Sonoma Housing Bubble

Pulling the cork out of Sonoma's bubbly housing foolishness

Tuesday, April 11, 2006

Bubble Bits of News

From Ben Jones at the Housing Bubble Blog

"‘ECC Capital Corporation, a mortgage finance real estate investment trust headquartered in Irvine, Calif. that originates and invests in residential mortgage loans, today announced that as part of its initiatives to reduce its cost structure, improve operating efficiencies and achieve profitability, it will be reducing its workforce by approximately 170 people..ECC has announced that four senior executives have offered to take significant reductions in compensation to help the mortgage finance REIT cut costs.’

Arizona makes note of mortgage trouble brewing
New homeowners may be snuggled up to their mortgages now, but there may be trouble down the road, according to a recent federal report. Higher prices have made it harder to buy a home, said Steve Fell, regional president for Chase Bank.

The Federal Deposit Insurance Corp. said housing market conditions "warrant monitoring" in part because of the proliferation of riskier mortgages in recent years.

"As far as mortgages go . . . we aren't seeing any imminent signs of any kind of danger, but over the long term we have concerns over whether these mortgages will be affordable down the road," said John Anderlik, acting regional manager for the FDIC.

Interest-only and negative amortization mortgages are also called "exotic mortgages" because their conditions are non-standard. These types of loans allow home buyers to pay only the interest for a certain number of years or win approval of a loan with little proof of the borrower's income.

The outstanding balance of a negative-amortization loan grows because monthly payments aren't enough to cover the interest.

Those mortgages are best suited for people who expect their incomes to increase in coming years and only when buying a home in an area where values are expected to increase.

Charles "Chip" Ruscher, a lecturer in the Eller College of Management's department of finance said, "When you have kind of a bubbled real estate market, you're looking at probably inflated values. Even if the bubble doesn't pop, if it starts to deflate, those people are going to be in a position that's going to be impossible to repay the loan."

"If the real estate market stalls, slows down or starts to decline, then they're stuck with an asset that isn't worth as much as what they owe on it."

Ruscher said the danger also comes when negative amortization loans "reset," and borrowers may have to make much higher monthly payments based on market rates. And with that, if you believe the doomsday version, will come widespread loan defaults and foreclosures.


I'd say judging by this next news item a mortgage broker or two or five clearly need to be fired, in front of others.

Apparently a homeless man in Florida actually owned 5 houses.

“After struggling much of his adult life with unemployment, homelessness and drug addiction, Johnny Moon Sr. died last year on a dirty mattress on the floor of a small home near Tampa’s College Hill district. Moon left behind a watch, a flashlight and a wallet containing a solitary dollar bill. And more than a half-million dollars worth of real estate.”

“The St. Petersburg Times (inquired) about how the elder Moon had qualified for the mortgage loans. A high school dropout with no job history who got by on food stamps, Moon morphed into a real estate investor. Within a year, he bought five properties and signed for mortgages in excess of $614,000.”

"And he had been shrewd -- buying at least one house for triple its market value and getting a mortgage to cover the inflated amount. Even though he overpaid for houses, he managed to sell them at a profit."

"If he was such a savvy real-estate investor, why did he die of pneumonia brought on by malnutrition? Maybe mortgage broker Matthew Cox could shed some light, but he's on the lam from federal authorities. And Moon's son, Johnny Jr., and Junior's business associate, Dominic Ferrara, aren't talking. Both are mortgage brokers."

oops... looks like Mr. Moon was one more casualty of the rising tide of mortgage fraud.

Additional points to ponder...Learn about the Dead Cat Bounce and catching falling knives at the SoCal Bubble Blog. Very informative and always entertaining.

For the Finale... Just a plain old great real life person to realtor conversation. This one happened in Bainbridge Washington, but you can go ahead and cross apply Sonoma California as the questions and answers are roughly about the same, though I bet we have more real estate agents. (stolen shamelessly from Eleua at Ben's place.) Eleua has a great blog of her own. Check it out.

"by eleua

I just went to an open house this weekend. The RE agent in the house was all optimistic about things. Her husband was the broker, and she had been in the biz for 5 years.
I decided it was a good time to “shake the cage.”

“How many RE agents are on Bainbridge Island?” 250 for 7500 residences. Exasperated look.

“How many of those have been in the market less than 3 years?” Most. Fatigued look.

She said that the PNW is “immune” from the nationwide property bubble crash. Why? 100,000 new jobs are coming to Western Washington each year for the next 15 years.

“How do we know?”

“What jobs are these?”

“Did you know that 56% of new jobs created in the PNW since ‘01 are RE related?” No.

“The bulk of the remainder are in retail, and that is because of all the HELOC money.” Big eyed look.

“What happens when interest rates hit double digits?”

“What happens when the $1.5T in ARM money adjusts in the next 18 months?”

“How can you justify selling this house (3 bd, .19 ac, 1993 construction, 1800sf, landlocked) for $400K?” (whispering) It already has multiple offers above asking…

She asked about my situation. “I sold and am now renting. I’ll be interested when houses like this go under $200K.” (giggling) It will never happen.

Property values have never gone down on Bainbridge. We offer something you can’t find anywhere else.

(thinking to myself)…”Yeah, a bunch of builders, RE agents, and appraisers that will be unemployed when this bubble blows.”'

2 Comments:

At 4/12/2006 12:03:00 PM , Blogger moonvalley said...

"And he had been shrewd -- buying at least one house for triple its market value and getting a mortgage to cover the inflated amount. Even though he overpaid for houses, he managed to sell them at a profit."

"If he was such a savvy real-estate investor, why did he die of pneumonia brought on by malnutrition? Maybe mortgage broker Matthew Cox could shed some light, but he's on the lam from federal authorities. And Moon's son, Johnny Jr., and Junior's business associate, Dominic Ferrara, aren't talking. Both are mortgage brokers."

This reminds me of that scene in Chinatown when Jake Gittes (Jack Nicholson) discovers that the bad guys are buying up huge parcels of SFV land in the name of old and dead people in a nursing home.
Maybe a better line is It's Real Estate Jake, forget it

 
At 4/12/2006 12:08:00 PM , Blogger Athena said...

so I guess my question is... now what happens to those loans? Who holds them? Who is going to lose money on them? Who pays?

 

Post a Comment

Subscribe to Post Comments [Atom]

Links to this post:

Create a Link

<< Home

My Zimbio
Top Stories Bloggapedia - Find It!

Estate Real, House New

Housing Crisis

Free Site Submit by
SiteSubmitService.COM