Sonoma Housing Bubble

Pulling the cork out of Sonoma's bubbly housing foolishness

Friday, September 29, 2006

What Direction? .... Down

Also from the Press Democrat- "The Commerce Department reported Wednesday that home sales increased by 4.1% last month, the best showing since an 8% increase in March."

"But even with the increase, the median price of a new home fell to $237,000, a drop of 1.3percent from August 2005. It was the first year-over-year price decline since late 2003."

'"August is just a blip. Housing is still headed down," said Mark Zandi, chief economist at Moody's"

'"Everything still points to continued weakness in sales, construction and home prices."'

"Many analysts said the government statistics understated the drop in new home prices because they don't pick up heavy discounting that is under way as builders offer incentives such as kitchen upgrades and free landscaping to move unsold homes."

"Earlier, it was reported that sales of existing homes fell for a fifth straight month in August while the median price of an existing home dipped on a year-over-year basis for the first time in more than a decade. Also, construction of new homes and apartments plunged by 6 percent in August."

Flatlining is Still a Bad Thing, Right?

"Hold on for a long but shallow housing slump across California, according to a study issued today that forecasts home prices will remain flat over the next five years."

"Housing markets including Sonoma County's should continue coming down from peaks reached a year ago. Job losses in construction and other real estate sectors will be a drag on the economy, yet overall employment and income growth should help offset the housing downturn over the next two years, according to the latest widely watched UCLA Anderson Forecast."

That's nice news for the rest of the state, however, Sonoma County's economic outlook is a bit bleaker than that given the mysterious job losses. ;-) hmmm... where oh where could all those jobs be?

'"The housing problem is going to be with us for some time," said Edward Leamer, director of the forecast."

'"Clearly the decline in sales has been much more accelerated than we forecast," said Leslie Appleton-Young, the association's chief economist."

"'I certainly agree that this is not going to be a two- to three-month slowdown and then we're going to be back to the conditions of a couple of years ago. Those conditions were unsustainable, if for no other reason than affordability."'

"The problem is a steadily weakening housing market over the past year following eight years of strong sales and record prices in Sonoma County and across the state. More buyers can't afford to purchase homes, particularly with interest rate hikes over the past two years pushing monthly mortgage payments even higher."

"Yet many sellers continue to resist lowering prices. Leamer said deeper price cuts will not become widespread until there is a prolonged period of weak sales or sellers face a job loss or some other financial hardship.As a result, prices are expected to bounce around a flat line until personal incomes gain ground on housing costs, economists said."

Bounce around a flat line? LOL.... like a bad game of Break Out? (old video game from Atari. Remember?)

I love that next part... bouncing around a flat line until personal incomes gain ground on housing costs! Good lord, Michael Coit is full of laughs tonight. Right Honey, y'all let me know when those service industry jobs start paying enough to buy a $577,000 house.

Flat line... I love that. Think of the housing market as being in the ER and go ahead and interpret that flatline the same way. Dead. You can give it a try shocking it back to life... but the market may come back in a persistant vegetative state.

"Home prices have started falling in some areas, including Sonoma County. Prices here have dropped the past two months compared with levels from a year ago - the first time in nine years prices have dropped for two straight months. August's median was $577,250, a 6.7 percent drop from $619,000 a year ago, when prices peaked."

'"The housing market's been the rocket that the economy's been strapped to and now it's sort of losing steam. There's going to be a slowdown in growth with the housing downturn, but with everything else managing to pick up the slack," said economist Ryan Ratcliff, who authored the California forecast."

What is this "everything else" that is "managing to pick up the slack" he speaks of? Anyone? Anyone? Buehler? Buehler?

"The previous housing decline in Sonoma County stretched over four years. Prices fell a total of 4.2 percent in 1993 and 1994,..." (This number has been rounded off, averaged out, massaged and seasonally adjusted by your real estate experts to make it look less scary than the reality. Go ahead and zillow a bunch of properties that sold in these years and you tell me if those numbers rolling backwards amount to 4.2%)"...rebounded in 1995 and remained flat in 1996. The downturn was tied to the economic recession that hit California, including the North Coast, in the early 1990s."

'"We're starting to see price declines. The actual movement isn't dramatic because the owners' initial reaction is either to remove their properties from the listings or to hold on and not sell because they're not getting the offers they want," Leamer said."

"Instead of a rapid and painful adjustment, expect a slow and aggravating one," he said."

"Builders have been the first to react, reducing housing starts and cutting prices."

"1,681-square-foot, three-bedroom home in Rivendale's newest Santa Rosa subdivision sells for $479,990, compared with about $540,000 if it were being sold a year ago. And six homes are started each month, compared with eight a year ago, Peterson said."This is not unusual. This is not unexpected. You tighten your belt," he said."

'"Everybody's cut back their projections for closings and hence starts. There is a market there. But there aren't as many buyers in the market," said Chris Peterson, co-owner of Santa Rosa builder Rivendale Homes."'

'"We have to price our homes at whatever price the market will bear. Our homes are priced a lot more aggressively today than they were a year ago."'

Wednesday, September 27, 2006

Next Comes the Freefall, Baby.

(video for your viewing pleasure from anon)

"First came a slowdown in the volume of home sales. Now prices are falling, and the question for anyone selling, buying, or even just hanging onto a home is: How far and how fast?

'"The housing market is weak and getting weaker," says Mark Zandi, chief economist for Moody's "It appears the downturn has a ways to go.""

"Last month, the median price of a single-family home was down from a year ago - the first significant national decline in 13 years, according to tracking of previously owned homes by the National Association of Realtors."

"Historically, it's rare for prices to sink very far nationally even when recessions occur. The National Association of Realtors (NAR) predicts a return to stability next year. But some economists are forecasting a tougher climate, thanks to an extraordinarily large run-up in prices in the past couple of years and homebuyers' increasing reliance on exotic new types of mortgage loans."

"The expert consensus: The slump could last into the summer of 2007. And the speed could depend on how many people hit the panic button or take their homes off the market."

"After a five-year boom in the housing market, where home prices head from here could have a significant impact on the direction of the economy and on the pocketbook finances of millions of families. But economists differ in their forecasts of how the current real estate cycle will unfold.

"NAR has taken a largely upbeat view. "This is the price correction we've been expecting - with sales stabilizing, we should go back to positive price growth early next year," NAR economist David Lereah said in a statement accompanying Monday's numbers."

"Pessimists say a speculative "bubble" had built up and now needs to unwind - possibly over several years."

'"As draconian as that sounds, a 5 percent price decline would only reverse one-tenth of the price run-up over the previous five years," Merrill Lynch economist David Rosenberg wrote in a recent report."

'"Additional price declines should not be surprising," says Asha Bangalore, an economist at Northern Trust Co. in Chicago. "We have a recession in the housing market.... Usually it takes two to three years to stabilize."'

"She points to a rising supply of homes on the market. There are now enough homes on the market to meet demand for 7.5 months, up from 7.3 months supply in July, Dr. Bangalore says. The last time inventories surpassed current levels was in October 1992, during the last housing downturn."

"One new uncertainty in this cycle is today's greater reliance on adjustable-rate mortgages. With the interest rates on those loans shifting upward, a key question is how many owners will have to unload homes they bought during good times when values were rising and interest rates were low."

'"The probability of a more disorderly correction is raised by this element," says Bangalore of Northern Trust."

"The decline in last month's prices of new homes on a seasonally adjusted, year-over-year basis is the first such drop since February 1993, except for a very slight blip on a seasonally unadjusted basis in April 1995."

"Prices may continue to fall, since many of the leading economic indicators have continued to weaken."

'"The rising number of unsold homes reflects the home sellers who were hoping to cash out at a high price and have kept their homes on the market for an extended time," says Mr. Zandi."

"Some of these trends are likely to continue, until next summer, says Zandi, when he expects to see housing start to stabilize. With such a long period of weakness, he says, it's beginning to look as if home prices might fall in 2007 by about 5 percent on a year-over-year basis."

"This would be the first calendar-year decline since the Great Depression," he adds."

Hard Landing is Out of the Question

Excerpts from article written by: Mike Shedlock for Whiskey and Gunpowder

"I have it on great authority that there will not be a hard landing in real estate. Who told me that? It was none other than Mike Morgan at MorganFlorida. Please listen in to what Morgan has to say."

Mike Morgan:
“Will there be a hard landing? No! Will there be a crash landing? Absolutely!

“Despite September’s short covering of homebuilders and value buyers trying to cash in on low P/Es and stocks selling at or below book value, a hard landing is now out of the question. We’re in for a market crash. Read between the lines, or read actual comments for content.

"A US housing crash? Falling prices and slowing demand
“Here’s what Robert Toll, CEO of Toll Brothers, said at the Credit Suisse conference. He said the market got ahead of itself in recent years, citing ‘greed on the part of buyers and sellers,’ and that current speculative inventory is probably at its largest.’"

'“And how about Don Tomnitz, CEO of D.R. Horton: ‘We have never seen housing prices and demand slow as quickly as they have during this down cycle.’"

'"Take it a step further and look at the statistics. Never before have we seen inventories at these levels. Recently, the NAR finally admitted home prices are coming down. Never before have we seen home prices fall. And RealtyTrac just announced that foreclosures are up 53% from a year ago."

'“For those ‘value investors’ buying the homebuilders because the P/Es are so low, I ask, What happens when there are no earnings? And for those ‘value investors’ buying for the book value, I ask, What happens when the builders take massive write-downs to land, and burn up cash with carrying costs of unsold inventory?"

“But that’s not even the heart of the current problems."

"A US housing crash? Why everyone will suffer
“Who will the housing crash affect? Everyone. Real estate agents will be first. As a group, they’ve made a ton of money during the housing boom, and they’ve spent millions on new cars, vacations, restaurants, clothes, and everything else that comes with excessive discretionary income. That’s over now. Agents are not buying the luxury items that helped feed the economic boom, and they are cutting back on business spending like advertising and marketing. That hits the vendors and newspaper revenues."

'“Take it a step further. With sales off 50% and more, all of the industries that have benefited from the boom will suffer loss of revenue and jobs at accelerated rates and massive proportions. Homebuilders and condo developers have been announcing cancellations of projects and cutbacks in spec building. The flippers fed the housing boom, and they’re washed up right now. In fact, they are making the crash much worse than it should have been."

'“Many flippers bought multiple properties. When in the history of the world have we ever seen the housing industry conduct business like a stock exchange? We had bidding wars. We had lotteries on new developments, just like we had allocations for new tech offerings during the late ’90s."

"And just like the tech boom, the buyers were not making decisions based on fundamentals. The same thing is happening in the housing market, with thousands of buyers walking away from deposits, refusing to close on homes. That adds to the woes of the builders."

'“Add to the woes the fact that interest rates are up and most flippers bought using creative financing and low-rate ARMs."

'“But this is all old news for us. The other shoe is dropping now. Loss of hundreds of thousands of jobs created from housing will act like a virus and spread throughout our economy. As real estate agents, attorneys, and mortgage brokers rein in their spending, it will affect restaurants, car dealers, advertising companies, jewelers, remodeling contractors, furniture manufacturers, bank profits, electronic retailers, clothing -- and the list goes on and on and on."

'“As the primary players are affected and they cut back on spending, so will the secondary players in this market. These companies will be forced to lay off employees, and the cycle will grow like a virus. Is that it? Not a chance."

"A hard landing is out of the question at this point. The economists should be talking about how devastating the crash will be.”'

Tuesday, September 26, 2006

The Perp Walk Begins in L.A.

Ex-Huntington Beach Mayor Gets 37-Month Sentence in Real Estate Scam

"She was a darling of City Hall, a strong-minded mayor who rose to celebrity status in Huntington Beach. Pam Julien Houchen was as popular for her political ambition as she was for becoming a new mom in middle age, toting her triplets around town. Then, investigators say, she got too bold. And too greedy."

"On Monday, Houchen learned she would pay a steep price for taking part in a real estate scam that netted her thousands of dollars. She was sentenced to federal prison for more than three years and ordered to pay $140,000 in restitution."

"The 37-month sentence issued by U.S. District Judge David O. Carter in Santa Ana punctuates a swift fall from grace for a woman whose world began collapsing shortly after she was identified as one of nine suspects in the scheme to illicitly convert Huntington Beach apartment buildings to condominiums."

"Houchen, 49, was one of four defendants sentenced Monday in the scandal, which broke in 2004 after the city learned that as many as 120 apartment units had been illegally converted to condominiums without proper permits or modifications."

"Houchen had admitted to eight counts of mail and wire fraud in connection with the sale of two buildings for a total of $1.74 million.Houchen buried her face in her hands and sobbed into a tissue upon hearing her sentence. Her husband clenched his hands together and fought back tears. She left the courtroom before other defendants were sentenced. Outside, she and her husband embraced. They declined to comment."

"Emotions were high throughout the six-hour sentencing hearing. It began with Houchen in tears as her lawyer argued for home confinement so she could help her husband raise their 4-year-old daughters, and concluded after a couple who bought an illegal condo that was later condemned urged the judge to show no mercy."

"Renee and Scott Tarnow, who are suing Houchen, said they had lost hundreds of thousands of dollars in construction and legal fees. They said their two daughters were put at risk by the hazardous conditions of their unit and that the court should take that into consideration."

"Carter said Houchen posed a "real conundrum" for him as he sought to balance her level of cooperation and contriteness with her betrayal of the public's trust. In the end, he told her, his sentence was actually lighter than he had thought he would issue. It was longer than the 30 months recommended by the prosecutor."

'"You're right at the top of the pyramid," he said, referring to where he ranked her culpability among all defendants. "Public officials will never be looked at the same. That's a stain on all of us."'

"Two others sentenced Monday were Stewart Title officer Harvey DuBose, who admitted taking bribes to facilitate title insurance but was rewarded by the court for his level of cooperation. He received a two-year term. Investor Jeffrey Crandall, convicted of selling seven illegal units, was sentenced to 41 months."

"Houchen and the three other defendants must begin their sentences by Nov. 6."

Sonoma Foreclosures 9-26-06

It's a LONG Way Down, Honey!

C.A.R. reports sales decrease 30.1 percent in August

'“We experienced the greatest year-to-year sales decline last month since August 1982, when sales fell 30.4 percent,” said C.A.R. President Vince Malta. “This is another indication that we’re in the initial stages of a long-anticipated adjustment in the market."

'“Buyers today have a much greater selection of properties from which to choose, while some sellers are still clinging to price expectations that are no longer valid in today’s market,” he said."

'“Although the median price in the state and in several regions hit an all-time record in August, we expect softer prices toward the end of the year,” said C.A.R. Vice President and Chief Economist Leslie Appleton-Young."

'“The median price typically peaks somewhere between June and August before declining toward the end of the year. Some areas of the state already have experienced year-to-year declines for more than two months. This is in stark contrast to the past several years when there were constant double-digit increases. The long-term trend remains to be seen.”'

'“Homes are taking longer to sell than a year ago, with just 29 percent of homes on the market for 30 days or less, compared with 51 percent a year ago,” she said. “The share of homes on the market for 90 days or longer has nearly quadrupled from 6 percent in August 2004 to 22 percent last month."

Northern Wine Country
Median Price: $609,730
Down by: -4.8% YOY
August Sales down by: -23.6% YOY

"Home prices are projected to fall for the rest of the year, the National Association of Realtors said Monday, with sellers being forced to accept a new reality: Buyers now wield the power, with the supply of homes for sale at a 13-year high."

"The decline is no doubt jarring to sellers, who haven't seen prices fall nationally since April 1995. The price drop was also sharp, the second-steepest in 38 years. Sales of existing homes, meantime, fell for the fifth month in a row."

'"The housing bubble has burst; this is just the confirmation," says Joel Naroff of Naroff Economic Advisors."

'"The housing market is in trouble right now. I think it's finally in the process of moving toward finding a bottom," which he expects will take six months."

'"We have a serious correction taking place in the housing sector," Richard Fisher, the Federal Reserve president in Dallas, said in a speech Monday. Last week, the Fed voted again to hold interest rates steady and said weakness in housing was a key factor in its decision."

"'This may be the most overanticipated and overanalyzed downturn in history," Fisher said."

'"One prominent CEO told me the only situation that's received more intense analysis than the housing market was the birth of Brad Pitt and Angelina Jolie's baby. "'

"Still, the pace of the downturn has surprised several economists, including Ian Shepherdson of High Frequency Economics."

If you are surprised, you are an idiot. There has been so much data and analysis out there on the collapse of the appallingly high flying bubble, you would have to be comatose to have missed it.

'"The speed of the collapse has been astonishing," Shepherdson says."

Astonishing that he doesn't feel stupid saying this with a completely straight face.

'"This time last year, single-family home prices were up 16.4%. With inventory still rising, there is no chance of any short-term relief. Prices and volumes have a long way to fall."'

'"To bring buyers back into the market, sellers simply have to lower their prices," said David Lereah, the NAR's chief economist. Lereah has repeatedly cut his forecast for the housing market this year and says he's now unsure how deep the correction will turn out."

'"If we have prices drop for the rest of the year and sales also continue to drop, then we will have a bad situation in housing of balloons popping rather than air coming out," Lereah said."

Ya think, Asshat? What about that great book you wrote about why the bubble won't burst and how real estate will continue going up?

Sonoma Hostile to Working Middle Class

A bittersweet goodbye
by: Amy Amormino Woods

"The enormity of my life situation truly hit home yesterday, when they came to take my car. No, I am not talking about the “repo” man from the bank; rather, it was an 85-foot long tractor-trailer and a sign on the side of the cab reading “Mother of all Haulers.”'

"My car was, in fact, being loaded and shipped off to the East Coast. In 11 days, my family and I will also be loaded onto a plane and shipped back East as well. But unlike our recent visit there, we won’t be coming back."

"After months of debating and bantering back and forth, my husband and I came to the conclusion that we simply cannot, for economic reasons, chose to stay in Sonoma and raise our family. Simply put, it is financially impossible. Well, I shouldn’t make such absolute statements. It’s not impossible, if we believe that an acceptable standard of living for our children is renting an apartment. For us, that’s not okay. "

"So here I am, writing my last column and saying goodbye to the town in which I was born and raised.It is a bittersweet goodbye, because as much as I love Sonoma, as much as I love her people, her mountains and her weather, she has become a hostile and unfriendly environment for people like me: the working, middle class."

"She has become a town that is now somewhat foreign to me. While I used to find Sonoma friendly and laid-back, now I find her exclusive and somewhat snobby. While she used to be the slow, sleepy, one-stoplight town with no fast food, now she is the over-populated, traffic-congested, high-density development town of the future."

"It saddens me deeply, for not only am I saying goodbye to my hometown, but I am also saying goodbye to my grandparents, my father, my three siblings and their children, my best friend since first grade and my countless other wonderful friends and acquaintances. I’m not the only local leaving either. My friends, Dean and Suzy Shouse, who both grew up here, are saying goodbye to family and friends and moving with their two small boys to Fernley, Nev., a town they described to me as “the way Sonoma was 20 years ago.” And they aren’t the only ones."

"Both my sisters now live far north in the more affordable town of Redding. Another friend and her family moved to Middletown, an affordable place to buy a home and still close enough to drive into Sonoma every few weeks. Countless others whom I know have migrated to Oregon, Colorado, Texas, Arizona, Washington — even Idaho and Montana — just so they could buy homes for their families."

"There is a common denominator among all of us locals who are choosing to get out: We are all regular, working middle-class families who hold down good jobs but nonetheless cannot get ahead because we are not pulling in high-end salaries like so many who live here now. We want more for our children than apartments and condominiums with no yard. We want more than the shoddy schooling that this state tries to pass off as public education."

"We want our children to grow up feeling they are not at the bottom of the barrel because mommy doesn’t drive a Land Rover or a BMW SUV. We want what’s best for our children and their future, as well as for ourselves. Unfortunately for so many of us that means getting out of Sonoma."

"It’s sad, really it is, that so many of us local kids can’t stay and raise our children in the same town in which we were born and raised. I might go so far as to call it socially unjust, but then that sounds like discrimination and pointing the finger. But the sadness of having to leave remains, the bittersweet goodbye remains in the knowledge that this town is no longer playing friendly hostess to those of us who grew up here. Oh, she’s friendly all right, but it’s to the almighty dollar. As money and development increasingly roll into this community, the locals increasingly roll out. So I guess I’ll be rolling out too, in 11 days."

"We will be moving to the south of Boston, where my husband is from and where he will be working at a local Trader Joe’s. We see the move as the right thing to do; if we can afford to buy a house somewhere and live by one of our families, then that is where we should go. Of course, the weather is less than thrilling and culturally I feel they are about 20 years behind the times. (Example: When I lived there four years ago, I went into a Dunkin’ Donuts, which I absolutely hate, and asked them if they had soy milk with which to make me a soy latte. The teenage girl behind the counter looked at me blankly and then asked me if that was baby formula (TRUE STORY)."

"So it’s safe to say that my heart will always be for Sonoma, but not the Sonoma of today. I will remember the Sonoma of my childhood, the late ‘70s, ‘80s and early ‘90s. I will remember my grandpa’s shop, Les’ Auto Parts, on First Street West."

"I will remember the Happy Dog and Moosetta’s Piroshkis. I will remember swimming at the Golf Course and Aqua Caliente swimming pools. I will remember the Dragon’s Pit, the eucalyptus trees on Broadway and the minestrone soup at the old El Dorado restaurant. I will remember the old French Bakery, movies at Sebastiani Theatre and Valley Mart. I will remember the old duck pond, drinking beer in Mission Highlands, and the Old Sonoma Creamery. I will remember, more than anything else, my family and I will miss them like no other."

"I wish I could stay in Sonoma, I really do, but we just can’t hack it anymore. We’ve been beaten down and discouraged by the inflated economy and housing prices for long enough that I am anxious to say goodbye and get to a better place for my quickly expanding family. I’m a dying breed; a bona fide, born and raised Sonoma local."

"We are a disappearing group, and once we’ve gone the way of the dodo, I’m afraid that Sonoma, the small, European-esque town that has always charmed visitors with its local color and character, will be gone, too. I guess I’ll just have to come back from time to time to test whether or not my theory is actually correct. As the strains of “Another one bites the dust” play in the background, this is Amy Amormino Woods signing off. Goodbye California. Goodbye Sonoma. Goodbye."

If You're Surprised, You're an Idiot!

"The pace of existing home sales in the United States fell for a fifth straight month in August and prices dropped from year-ago levels for the first time in 11 years, a U.S. realtors group said on Monday."

"The National Association of Realtors said existing homes sales slipped to an annual rate of 6.30 million units from 6.33 million in July."

"The report, however, did show prices also have begun to drop compared to the lofty levels of last year, when many parts of the country saw home prices appreciate at double-digit annual rates."

"The pace of U.S. home building fell more sharply than expected in August as builders broke ground on new homes at the slowest rate since April 2003, a government report showed on Tuesday."

"The report came a day after an industry survey showed that home builder optimism sank for the eighth straight month in September to the lowest level in more than 15 years. The closely watched National Association of Home Builders' index of homebuilder sentiment declined 3 points in September to 30, the lowest since February 1991, when the economy had slipped into recession."

"Lennar is the most recent of the U.S. home builders, along with Beazer Homes USA Inc. (NYSE:BZH - news), KB Home (NYSE:KBH - news), Hovnanian Enterprises Inc. (NYSE:HOV - news) and Toll Brothers (NYSE:TOL - news), to either post lower quarterly earnings or to cut its forecast."

"The larger publicly traded builders, which comprise about 23 percent to 25 percent of the new home market, are suffering along with the rest of the sector. According to the U.S.
Commerce Department, home starts fell 19.8 percent in August compared with a year earlier to their lowest level in more than three years."

"A steeper-then-expected drop in the U.S. housing market pushed Lennar Corp.'s (NYSE:LEN - news) quarterly profit down 39 percent and prompted the home builder on Tuesday to slash its fourth-quarter forecast."

'"Everybody knew that it had gotten a bit worse" said BB&T Capital Markets analyst Todd Vencil."

"Responding to a deteriorating market, some large U.S. builders have pulled back on the number of homes they build to protect their gross margins. But Lennar has pursued a different course -- trading margin for volume."

"Its policy has been to start a new home as soon as one is sold, with or without first finding an intended buyer and using incentives for the sale."

'"Rather than slamming on the brakes, they're trying to let the business wind itself down to whatever the appropriate level is over time," Vencil said."

'"They are clearly adding to the problem overall to the market in having too much inventory. That may work for Lennar. It's certainly allowing them to take share."'

Monday, September 25, 2006

...And Then It Just Turned Off!

"Job growth has suddenly stalled in Sonoma County, a mysterious trend that has analysts wondering if local employers are firing workers - or are just unable to hire them."

"Some analysts warn the figures could indicate the local economy is weakening and companies are shedding jobs. Others say the economy is strong and still has ample room to grow, but employers are finding it increasingly difficult to recruit workers to fill job openings in one of the nation's least-affordable places to live. Or, perhaps, it is a combination of both factors."

'"To be honest, I can't explain it completely," said Steven Cochrane, an economist with Moody's who described the quick downturn as extraordinary."

hmmm... what a puzzle. What do you say you count the realtors, mortgage brokers and construction workers who are no longer working?

"Just last February, the local economy was on track to generate 4,500 jobs this year, its most powerful performance in six years. But things began to change quickly in the spring. Job growth slowed to a trickle in March and April. And in May, the expansion came to a halt as employment at local companies sank below levels from the preceding year."

"Since then, the job losses have accelerated every month in Sonoma County. In August, the county had 2,900 fewer jobs than it did a year ago, according to the most recent data issued by the state Employment Development Department."

"While analysts cannot fully explain the trend, they agree it is not good news for the county's economy. Three reasons have emerged for why the county is losing jobs, and all three might be playing some part."

"One possibility is that employers have jobs to fill but can't entice potential workers to move here because the cost of living is too high."

"A study issued last month by the National Association of Home Builders ranked Sonoma County as the 20th least-affordable housing market in the United States, based on a survey of incomes and housing costs in 198 communities."

"Rod Matteri, co-owner of SBI Building Materials in Fulton, said he has been unable to find new truck drivers."Five years ago if I put a classified ad in the newspaper, I'd get 50 responses," Matteri said. "(Now) I can't get anyone to move here for a job that pays $20 an hour."

"The second possibility is the economy is slowing significantly as a result of higher energy costs, a cooling housing market, increased interest rates, stagnant wage growth and other factors."

"The Sonoma County economy has lost jobs for four consecutive months only two other times in the past 16 years: immediately before the recessions in 1992 and 2001."

"No economist said the job losses in Sonoma County signal the start of a recession, which is two consecutive quarters of economic contraction. But historical comparisons to the previous two recessions - in the early 1990s and 2000s - show a remarkable similarity."

'"(I) must see the trend continue to make a statement about recession, but I agree it does not look good," Sonoma State economist Robert Eyler said in an e-mail interview. "This may be a signal that Sonoma County is beginning a recession."'

"The third possibility is that the data is wrong."

Sshh... Go back to sleep Sonoma, there is no housing bubble. Real Estate only goes up. You can't lose. The economy is just fine. Clerks turned out into realtors are making money hand over fist. There are plenty of jobs. Tinkerbell lives here. Santa is on his way.

"The cooling housing market is likely playing a significant role in the slowdown. Steve Shook, chief operating officer of Shook & Waller Construction in Santa Rosa, said construction of new homes suddenly slowed down a few months ago as inventories of new, unsold homes increased."

'"Three months ago, we were wondering how we were going to cover all the work we had. And then it just turned off," Shook said. "We just had to lay off some 80 guys. We don't have the work for them."'

"Overall, construction companies have shed 300 jobs over the last year.Another hard-hit industry appears to be restaurants, catering services and bars, which had 600 fewer jobs in August, compared with a year ago."

'"The economy is not that healthy right now," said Gerard Giudice, president of the Restaurant Association of the Redwood Empire and owner of Sally Tomatoes deli in Cotati. "And when income goes down, the first thing people cut out is fine dining."'

"Overall, Sonoma County had 190,500 jobs in August, down from 193,400 last year."

'"The question is, what is unique about Sonoma County that is making it decline unlike the rest of the state?" said Ken Jacobs, chair of the UC Berkeley Labor Center."

"Other counties in the Bay Area have high costs of living and are experiencing a decline in home prices, too, like Sonoma County, Jacob said."

The Soon To Be an FB Club....

"Two out of three Sonoma County home buyers and owners, joined the fast-growing club of borrowers in high-cost housing markets who financed purchases and home equity loans with low-payment mortgages that explode into much higher payments within a few years."

"At first, they don't have to pay a penny on the actual mortgage - and in some cases, don't even pay the full interest cost.Now, the first wave of borrowers faces a costlier mortgage bill as payments on the popular loans begin rising with higher interest rates. Some will be in over their heads if they can't afford to pay more. Many others are taking steps to soften or postpone the day of financial reckoning."

"The initial surge of what amounts to delayed-payment mortgages coming due—called “resets” in lender speak — is hitting this year. It will go higher in 2007 before ebbing some in 2008, according to Freddie Mac, the national mortgage company."

'“It’s already started. I think it’s going to go for a while because we’ve made so many loans on that interest-only product,” said Randy Blankenbaker, regional manager for Chase Home Mortgage."

"The reset impact is sizable inSonoma County and other expensive housing markets where these loans have become popular. They account for twothirds of all purchase and refinance loans in Sonoma County, compared to a quarter of loans three years ago—and have supplanted long-term, fixed-rate loans."

'“Sooner or later, they’ve got to pay the true cost of a loan,” said John Klein, branch manager for Charter Funding in Santa Rosa."

"Darren Seliga, owner of Seliga Financial, is busy working with clients who need to refinance and figure how to budget $350 to $650 or so more for monthly house payments."My job is to find a creative way to get them into something and help them find something different down the road," the Santa Rosa mortgage broker said. "Sooner or later you've got to face the music or sell the house."'

I'm pretty sure that creative financing thinking is what got them here in the first place. How much do you want to bet the same thinking isn't going to get them out of hot water now?

Fraud Files VIII

California securities regulators are investigating an Atlanta company that has raised millions of dollars through a national advertising campaign promising fat returns investing in foreclosed properties, according to a person familiar with the matter.

The state is examining Pinnacle Development Partners LLC, whose ads tell investors they will receive a 25 percent return on their investments in 60 days. Capitalizing on investors' thirst to strike it rich in a waning real-estate market, Pinnacle says it refurbishes foreclosed properties and then sells them at a hefty profit. However, real-estate records show the only buyers of the properties are located at Pinnacle's address. A person familiar with Pinnacle said those buyers are related to the company.

California officials are trying to determine whether Pinnacle is generating profits from buying and selling real estate, or whether it is paying returns using other investors' money, which would make it a Ponzi scheme, according to one person familiar with California's investigation. In a Ponzi scheme, earlier investors are paid with money from newer investors, until the supply of new investors runs out.

Pinnacle's growing business comes as the real-estate boom appears to be faltering. Many investors have been trying to snap up bargains by buying foreclosed real estate from buyers who took out risky loans but now can't make payments, or from banks left holding the properties.

Pinnacle's ads, promising 25 percent returns, have run in major publications, including this newspaper and Barron's, both published by Dow Jones & Co. In April, Newsweek began running a full-page ad for Pinnacle. "Stocks still low?" begins the ad in Newsweek's current issue.

"Invest now in Atlanta's booming real estate market." A Pinnacle newsletter distributed to current and potential investors says the company is "anticipating the addition of many new investors" as a result of the Newsweek ad.

A spokeswoman for Washington Post Co.'s Newsweek said the magazine had received an official inquiry about Pinnacle earlier this week, "and made the decision not to run any more of the ads until the investigation is complete."

The company has discouraged investors from checking out its business practices. In a recent letter, a lawyer for Pinnacle, Christopher M. Kunkel, told investors that if they check with anyone other than an approved list of partners, they risk "dismissal from the investment group and a return of only your initial capital contribution."

Since incorporating in 2003, Pinnacle bought 15 properties for $9 million in Georgia, according to AFX Corp., which collects and analyzes real-estate records. In that period, AFX found no sales to third parties except to entities listing Pinnacle's address.

Barry Minkow, a private investigator who runs Fraud Discovery Institute, a for-profit corporation in San Diego, says the apparent lack of sales raises "red flags" about financial wrongdoing. Mr. Minkow started investigating Pinnacle after an investor contacted his office. He says that the Federal Bureau of Investigation, at his urging, is looking into the matter.

Mr. Minkow served time in the 1980s for financial fraud, and subsequently founded an investigative service focused on financial services. The FBI commended him in October 2005 for helping to "disrupt and dismantle" financial schemes worth millions of dollars.

Mortgage fraud earns man a 33-month term

"A Salt Lake man has been sentenced to 33 months in federal prison for his role in a mortgage fraud scheme. Rob Ellertson, 42, was sentenced earlier this month by U.S. District Judge Dee Benson, who also ordered Ellertson to pay about $2.8 million in restitution to victims' mortgage and title-insurance companies."

"Ellertson pleaded guilty last March to two counts of wire fraud and admitted that from March 2002 to September 2003, he and another man devised a scheme to obtain loan money and property from mortgage companies by means of a straw buyers scheme. The scheme involved buying lots in Salt Lake and Summit counties and then recruiting people who were paid a fee for permission to use their names and financial information to take out loans."

"According to the plea agreement signed by Ellertson, he admitted that he completed all loan applications on behalf of the straw borrowers, which is against the law. He also misrepresented the borrowers' incomes and indicated that the borrowers intended to occupy the property when they did not."

Mortgage arranger guilty of fraud Lenders lost $2.3 million, authorities say

"The operator of a Springdale mortgage firm that promised unsuspecting home buyers they could obtain financing with "no money down" pleaded guilty Friday in U.S. District Court in Cincinnati to conspiracy to commit bank fraud and money laundering."

"Troy Scott Clements, 37, who operated American Funding on Kemper Road, could face up to 30 years in prison and $1.5 million in fines. He agreed to plead guilty to two counts in a plea agreement to settle a seven-count indictment handed down by a federal grand jury last October. Under federal sentencing guidelines, Clements' actual prison time was estimated at 63 to 78 months by Assistant U.S. Attorney Benjamin Dusing."

"Clements' indictment said he defrauded various mortgage lenders out of $2.3 million between 2001 and 2003 and to further the conspiracy laundered $1.5 million through bank accounts."

"According to investigators for the Internal Revenue Service, the U.S. Postal Service and the FBI, Clements conspired with others to recruit home buyers with thousands of fliers stating they could purchase real estate with no money out of pocket."

"In qualifying buyers, false documents would be prepared and sometimes Clements would deposit money into their accounts to mislead lenders, investigators said. Clements would purchase a home picked by a buyer for cash and turn around and sell it to the buyer for $5,000 more than he had just paid for it, investigators said."

"Clements' firm would issue a mortgage on the home and the fraudulent loan package would then be submitted to other lenders such as ABN Ambro Mortgage Group for refinancing using false appraisals. The proceeds would be used to repay Clements."

A former president of Allen Village School's board of directors pleaded guilty in federal court Monday to mortgage and investment fraud schemes.
"James Elliott Coleman, 58, of Raytown, pleaded guilty before U.S. Chief District Judge Dean Whipple to all the charges contained in an April 20 federal indictment, Bradley Schlozman, U.S. attorney for the Western District of Missouri, said in a news release."

"Coleman admitted that he had participated in a $778,336 mortgage fraud scheme and a $40,000 investment fraud scheme perpetrated against an older widow and her daughter. Coleman also admitted that he had used some of the proceeds of the investment fraud to repay money he had embezzled from the charter school."

"Coleman admitted that he had participated in a conspiracy from December 2001 to July 29, 2004, to defraud mortgage lenders and individual victims. As a result of the mortgage fraud conspiracy, Coleman personally obtained about $148,200, Schlozman said."

"Coleman solicited two victims, an older widow and her daughter, to invest in real estate. Coleman prepared false and fraudulent loan applications and supporting documents for submission to mortgage lenders in the names of straw borrowers, caused inflated appraisals to be prepared in relation to the properties and submitted false and fraudulent loan applications and documentation to mortgage lenders, Schlozman said."

"Coleman told the victims they could make money by owning rental properties that they could then rent to people who qualified for Section 8 rent subsidies. Coleman told the women that they would not have to pay any money to buy the properties, that he would manage and maintain the properties and that the real estate would produce income."

Mortgage Fraud Hot Spot

"Mortgage fraud has grown in recent years as the real estate market has sizzled. More recently, foreclosure fraud is on the rise as the number of foreclosures has risen about 25 percent in the past year. Foreclosure fraud often occurs because the original owner, desperate not to lose the home forever, agrees to lease/buyback terms that are essentially impossible to meet."

"From a fraudster's point of view, it all makes perfect sense: Why not find a way to latch onto the most expensive asset most people ever own?"

"Real estate fraud gives "the least risk with the most potential reward," says Rachel Dollar, a California-based lawyer who handles fraud recovery for lenders and puts together a Web site called, which is to say she keeps very, very busy."

"There are no precise figures for real estate fraud, but the FBI, which uses the term mortgage fraud to describe an array of illegal real estate activities, said in a study last year that "based on various industry reports and FBI analysis, mortgage fraud is pervasive and growing."

"In what the FBI calls industry insider fraud, those involved often falsely inflate the value of a property or issue loans based on fictitious properties. The FBI study listed Florida as one of 10 mortgage fraud "hot spots."

"Many schemes involve phony appraisals and doctored documents such as loan applications. In some cases quitclaim deeds are forged to transfer property without the true owner ever knowing. Then the fraudulent owner sometimes takes out a second mortgage."

Ex-Buffalo landlord gets year in jail

"A Buffalo landlord who earlier this year pleaded guilty to multiple felony charges in a mortgage fraud scam will spend one year in jail on top of paying $1.5 million in restitution."

"Robert Palano, 51, formerly of Clarence, was sentenced in State Supreme Court Justice Penny Wolfgang. Palano was facing up to seven years in prison on the felony counts."

"Investigators looked into Palano's real estate dealings from 1998 to 2002 and found that he fraudulently obtained more than $4 million dollars in mortgage loans on more than 100 rental properties he owned. After pocketing the loan proceeds Palano moved to Florida. Authorities said that at least ten lenders were left with defaulted loans secured by properties worth far less than the debt. Also some tenants were evicted through foreclosures on the properties."

"In 2001 Palano was charged by the state Attorney General's office after an investigation found that he orchestrated a real estate scheme that targeted African-American, first-time home buyers. Palano agreed to pay $225,000 in restitution to his victims and The Associates First Capital Mortgage Corp. in a separate mortgage fraud case."

Mortgage-fraud scheme brings prison sentence

"A Salt Lake City businessman has been sentenced to almost three years in prison after pleading guilty to charges in a mortgage fraud scheme he was involved with four years ago. In addition to the 33-month sentence, U.S. District Judge Dee Benson ordered Rob Ellertson, 42, to pay nearly $2.8 million in restitution to the mortgage and title insurance companies bilked in the scam."

Two mobile home salesmen in Vance County have been sentenced to federal prison for a $19 million mortgage fraud scheme.

"Richard D. Meador and Donald Scott Carroll worked for Donald Wayne Gupton, a Vance County businessman who operated several companies."

"Gupton and his employees used a half-dozen illegal means to falsify loan applications so buyers with bad credit could get loans, prosecutors have said. Banks ended up foreclosing on the homes because the borrowers could not afford the mortgages."

"Gupton owned Dynasty Homes of Henderson, Superior House Center and Creative Real Estate and Manufacturing Housing Sales Center. He has already pleaded guilty to federal charges and is scheduled to be sentenced next month."

"Meador, a manager at one of the companies, was sentenced Wednesday at the federal courthouse in New Bern to four years and five months in prison, followed by three years of probation. He also was ordered to pay $1.2 million in restitution."

"Carroll, also a manager, was sentenced to two years in prison and three years of probation. He was ordered to pay $1.4 million in restitution."

Homebuilder on bail until appeal
"One of two Rochester homebuilders, who with their father were accused of running the largest federal mortgage fraud scheme ever prosecuted in the region, was released from prison on bail while he appeals his conviction. Richard Amico, 35, has been serving a nine-year prison term."

"His brother, Robert Amico, 44, who is serving 17 and-a-half years, was denied bail.
Both decisions were handed down Sept. 21 by U.S. District Judge David Larimer in Rochester.
The Amicos were convicted in 2003 of conspiring to swindle lenders out of $60 million on 169 homes in Monroe, Ontario and Wayne counties from 1994 to 2000. Charges against their father, Robert A. Amico, were postponed and he died in 2003 before coming to trial."

"Buffalo-based M&T Bank was one of the Amicos' victims. In January, 2000, M&T seized more than $375,000 which the younger Robert Amico later told the court he needed to pay his bills."

Frisco townhome sales scrutinized

"Some luxury townhome purchases in the trendy development surrounding Frisco's new City Hall are under criminal investigation."

"The questionable property transactions occurred in Frisco Square, a showcase for suburban growth aided by more than $50 million in city government investment. The investigation centers on a tight-knit group of investors led by Nigerian businessman Ademola Kumapayi. Mr. Kumapayi and his group repeatedly bought and sold luxury townhomes among themselves beginning in 2004. Often, their transactions appeared to inflate the values of those homes, according to property records."

"Lenders involved with Mr. Kumapayi and his group poured millions into a three-block stretch of Library Street and suffered at least eight foreclosures since December, property records show. Some of those investors now say they face claims for hundreds of thousands of dollars in foreclosure costs rather than the payoffs Mr. Kumapayi promised."

Source of Growth, Cause for Concern...

"The pace of existing home sales in the United States fell for a fifth straight month in August and prices dropped from year-ago levels for the first time in more than 10 years, a realtors group said on Monday."

"The National Association of Realtors said existing homes sales slipped to an annual rate of 6.30 million units from a 6.33 million unit pace in July."

"In addition, the stock of unsold homes on the market rose 1.5 percent to 3.92 million units. At August's sales pace that represented a 7.5 months' supply, the highest since April 1993."

"Kathy Lien, senior strategist at Forex Capital Markets in New York, said the most troubling aspect of the report was the drop in prices."

'"What was once the primary source of growth and expansion in the U.S. is now the source of concern and nervousness," she said."

"NAR chief economist David Lereah, however, said the August slip in existing home sales data could be the bottom of a slump for the sector."

'"This price drop, in my view, has stopped the bleeding in the sales marketplace," he said. "It seems that the 6.3 million level has now hit bottom. We are now flat with single-family home sales."'

"Prices will continue to come down in the short-term, Lereah said, and sales will remain flat. Still, he emphasized that the pace of sales in August has not slipped as badly as in previous months."

'"That is good news for housing," he said. "The health of the housing sector is in transactions, is home sales, not home prices."'

Spoken like a true realtor. They need people to think it is safe to keep buying. You can buy from a true underwater FB and still get screwed. Buying now is still a Fool's market, and it is just dumb to catch a falling knife. It hasn't even sunk in yet to many sellers that the winds have changed. Many have no idea how to explain the run-up in unrealistic price gains, but feel entitled to it anyway. No more indulgence of magical thinking. Why would you want to indenture yourself for life to pay for someone else's sense of entitlement and maxed out credit card of a house?

'"The conclusion that I'm drawing is that we're very close to the bottom of the housing market," said Bernard Baumohl, executive director of The Economic Outlook Group in Princeton Junction, New Jersey. "By the first quarter of next year, we'll start to see a rebound."'

Close to the bottom? A rebound? (stifling laughter) Something tells me we have only just begun. First quarter of next year I bet we start to see some panic as the bulk of the ARMs readjust.

Saturday, September 23, 2006

Ruh-Roh... More Pink Slips

"Countrywide Financial Corp., the largest U.S. mortgage lender, told employees in some of its divisions that their jobs may be cut to save money as the housing market slows. Countrywide backed 24 percent fewer loans in August compared with a year ago."

"The weakening housing market continued to take its toll on the industry Thursday as mortgage lender Countrywide Financial Corp. disclosed the possibility of thousands of layoffs and builder KB Home reported slowing revenue growth. Calabasas-based Countrywide said it would reduce its general and administrative staff by 5% to 10%, with the exact numbers to be decided in coming months."

"The retrenchment follows a long hiring spree at Countrywide, where monthly loan production peaked at $53 billion in August 2005 and was down to $40 billion last month. The company employs about 56,000 people, up from 34,000 at the beginning of 2004."

"Countrywide has about 13,000 employees in Southern California, including salespeople at call centers. Its other major employment centers are in the Dallas area, with 10,400 employees, and the Tempe-Chandler area of Arizona, with more than 5,000 workers, Simon said."

"Separately, Westwood-based KB said it was releasing only limited financial results for its fiscal third quarter because of an internal probe of its stock option practices. Other companies caught up in the growing option controversy have had to restate earnings after similar investigations. "

"KB Home also said home orders in its U.S. and French markets plunged 43% from last year's third quarter. On the West Coast, orders plummeted 58%. Chief Executive Bruce Karatz said the results "reflect the challenging operating environment for the home building industry."'

Increasing price competition among builders affected sales and orders.

"We do not expect conditions to improve significantly in the foreseeable future," Karatz said in a statement.

Friday, September 22, 2006

On the Cusp of Long Overdue Correction

"Greg Sterbens thought his 3-bedroom, 2.5-bath home on a cul-de-sac in wine country was a great deal when he hung up a "For Sale" sign two months ago. List price: $685,000."

"After a month without offers, Sterbens lowered the price on his 2,250-square-foot home to $660,000. Earlier this month, he reduced the price to $639,000, making it the cheapest house per square foot in his Sonoma County neighborhood."

'"We have to be competitive, and we can't be greedy," said Sterbens, who is having a home built in Redding. "We've had a lot of traffic at the open house, but it seems like people are afraid to buy now. They don't know where the bottom is."'

"Fresh data show that California's market is not immune - and may be on the cusp of a long-feared correction."

"Throughout California, home values increased at the slowest annual rate in nine years, according to a survey released Wednesday by DataQuick Information Systems. It was the slowest increase since June 1997, when statewide home prices rose 2.8 percent."

'"We've got sellers out there who have not adjusted to the new reality," said Carla Giustino of Greenbrae-based Frank Howard Allen Realtors. Giustino urges clients with homes worth $1 million or more to drop prices by $50,000 to $100,000."

"The median Marin County home is nearly four times the national median, and agents say that's made some locals oblivious to the downward pressure. Too often, they're pricing their homes higher than comparable homes in their zip code, and they still expect bidding wars and multiple offers."

"Real estate experts say recent increases in interest rates have made zero-down mortgages and negative amortization mortgages far more expensive, excluding would-be entry-level home buyers."

"Daniel Nussbaum, CEO of Calabasas-based USA, said prices have been declining for several months. But low-end buyers dropped out of the market, so sales were disproportionately clustered in the high end, making median prices seem stable."

'"Real estate growth has been nonexistent for 7 months, and market prices have been going down since March," said Nussbaum, a licensed investment adviser."

"On Wednesday, the Federal Reserve kept short-term interest rates unchanged, stating in a memo, "The moderation in economic growth appears to be continuing, partly reflecting a cooling of the housing market."'

"Last month's Fed statement used the phrase "gradual cooling of the housing market." The deletion of the word "gradual" panicked real estate investors, who fear that federal officials are bracing for a sharp decline."

'"The lack of a housing market is the single biggest issue facing the economy right now," Nussbaum said."

"David Schubb, broker for Cupertino-based Intero Real Estate, persuaded a client last week to lower the price on a 4-bedroom, 3-bathroom, 4-car-garage home in the San Francisco suburb of Walnut Creek. The home was listed at $879,000, but after three weeks without offers it was $849,000 - and the owner will pay the mortgage for the first six months up to $5,000 per month."

'"We were exploring interest rate buy-downs, making the buyers' payments, even throwing in a new car," said Schubb, who has been selling real estate for 37 years. Schubb said he's offering incentives he hasn't used since the stagnant 1970s, when he'd pay closing costs and give sellers interest-free loans to paint, add new carpet and spiff up homes for quicker sale."

'"I'm not a genius who invented this stuff - it's what we used to have to do all the time," Schubb said."

Remember These Guys?

"National City Mortgage and Huntington National Bank are in hot water after wrongly offloading $265 million in bad mortgages to the Federal Housing Administration. Government audits claim the two lenders shifted mortgages with delinquency histories to the FHA’s insurance program."

"The transfers could be considered fraudulent because each lender certified there were no delinquency problems with the loans in question. Such fraud would result in fines, the loans being rescinded, or reimbursement of any losses incurred by FHA."

"The audits recommend each Ohio-based company take back the loans, which would include 529 National City loans worth $263.5 million and 14 Huntington loans worth $1.4 million. The two also are urged to reimburse the FHA for loans that already defaulted -- 102 National City loans went bad, costing the FHA $5.5 million, while two Huntington mortgages, totaling $228,000, defaulted."

"The audit also argues for imposing fines on the banks for administrative fraud.
The Department of Housing and Urban Development, which manages the FHA, is investigating the claims. National City said it is working with HUD, while Huntington declined to comment."

Other news involving National City Mortgage:

"Mark Douglas Lattimore was sentenced to 20 months in prison and ordered to pay more than $660,000 in restitution after pleading guilty to conspiracy to commit mail fraud in a mortgage lending scheme in South Carolina. Lattimore, formerly managing partner of the Greenville, South Carolina law firm of Forquer, Green and Lattstimore, also has had his license to practice law suspended."

"Prosecutors say Lattimore closed on 88 inflated home loans after the fraudulent mortgages were arranged by Anderson mortgage brokers at Service First Mortgage and the Kelly Mortgage Group. Both companies have been shut down, and more than a dozen of their brokers and appraisers were convicted of conspiracy to commit mail fraud The scheme is believed to have involved more than 120 properties in the Upstate. The known lender was National City Mortgage Co."

Still More...


"KANSAS CITY, Mo. – Bradley J. Schlozman, United States Attorney for the Western District of Missouri, announced that a former employee of an Independence, Mo., title company pleaded guilty in federal court today to transporting funds obtained by fraud."

"Daryl Ann Daniel, 51, of Independence, Mo., pleaded guilty before U.S. District Judge Howard F. Sachs this morning to charges contained in a May 16, 2006, federal indictment.

'“This defendant was an indispensable cog in the largest mortgage fraud scheme ever prosecuted in this district,” Schlozman said."

'“She took advantage of her position of trust to defraud a number of financial institutions, which in turn severely impacted many low-income neighborhoods in Kansas City when these loans inevitably went bad. The abandoned properties caused by this fraud continue to invite more crime and blight, and the entire community suffers as a result.”'

"By pleading guilty today, Daniel admitted that she was involved in a mortgage fraud scheme with Brent Michael Barber, 41, of Belton, Mo., who has been convicted at trial and pleaded guilty in separate but related cases of mortgage fraud that included hundreds of fraudulent loans that resulted in losses of nearly $12 million by the financial institutions."

"Daniel was employed as a loan closer at Realty Title Co. in Independence and invested in real estate. During 2000 and 2001, Barber used Realty Title – primarily working with Daniel – to handle his real estate closings. Daniel was the closer assigned to handle 243 of Barber’s property closings (94 percent of the 259 Barber properties) and obtained fees, commissions and other payments as a result."

"Daniel admitted that she handled the closings for several properties being sold by Barber’s company, National Foreclosure Properties LLC, to a straw party. Daniel signed settlement statements, which were submitted to the lender, attesting that the buyer of the property brought funds to the closing."

"In reality, Barber (or a co-conspirator) delivered cash and money orders to Daniel equal to the amount the buyer was supposed to pay at closing. Relying on those false statements, National City Mortgage Co., d/b/a Commonwealth United Mortgage Co., funded the loans and sent funds in interstate commerce in the form of checks that were deposited to the bank account of Realty Title."

"Daniel also admitted that she conspired with Barber and others in a fraud scheme to sell rental property she owned in Independence. That scheme involved an inflated appraisal of the property that misrepresented its condition, an inflated sale price, and a loan application containing false and fraudulent representations."

"This case was prosecuted by Assistant U.S. Attorney Linda Parker Marshall. It was investigated by the Federal Bureau of Investigation and IRS-Criminal Investigation."

...And They Put Lipstick on the Pig and Sold it

"Merrill Lynch (MER) announced Tuesday that it plans to acquire the mortgage business of Cleveland-based National City (NCC) for $1.3 billion."

"Merrill Lynch said the deal would give it control of National City's First Franklin Financial mortgage origination franchise, which is based in San Jose, Calif. Merrill Lynch also will get National City's affiliated business units, National City Home Loan Services and NationPoint."

"Last month, National City said it is buying Fidelity Bankshares, which is based in West Palm Beach, Fla., for an estimated $1 billion. Only weeks earlier, National City said it would buy Harbor Florida Bancshares, based in Fort Pierce, Fla., through a $1.1 billion stock deal."

'"These leading mortgage origination and servicing franchises will add scale to our platform and create meaningful synergies with our securitization and trading operations," Dow Kim, president of Merrill Lynch's Global Markets and Investment Banking Group, said in a statement."

'"This transaction accelerates our vertical integration in mortgages, complementing the three other acquisitions we have made in this area and enhancing our ability to drive growth and returns."'

"Andrew Pollock, president and chief executive of First Franklin, said he is looking forward "to working with Merrill Lynch to build a premier mortgage banking franchise."'

"Merrill Lynch said it planned to operate the acquired businesses under their current names, as distinct units."

"The transaction, subject to regulatory approval, is expected to close in the fourth quarter of 2006."

Yes Virginia, There Will Be Foreclosures

From Carol Lloyd's column on

"In a boom market, people don't need to sell at a discount, even if they've hit hard times. They can always sell or refinance before losing their homes. This has been especially true in the Bay Area."

"Local companies like The Blue Sheet publish listings of auctions that take place on the steps of City Hall, the reality is that the great majority of these sales never take place."

"In the past, the world of buying on foreclosures has been controlled by a relatively small group of insiders -- professional investors who are disinclined to share their expertise and are sometimes downright cagey about the work they do."

"Now, however, companies like RealtyTrac are increasingly targeting regular homeowners and novice investors with nationwide, subscription-based property listings and educational materials. (In the past three years, the company has grown some 1,100 percent, earning it the No. 53 ranking in Inc.'s 500, a list of the nation's fastest-growing private companies.)"

"Welcome to Foreclosure Fiefdom, where one man's pain is another man's gain. Foreclosure sales are a dark and little understood corner of the market that involves buying a home or investment property either from an owner who cannot pay the mortgage or from a lender who has repossessed a property."

"Despite foreclosures remaining at historic lows, for the past few months default rates have begun rising -- in some places precipitously."

"In July 2006, 10,025 properties entered some stage of foreclosure in California, over 150 percent more than reported in July 2005. If trends continue, foreclosures may go from a tiny segment of the market to a substantial one, although even the experts are reluctant to guess just how substantial the shift will be."

"In July 2006, Colorado foreclosure rates led the nation for the fifth month in a row, with one new foreclosure filing for every 480 households. That month 3,810 properties entered some stage of foreclosure, which amounted to a 55 percent increase over July 2005."

"Experts agree that foreclosure rates will probably rise as more short-term fixed loans become adjustable."

'"There are certainly going to be more foreclosures," says Rick Sharga, vice president of marketing for RealtyTrac, a company that provides listings, training and data on foreclosures nationwide."

"Some foreclosure sales aren't terribly risky or complicated. When banks hire a real estate agent to sell a foreclosed property, these sales tend to be very similar to other real estate transactions. Public auctions, however, are a different story."

'"Auctions in particular are not for the first-time investor," Sharga concedes. "Especially if the person hasn't done their homework." Generally, buying at an auction means buying a home sight unseen, without inspections or disclosures. That means doing as much research about the property as possible, including ordering a title search to find out if there are other liens or loans."

'"Preforeclosure sales" (as they are known in the business) are typically less risky, but many regular home buyers may not have the stomach for them. They involve directly contacting people who are in the first stages of default -- having missed a mortgage payment for three or more months -- to ask them if they want to sell their home. This kind of real estate purchase has always seemed to me to be the most unethical because it directly preys on the homeowner's misfortune and vulnerability."

"But Sharga sees it differently. "People always talk about vultures circling the homeowner," says Sharga. "But in many cases this is a win-win situation. The buyers can get a home at below-market, the sellers can avoid foreclosure, which is a devastating experience, and the banks can avoid the costs of repossessing the property."'

"Indeed, as more people genuinely need to sell their homes to avoid foreclosure, it's arguably a more ethical decision to buy from them than from someone who is simply ready to cash out and move to Montana. But for homeowners living in a house they can no longer afford, that may be one morality tale they'd just as soon not have to hear."

Job Losses Increasing Each Month

"Although there are signs job growth has stalled, fewer people were looking for work last month than in any August in the past five years."

"Unemployment in Sonoma County fell in August as teachers returned to the classroom after summer vacation, the state reported Friday."

"Job growth, however, has slowed substantially since February. For the fourth consecutive month, there were fewer jobs in Sonoma County than the same period in 2005. And the rate of job losses has accelerated each month."

"The jobless figures reflect the number of people actively seeking work and do not include those who have stopped their job search without finding employment."

'"It's the best unemployment picture since 2001," said Cynthia Solorio, an analyst who tracks job data for the state Employment Development Department. "We have fewer people looking for work, and hopefully they are picking up jobs."'

"The county was down 2,900 jobs in August compared with a year ago, including 300 in construction, 300 in health services and 1,000 in hospitality."

"Census Bureau figures show that young families are leaving the county as the number of high-paying high-tech jobs dwindles and housing costs increase."

"State employment figures show about 241,800 county residents were employed in August, down from 247,800 a year ago. The figures track residents who work at jobs in Sonoma County and residents who work outside the county."

"Thirteen percent of 30- to 39-year olds left Sonoma County in the past four years, the latest figures show."

"Last month, an estimated 10,300 Sonoma County residents were looking for work, compared with 11,400 a year ago. Paradoxically, the number of employed people in Sonoma County has also decreased, Solorio said."

"Almost 6,000 fewer Sonoma County residents are employed now than at this time last year. Some of them may have retired or otherwise dropped out of the job market, but others have likely moved out of the area, Solorio said."

House Credit Card is Maxed Out

"Consumer spending slowed in August as housing's slump took its toll."

"Sales cooled in housing-related sectors, suggesting the wealth effect and equity withdrawals from rising home values are wearing off. Purchases of electronics and appliances grew just 0.1%. Furniture sales fell 0.3%."

'"Consumers -- especially those in affluent communities where we've seen dramatic rises in property prices -- can no longer use their homes as credit cards," said Ira Kalish, economist and retail analyst with Deloitte Research. "Those days are over."'

"Stanley Furniture (NASDAQ:STLY - News) cut its second-half profit forecasts late Wednesday, citing weak sales. Ethan Allen (NYSE:ETH - News) and home improvement giants Home Depot (NYSE:HD - News) and Lowe's (NYSE:LOW - News) also have made gloomy comments in recent weeks."

"Building material sales rose 0.1% from July, but these typically lag housing starts as construction plans are made well before buying supplies. Year-on-year growth has slowed in recent months."

"Upscale housewares chain Williams-Sonoma last month cut its 2006 profit target because of softening sales."

"Kalish said that if home values fail to rebound and consumers continue to rein in spending, the U.S. economy could even fall into a recession next year."

'"It's hard to see anything that would compensate if there is continued weakness in the housing market," said Kalish. "Exports and business spending are not going to do the trick."'

Thursday, September 21, 2006

Sticky Fingered Agent

"In Sonoma County's competitive housing market, homeowners not only have to deal with the stress of selling their homes, they also have to worry about someone stealing their stuff."

"While real estate agents have always warned sellers to lock away valuables from potential sticky-fingered buyers, one recent incident highlights a danger from the other side - the agent herself."

"Lori Bye, a north Sonoma County real estate sales agent, is scheduled to be sentenced Tuesday after admitting to burglarizing a Windsor house she was supposed to be showing."

"The homeowners told Sonoma County sheriff's detectives that Bye asked them to vacate for a short time while she showed the house to a potential buyer. The owners said they sat in a car a few doors down and saw Bye arrive alone and leave alone after a brief stay."

"Bye, 41, was arrested in March when the homeowners reported 10 bottles of prescription drugs were missing after she was seen leaving."

"Most crimes involving real estate agents are actually targeted at the agent, said Julie Hunter, who owns Hunter Prestige Properties."In 17 years of business in this county, I've never even had a smidgen of an incident like this," she said."

"More common, she said, are violent attacks on agents.In June, a violent assault on a Napa real estate agent who thought she was meeting a potential buyer at a vacant house prompted a regionwide safety warning from the North Bay Association of Realtors."

"Law enforcement agents say such crimes - whether by agents or by would-be buyers - may be underreported because homeowners might not notice the missing property quickly."

"The Bye case is reminiscent of the 1980s case of the "lockbox burglar," who was sentenced to six years in prison after being convicted of 10 counts of burglary and nine counts of theft.The burglar and an accomplice, both licensed real estate agents, were believed to have used passkeys on lockboxes installed on homes listed for sale."

"Both had their real estate licenses revoked, which is likely what will occur in the Bye case, state Department of Real Estate spokesman Tom Pool said. Bye, who also worked under the name Lori Monette, had been let go from at least two other real estate companies after questions arose about missing medications at homes she'd visited, according to court documents."

"The state regulatory agency fingerprints agents as part of the licensing process and receives information from law enforcement agencies and the courts when an agent is arrested and convicted.Last year, the agency revoked 439 licenses, out of about 500,000 agents statewide, according to department statistics."

"Having a "substantially related criminal conviction" is among the most common reasons for revocation, he said.Of 12 revocations in the past quarter in the department's Oakland region, which includes Sonoma County, 11 were for such convictions."

Dear Builders, Tell Us Where it Hurts...

"A home building company considering two big projects in Petaluma has backed out of one land purchase and negotiated a $2.35 million discount on the other."

"The discount stems from a slowing housing market and an estimated $1.85 million in fees for a water conservation and reuse program the city plans to adopt.The price change also includes $350,000 the company may have to pay to relocate Old Adobe Developmental Center from the facility's home on school property."

"Unable to secure approval for a 4-acre project at the edge of the downtown Turning Basin, Centex Homes backed out of the deal two weeks ago and forfeited its option payments and city planning fees.But the company appears to be moving ahead on a 180-home housing project on land next to Casa Grande High School after the Petaluma school board on Tuesday voted unanimously to reduce the sale price from $25.3 million to $22.95 million."

"Centex backed out of buying the property, between Copeland and Weller streets, after holding an option for 18 months."

'"It wasn't a total surprise, but it was a shock," said Gina Pittler, one of the property's owners. She said the property's partners are accepting new offers, and two possible developers have shown an interest in the property."

"Centex originally was asked by the city to enter into a master plan with Basin Street Properties's Golden Eagle Shopping Center and the Sonoma-Marin Area Rapid Transit organization's railroad yard for redevelopment of that area.The master plan collapsed after Basin Street pulled out and abandoned its plans to redevelop Golden Eagle."

"Centex said its research showed there wasn't enough demand to support the amount of commercial space the city envisioned in its planning for the area. Centex was willing to revise its plans in July but canceled those plans this month in the face of a slowing housing market and the risk involved in starting over in the approval process."

No One Should Be Surprised....

"Sonoma County home prices dropped for a second consecutive month in August as buyers sought bargains and sellers cut prices to make houses stand out in a crowded market."

"It marks the first time since 1997 that prices have dropped for two straight months when compared with levels from a year ago."

'"The buyers are just waiting to see if sellers are adjusting their price downward, if they can get an even better deal on a house," said Bob Buhman, a broker-manager for Creative Property Services in Santa Rosa."

'"There are many people standing on the sidelines right now," McCormick said of buyers."

'"There's going to be a better time to buy. But they're going to be real tentative and driving hard bargains."

'"Sonoma County home prices face a greater risk of falling within the next two years, according to a study released Tuesday by PMI Mortgage Insurance Co., a national mortgage insurer in Walnut Creek."

"There is a 60 percent chance that prices will decline in Sonoma County, up from 51 percent a year ago, according to the study, which is based on home prices, employment and affordability."

'"No one should be surprised by the slowdown we're seeing," said Mark F. Milner, PMI's chief risk officer. "Over the past five years home prices appreciated much faster than incomes, and that can't continue forever."'

"Signs are mixed as the housing market moves into the fall and winter when purchases typically decline. Still, prices might dip further until there is a better balance between buyer demand and the number of homes for sale, brokers and lenders said."

"Sellers were slow to respond to the changing market. Often, they would price based on what a home might have sold for a year earlier and not against what comparable homes sold for recently, brokers said."

'"This thing is much deeper and has happened much faster than people realize," said Marty McCormick, president of Financial Company of America, a Santa Rosa lender."

"Sonoma County's overall median resale price fell in July, marking the first year-over-year price decline in more than four years. August's price drop was steeper, and further declines are looming, brokers and lenders said."

'"We're still seeking that level because there's a lot of buyer caution in the marketplace," Laws said. "I don't know if we have hit the bottom."

Baby, we've hit bottom when the only left for you to hold onto is the floor.

My Zimbio
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