracts, unable to get mortgages or fearing they are paying too much.”

“‘We have definitely not seen the bottom yet. In the next six to 12 months we’ll see the beginnings of that moment of truth,’ said Brad Hunter of Metrostudy. ‘It could be 2012 to 2014 before this market needs to build more condos.’”

“Between 2006 and 2009, one analyst said, developers will drop 28,000 new units into the Miami market. In just eight prominent buildings in the downtown and banking districts more than 6,600 units are nearly ready.”

“A smaller Miami-area condo glut in the 1980s took six years to correct, analysts say. This one could be worse. ‘I think we’ve only seen the tip of the iceberg in terms of the pain the market will see,’ said Matthew Martinez, point-man for a Connecticut-based private equity fund.”

From CBS 4.com. “CBS4 has been bringing you to the latest on South Florida’s housing crisis as countless condos and homes remain unsold and record-breaking foreclosures continue. Now some insiders say our real estate crunch is going from bad to worse.”

“Cutler Bays’ John Shimmel just put his home up for sale. Fed-up and laid off the Miami native is looking for a new life anywhere but Florida. ‘I just got laid off, and I think it’s just never a better opportunity to leave,’ said Shimmel. ‘It gave me a good chance to get the house up for sale 100 percent, and I’m ready to go.’”

“Shimmel’s optimistic he’ll be able to sell his home before he gets into real financial trouble. His advice for any other neighbors still struggling to pay their tax and insure bills?”

“‘If they want to stay, it’s a beautiful sunshiny state, but there’s better places to be. I’ve lived all around — traveled all around the United States, and there’s just better places to be than right here,’ said Shimmel.”

May 10, 2007

Speculators Hoping For A Star That’s Never Coming

A report from Arizona State University. “The local resale home market may seem to be functioning at levels below desired activity, but it is following a very traditional pattern. April recordings at 4,855 sales are well below the 5,980 sales of April 2006 and 8,735 sales of April 2005.”

“‘The new home has become a strong competitive and attractive alternative to the resale home in many areas of the market as new home builders have been aggressively pursuing buyers through incentives. The general expectation is that the 2007 resale housing market should be a good year, but no where near the records,’ said Jay Q. Butler, of Arizona State University. ‘This tends to assume that there are no negative geopolitical events and that the subprime problem is contained.’”

The Arizona Republic. “It appears the market is following a traditional cycle, although ‘we may not like it,’ said Butler.”

“Ahwatukee is the one community in the Southeast Valley where sales rose from April 2006 to April 2007. However, prices dropped about 15 percent to $325,000.”

“But the situation is not a disaster, Butler said. ‘It’s not a disaster market; it’s not a horrible market; it’s a fairly normal market.’ In fact, he added, for some it’s a good time to look for a deal.”

“‘You might find a much better deal than you would in the resale market,’ Butler said. ‘Especially if the home has been sitting there for a while, they may be more willing to deal.’”

“New-home builders enticing buyers with incentives like free pools and discounted upgrades appeared to be one reason for the sluggish existing-home sales in April.”

“As housing inventories remain at a record levels in metropolitan Phoenix, ‘new-home builders (continue to add) inventory into a market, and the last thing the market needs is inventory,’ said real estate agent David Lorti.”

From Business Week. “The downturn in the housing market has caught the nation’s homebuilders by surprise, leaving many overextended with costly land they can’t develop and unfinished homes they can’t sell.”

“‘I think we’re going to see a lot more [bankruptcy] filings in the next 6 to 12 months,’ says Tucson attorney Eric Slocum Sparks, who is representing one local builder, AmericaBuilt Construction, in Chapter 11. ‘I’ve got a couple of clients who want to see me next week, and I know these aren’t social visits.’”

The Denver Post from Colorado. “Foreclosures continued to batter the Front Range housing market in the first quarter, dashing hopes that stronger job growth would hold back rising delinquencies, according to a report Wednesday from the Colorado Division of Housing.”

“Public trustees in 51 of the state’s 64 counties reported starting 9,254 foreclosures in the first quarter. If that pace continues, Colorado will record more than 37,000 foreclosures this year, about 30 percent above the 28,453 recorded in 2006, which was 31 percent higher than 2005.”

“‘I thought I would see some moderation and flattening,’ said Ryan McMaken, a Housing Division spokesman who compiled the report. ‘(But) we will exceed last year’s numbers.’”

“Distressed sales, either lender-owned foreclosures or short sales, have come to represent more than half of all transactions in many parts of the metro Denver market, said Tom Steele, an Aurora real estate agent who specializes in short sales.”

“Colorado would have probably recorded more foreclosures in the first quarter if mortgage companies weren’t so backed up and overwhelmed, said Zachary Urban, the foreclosure hotline’s supervisor.”

“‘They aren’t foreclosing on people, because they don’t have the resources,’ he said.”

The Coloradoan. “Lennar Homes, developers of two housing developments in Loveland, laid off 76 workers last week, essentially pulling out of Northern Colorado’s slow housing market.”

“Lennar continues to market homes in Hunters Run II and LakeShore II in Loveland and St. Vrain Ranch in Firestone. Realtor Eric Holsapple said virtually every national builder pulled out of the market as soon as it slowed. ‘It really impacted our market negatively in the way they exited the market,’ Holsapple said.”

“National builders came in, put up subdivisions full of homes, then offered incentives to help them sell quickly. Local builders couldn’t compete, Holsapple said. In Hunters Run, for example, Holsapple said Lennar put up 40 to 50 homes to build out the subdivision, then priced them to sell quickly.”

“‘It’s been their strategy of exiting the market; they finish out the subdivision then sell the homes for what they had to sell them for,’ he said.”

In Business Las Vegas from Nevada. “It’s been a difficult 12 months for the real estate community. About 900 Realtors gathered April 26-27 at the Las Vegas Convention Center to take continuing education classes, visit with old friends and take stock of their industry.”

“Rose Holden has seen it all before in more than 30 years in the business. The market will rebound, hopefully by the end of the year, she said. She adds the caveat that her crystal ball is broken.”

“‘The mood is typical,’ Holden said. ‘Everybody is worried that there’s no business…The business is still out there. It is just a little slower than they are used to. You have to work a lot, but some people are not used to work.’”

“Inventory remains high and sales remain slow because many sellers have been reluctant to lower their price to match what’s happening in the market. Homes priced correctly will sell, said Realtor Donna Brass.”

“‘The problem is many investors who entered the market late keep wishing for a dream, hoping for a star that’s never coming,’ Brass said. Even banks that take possession of homes are holding out for unrealistic prices, she said.”

“Brass said she expects prices to drop at least 10 percent. That prediction is in line with those of the Nevada Association of Realtors and other analysts.”

“‘I am not seeing the prices drop yet, and that’s surprising me. I think you will see it in six months and in December, they will be crying hard,’ Brass said. ‘The best deal ever will be in December. It will be the bargain of a lifetime.’”

The Review Journal from Nevada. “Realtors need to separate fact from fiction to protect clients from the ’subprime tsunami’ and false pretenses of getting rich quickly in real estate, a panel of home loan experts said Wednesday.”

“‘We’re never going to see 54 percent appreciation again, I have a hunch,’ Shane Watson, managing partner of Direct Access Lending, said during a three-hour symposium for local Realtors. ‘We believe the market is very strong here and this is just the calm before the storm.’”

“Watson said that Nevada leading the nation in foreclosure filings and Clark County being second to Los Angeles County is actually good for the industry. It will drive away investors who entered the market with marginal credit and perhaps even misrepresented their income on loan applications, he said.”

“‘What’s the old saying? Buyers are liars,’ he said.”

“Andrew Pugh of SellFastLV.com said anecdotal evidence from his business suggests that many owners have little or no home equity despite the price boom of 2003-2004. That’s why those facing foreclosure aren’t able to cut their prices and ‘be done with it,’ he said.”

“One woman bought her house in July 2003 for $170,000, ‘absolute perfect timing’ as things started to run up for the next 12 months, Pugh said. Last August she refinanced for $300,000. Now she’s behind on payments and needs to sell, but comparable sales in her neighborhood are only $270,000.”

“‘You can’t slash the price below what you owe on the house,’ he said. ‘I seriously think most people in Vegas pulled out all their equity and blew it on who-knows-what. Those 10,000 or 11,000 vacant properties on the (MLS) represent anxious sellers that are slowly bleeding to death and would love to sell at just about any price.’”

“‘Unfortunately, I can’t do anything for these people and neither can a real estate agent,’ Pugh said. ‘They might be able to short sale if they can find a buyer, prove they’re insolvent and don’t get lost in the bank’s bureaucracy. Good luck. Otherwise, they’ll go back to the bank in a few months and then show up as REOs down the road. Now, the real question is, where did all that refi money go?’”

December 12, 2006

Burned Speculators “Just Icing On The Cake”

Some housing bubble reports from Wall Street and the Washington Times. “The risk of a financial crisis is growing as home prices continue to fall and questionable mortgages made in the past two years go into default, finance officials warned yesterday.”

“Banks and mortgage brokers have been passing along to unwary investors as much as $600 billion a year in risky mortgages they made through untested channels in the junk-bond market. That raises the threat of a financial crisis beyond the ability of the Federal Reserve to remedy, said Lewis Ranieri, who is widely credited with creating the multitrillion-dollar market for mortgage-backed securities in the 1980s and 1990s.”

“‘No securities market can stand if we do not have true disclosure, and we do not have true disclosure’ of the growing risks of exotic mortgages, said Mr. Ranieri. ‘This stuff doesn’t just get sold to [professional] money managers. It gets sold to the public and to foreign investors who don’t have a clue what to look for.’”

“Despite the growing dangers, Rep. Barney Frank, incoming chairman of the House Financial Services Committee, indicated he saw no reason for federal legislation to better regulate the mortgage markets to prevent a possible financial meltdown.”

“‘Housing suffered from irrational exuberance’ during the first part of the decade, though it fell short of being a full-blown bubble, he said. ‘The end result of a 10 percent drop in many parts of the country will be a more rational housing market. … If a few speculators get burned, that’s just icing on the cake.’”

“Treasury Secretary Henry Paulson said the government wants to issue guidelines to banks and savings and loans that will allow people to get home loans ‘without taking unnecessary risks.’”

“‘We do not want Americans to become overextended and see their dream end in foreclosure,’ Paulson said.”

“There have started to be ‘early signs of credit distress’ in financial institutions’ holdings of so-called ’subprime’ mortgages, especially in California, Richard Brown, chief economist for the Federal Deposit Insurance Corp., said at the conference.”

“As the housing market trends downward and overextended borrowers find it increasingly difficult to make their mortgage payments, delinquencies, foreclosures and early payment defaults are on the rise, said Dominion Bond Rating Service in a report.”

“When looking at 60-days-plus delinquencies for 2003 through 2006 subprime home equity collateral at 11 months of seasoning, delinquencies are 25 percent higher for the 2006 vintage versus the 2005 collateral and approximately 66 percent higher versus 2003 and 2004 vintages, said Dominion in the report.”

“The weaker performance of the 2006 vintage can be attributed to…greater leverage inherent in ‘affordability products,’ the migration of lenders down the credit spectrum and the sharp decline in home price appreciation rates.”

“In order to support corporate earnings and maintain production volumes that had reached unprecedented levels, subprime originators continued to underwrite ‘affordability products’ and the corresponding ‘loan at the margin,’ the rating service added.”

“Fitch Ratings said its ratings outlook for sub-prime mortgage bonds is ‘negative,’ with the expected number of its downgrades to exceed the number of upgrades next year. Delinquencies, which have risen 50 percent from last year, should climb another 50 percent next year, it said.”

“Losses to date on sub-prime mortgages issued in 2000 are about 5.5 percent, the worst tally ever, according to Michael Youngblood, an analyst at Friedman Billings Ramsey Group Inc. Youngblood has said this year’s loans could have the highest losses ever.”

“A large caliber weapon would be needed if losses on the recent crop of exotic, nonconforming mortgages (i.e., loans not guaranteed by Fannie Mae or Freddie Mac continue to work higher. And why wouldn’t they?”

“In 1998 ‘liars’ loans’ (those with little or no documentation required) amounted to 24% of mortgage originations. To date this year they account for 62%. Interest-only mortgages have vaulted in the same period from virtually no market share in the mainstream lending business to a 50% share.”

“Countrywide Financial released operational data for the month ended November 30, 2006. Mortgage loan fundings for November totaled $38 billion, a decline of 11 percent from November 2005.”

“‘November 2006 operational results continued to reflect transitional market conditions,’ said CEO Angelo Mozilo. ‘Total mortgage loan fundings declined modestly from the prior month. Purchase volume fell as a result of continued softness in the housing market, as well as seasonality.’”

“Potlatch Corporation will cash in on the nation’s growing appetite for recreational acreage by selling off 18 to 20 percent of its vast timber holdings over the next decade, officials said today. The company expects to sell between 15,000 and 20,000 acres of land next year.”

“Over the next decade, Potlatch has identified 100,000 to 120,000 acres for sale in Idaho; 100,000 to 120,000 acres for sale in Minnesota; and 50,000 to 60,000 acres for sale in Arkansas.”

“Investors who giddily rushed into the new-home market during the recent housing boom are now beating a hasty retreat, sometimes at a hefty loss, said David Pressly Jr., president of the National Association of Home Builders.”

“For some speculators, it makes more financial sense to leave a down payment on the table rather than going to settlement on a newly constructed house that has decreased in value or failed to appreciate. ‘It might be cheaper to walk away and not close on a house they may not be able to sell or rent,’ said Pressly.”

“Some would rather give up sizable down payments than be stuck with a house bought at the top of the market, Pressly said. Consider an investor who puts $30,000 down on a new $500,000 house, either under construction or not yet built. For such a buyer, it might be cheaper to default on the sales contract, Pressly said. Losing $30,000 might seem the lesser of two evils, he said.”