Sonoma Housing Bubble

Pulling the cork out of Sonoma's bubbly housing foolishness

Thursday, March 15, 2007

Pixie Dust Sprinkled on Sonoma County...

...While Subprime Meltsdown.

The Press Democrat and Index Tribune are only noteworthy for the fact that when you have finished reading either or both you are actually DUMBER than when you started.

This is how the local press has covered the Subprime meltdown (the first domino to fall in the biggest margin call in history)

Notice the local information is either absent entirely or dipped in sugar hoping to hide the taste of the $hit they are trying to pass off as news. They are mostly borrowing their parent company's news feeds and AP reports hmmm... why the Lazy Ass Reporting?

Subprime Suspect: (apparently not written by anyone? as no reporter is credited)

"In 2005, economists were getting nervous as the real estate market reached stratospheric heights."

"They worried that values wouldn't continue to rise forever. They warned that when the bubble burst, people who had taken out mortgages in the subprime market would be most at risk of foreclosures.Unfortunately, sometimes economists are right.A survey released Tuesday found that home foreclosures are at an all-time high with 0.54 percent of mortgages entering foreclosure in the last quarter of 2006. For subprime borrowers, the foreclosure rate is 4.35 percent."

"In Sonoma County, 9.7 percent of all subprime loans were 60 days late on payments, compared with 11.8 percent nationwide."
Now didn't anyone tell them that trying to polish a turd would only result in becoming one with the stink and filth?

"Locally, lenders are responding by tightening requirements. This means people with poor credit history will find it more difficult to buy a home, even at the lower prices."



Bwahahahahahahahahahaha!!!! OMG! Holy Fecal Matter! bwahahahahaha!!! Now they have Fiated lower prices into being? Not yet, baby. Those lower prices are still WAY beyond the reach of most of the Loan Owners in Sonoma County. Only 7% of households... read that... HOUSEHOLDs could afford a median priced home. 70% took out toxic loans in 2005 alone. My bet is that 99% of that 70% cannot afford the loan they own.

Let me give you an example of what this is going to look like: (just delete "New Century" and insert the name of a local realtwhore agency or mortgage lender)

I’m a successful manager at New Century who just bought an expensive new house 8 months ago. The builder in my subdivision just lowered base prices by $80k, making me instantly upside-down on my 80/20.

I want to move back to my home state to cut costs but my savings has taken a hit over the last six months. I don’t have enough cash to sell at this time. To continue paying the mortgage I’ll need a job with high income…whether that’s in the mortgage biz or not. Sux because I’ve been with the company 8 years. I’m in a fine mess and any advice you all can give would be great.

by mtgdude007 March 15, 2007
BROKERUNIVERSE.COM

The supbrime and Alt-A meltdown hasn't even begun to hit Sonoma County yet. The prices will fall. But you haven't seen nothin' yet. There are thousands of Realtors and brokers with no work right now, no income, and lots of investment properties.

It does not matter if you have perfect credit. The problem is that your salary does not cover the real mortgage payment you own.This margin call will slap the $hit eatin' grins off the REIC in Sonoma County, and hopefully the local press will get slapped silly too.

Gobbledygook (also no reporter credited)

"The Federal Reserve and the financial markets don't see eye to eye on liquidity. The Fed says it isn't scarce, but investors don't entirely agree."

"There are many facets to liquidity, making it difficult to define. On the most basic level, it refers to the growth rate of money supply or the availability of credit. It also means being able to trade one asset for another to help minimize a loss in value."

"A major source of liquidity has been financial innovation, in areas such as the mortgage and derivatives markets. That has greatly increased the ability to conduct financial transactions, according to Wachovia Securities senior economist Mark Vitner."

translation... Greenspan fired up the printing press and money began emerging from every orafice of our nation's lending institutions. Joe6Pak could fog a mirror and therefore get a million dollar mortgage. Frito-Lay drivers, Gardners, Barbers, the UPS guy all were living large like they shat Ben Franklins thanks to all the dope money firehosed into the economy packaged as Howmuchamonth Mortgage products.

So Financial Innovation: = Toxic Mortgages for anyone who could prove only that they had a pulse.

Ability to conduct financial transations: = No regulation forcing lenders to verify ability to repay from borrowers.

Really? This has to be regulated? The professionals, and I use this term loosely, need actual regulation to tell them to verify a borrower's ability to repay a loan?

"But when there is too much liquidity for too long, "people tend to do some very foolish things," he said, such as loaning money to individuals with spotty credit histories to buy homes more costly than their limited income would deem to be prudent."

ah yes... very foolish indeed.

"Renewed calls from central banks and financial regulators for tightened lending standards are finally starting to take hold, which many market-watchers point to as one of the drivers of the recent pullback in stocks after months of record-setting gains."

"the volume of subprime loans to individuals with shaky credit is likely to decline at least 30 percent this year, analysts forecast. That means a big slowdown in the economic effects of the $600 billion in new obligations created last year, according to Merrill Lynch."

"For now, liquidity isn't totally dried up, but it certainly isn't as plentiful as it was not too long ago. "

Good heavens. Whoever wrote this Pressdemocrat piece of $hit actually ended the article with that line. WTF?

Here is what the PD Ripped from the L.A. Times

"A record number of homeowners entered foreclosure at the end of last year and more are making late mortgage payments, especially those with high-risk, subprime and government-financed loans, according to a quarterly survey released Tuesday by the Mortgage Bankers Association. "

"New Century Financial Corp. on Tuesday said it was under investigation by federal securities regulators as the New York Stock Exchange suspended the Irvine-based company from its stock listings. In San Diego, Accredited Home Lenders Holding Co. said it was laying off workers and looking at "strategic options" as its financial woes worsened."

"The national survey showed that 4.95 percent of average mortgage loans had late payments, compared with 4.67 percent the previous quarter and 4.7 percent a year before. It was the worst showing since spring 2003."

"The fraction of mortgages entering foreclosure during the fourth quarter of 2006 climbed to 0.54 percent, the highest since the association started reporting in 1972. The previous high of 0.50 percent occurred in the second quarter of 2002 as the country was recovering from a recession."

"The survey covered about 80 percent of the mortgage market, more than 43.5 million loans, including 33.3 million prime loans, 6 million subprime loans and 4 million government loans."

This is the $hitpile passed off as local reporting:

"The storm that is battering high-risk mortgage lenders is being felt in Sonoma County, where lenders are tightening standards for loans that almost 1 in 10 buyers needed to purchase a home."

"In another blow to the county's housing market, families with poor credit or those who can't afford down payments will find buying a home more difficult than just a month or two ago, when these so-called subprime loans were still widely available. That could reduce demand for homes in a market that has been slumping."

Um... but there was no bubble here. Common knowledge that up to the last month or so the market was being supported by families with poor credit and no downpayment, but why should that be a problem? Crap- if these people would just pay their bills on time then the party could continue huh? Is this the thinking behind this kind of fecal matter that goes unquestioned by the idiots that make up the true believers of the Real Estate Only Goes Up religion?

'"You're seeing a lot of the banks now that were offering 100 percent financing reducing that to 95 percent. Some banks have just ceased underwriting those loans," said Roger Farah, Santa Rosa branch manager for Mission Hills Mortgage Bankers."

"John Klein, branch manager at Charter Funding in Santa Rosa, has turned away more than a handful of home buyers the past month or two because they no longer qualify for loans under the tighter underwriting standards."They really can't afford what's out there," he said."

"The crisis in the subprime mortgage sector grew Tuesday as the Mortgage Bankers Association reported that more homeowners are defaulting on their loans."

"Sonoma County, however, may be able to weather the storm better than most other regions in California, according to data issued Tuesday by First American LoanPerformance, a San Francisco mortgage tracking firm. Only 7.9 percent of the county's home loans are subprime mortgages, well below the national average of 14.7 percent, First American LoanPerformance reported."

FICO scores aren't worth diddly if you can't cover the bills when your payment resets.

Hope you are ready to put your money where your mouth is, because I am going to save this trash quote and trot it out and ride it all across this county when Sonoma County really hits the crapper.

"Subprime loans traditionally have been issued to buyers with spotty credit or erratic incomes. Banks expanded their use by relaxing qualifying standards, such as allowing buyers to state their income without providing detailed documentation. The loans grew in popularity in Sonoma County among buyers who had to stretch financially to buy homes as prices soared during the first half of the decade."

Tom Stone,

tell them what the percentage rate is on Alt-A in the county. That comes next folks. Alt-A is already circling the bowl and while 7.9% of our 70% with toxic loan products may have been Subprime, the rest were still toxic waste loans packaged as affordability products to people with Fair credit and Good credit who COULDN'T AFFORD THE HOUSES THEY WERE BUYING!!!! Subprime is merely the first domino to fall. The Alt-A's and Primes will not be left unscathed and they will become those who need the subprime market that will no longer exist for them.

"Once in a house, homeowners count on rising values to generate the equity necessary to refinance into a longer-term loan with a lower interest rate."

oops! Looks like the funny money dance doesn't always work and turns out you do have to have a job that pays you enough to pay off your debts after all! Who could have imagined that? Doesn't Tinkerbell live here? Why in the world should a borrower have to pay out of their own pocket for the money they borrowed for a house. Doesn't the house pay for itself?

"Foreclosure activity has been soaring here and across the nation as more homeowners in financial difficulty face losing homes. The number of default notices lenders sent to Sonoma County homeowners more than doubled in the fourth quarter of 2006, compared with the same period in 2005, and was the highest in nearly a decade, according to DataQuick Information Systems."

"The loss of buyers relying on subprime loans could be offset by resurgent buyer activity in response to falling prices, said Sandy Geary, broker and owner of Re/Max North Bay Realty in Rohnert Park."

Sandy Geary is the new winner of the HUA Award.

""It's a little tighter. We have had lenders be a little more picky on their documentation. I have had deals where the deals took a little longer," she said. "But I think people are going to be very surprised at what's going to be going on in the next few months. Anything that is priced right is selling in a reasonable amount of time and sometimes with multiple offers."'

"With more lenders facing greater losses, Wall Street investors are pulling back from purchasing mortgage-backed securities. One result is more stringent lending standards."I can't tell you how many lenders we've gotten letters from in the past week," said John Klein."

"What had been a gradual tightening accelerated the past month or so. Lenders had been demanding higher minimum credit scores. The latest move has been eliminating 100 percent loan financing."

'"They feel it's going to slow down the amount of delinquencies," Roger Farah said. "If it's harder to find lenders that are willing to accept those loans, then it is more difficult to help those buyers. I think it's going to have an impact on the market."'

15 Comments:

At 3/15/2007 09:38:00 PM , Blogger Lisa said...

Local press coverage of the subprime mess implies it's a problem everywhere else but the Bay Area. We have more money after all. We're more financially savvy.

You bet, Alt A is next. And I think this is the majority of recent buyers given the "popularity" of piggyback loans and IO and neg-am. Bottom line, if you can't afford your house once the payment resets, that nice FICO score you USED TO HAVE won't help much.

There have been some postings over at Ben's housing blog, Peter Schiff from Forbes.com, wrote an extremely bearish assessment and really connected the subprime and AltA and spillover to everything else dots. But he's in the minority.

But given how much time CNBC seems to be spending on the subprime topic, maybe folks are starting to get the sense that something very wicked this way comes.

 
At 3/15/2007 09:47:00 PM , Blogger Lisa said...

Forgot one thing....the article that Peter Schiff (Forbes.com) wrote mentioned that a key reason we're seeing Subprime implode first is that those loans tend to have shorter "teaser" periods - 1 year or 2 years before the loan resets. Alt A is typically 3 to 5 years. So that's why we're seeing more of those loans go rotten first. Not that the Alt A borrower is any better equipped to handle a higher payment, but just that most of those loans have a longer "fixed" period, so problems in Subprime showed up first. Makes total sense.

Of course, no one in the MSM is touching that one with a ten foot pole. Everyone has too much vested in this. Imagine acknowledging that you are hundreds of thousands of dollars in debt for NOTHING.

 
At 3/15/2007 11:39:00 PM , Blogger Athena said...

Brilliant analysis Lisa. Alt-A is not far behind at all. Remember this data?:

Percentage of Sonoma County home buyers choosing some form of I/O, Negative amortizing and adjustable-rate mortgages (this includes subprime, Alt-A & Prime)

2003 - 36.8%
2004 - 59.4%
2005 - 69%


Accoording to a Sonoma Countrywide representative he said nearly 80% of his customers over the past 5 years chose Interest Only Negative Amortization Loans. His pitch to his clients, and he sounds like he believes it... if they have good credit, they didn't have to be able to afford the reset payment, they could always sell or refinance by then. Not good Sonoma County.

So what is going to happen is the Alt-A and Prime will try to refinance when their payments reset, but they won't be able to qualify on their credit score alone anymore. They couldn't afford the full loan amount payments when they bought their loan... and they won't be able to afford those kind of payments in 3 years, or 5 years.

When they get behinder as their alligator gets hungrier, their credit scores will fall. When their credit scores fall it will get harder to get any credit to keep their juggling game going.

Sonoma County enjoyed a population with relatively high credit scores there for a while. But a good credit score does not an income make.

relying only on credit scores and little to no verification of repayment ability, and drinking the Fool-Aid that everyone wants to live here and Real Estate Only Goes up, kept the subprime loans to a minimum. Nobody invited them to the party until they ran out of Fools with good credit willing to flush their lives down the mortgage toilet.

The subprimes in Sonoma County were the ones who entered at the top of the market and were the last bagholders invited to partake of the Fool-Aid. But like Jonestown... very very few made it out alive. In this debacle there is dumb and dumber... and they will all end up financial body count.

The Alt-A and Prime were the first fools invited to the bubble party, and the local lenders rejoiced in the amorality of lax standards. Fog a mirror get a loan, and greedy brokers and agents pocket bigass commissions. Don't worry if you can't afford the payments, everyone wants to live here, the house will pay for itself. And the fools with great credit but sporting a big box of stupid instead of brains partied it up.

They too are about to $hit the bed and they will have to lay in it!

 
At 3/16/2007 08:04:00 AM , Anonymous tom stone said...

Thanks,Athena.You gave the numbers yourself for Alt-a.A prime or conforming loan conforms to the standards of fannie or freddie.or it used to. Alt-a pretty much means they had a good credit score,but the loan type was "exotic"so 69% of the recent loans suck,at least.let us not forget that a 50-55% debt to income level has been considered just fine the last few years,which is nuts.that dti would be highly risky in a stable real estate market in an area with a strong economy.as far as business failures buybacks will hurt all of the small and midsize lending shops,fraud was pervasive in the industry,and even vigilant brokers will have had a few bad loans run through their shops.those who gave a wink and a nod will lay off their employees,walk away from their leased buildings and file bk,hoping to avoid a rico indictment.as far as the PD,no one who has read it twice expects competence or honesty.peter schiff was right about longer reset periods being available on Alt-a,however the most popular loan has been the 2/28 arm,because after 2 years you just sell for 40% more than you paid and avoid capital gains.you betcha,free money.

 
At 3/16/2007 08:18:00 AM , Blogger Lisa said...

Athena,

And remember that while 67% of Bay Area buyers were signing up for adjustable/IO/neg am loans, FIXED rates were at record lows. But no one I know got a fixed loan. Gee, I wonder why. Could it be they had little or no money to put down? Could it be they could only afford the house for the "teaser payment" period?? Could it be they didn't qualify under the more stringent standards for traditional fixed financing??

People had the choice to not buy at all or to buy within their means (small house, town home), and capitalize on low rates to secure a really low mortgage. But no, everyone had to go for the gold ring, the granite countertops. No one "makes you" buy at 6x, 7x, 8x+ your gross income.

Every recent first time buyer I know spent at least $700K for their first home. First home! And these people do NOT make much more than I do. No equity position. Payment reset down the road. Finances stretched. Very little in savings. I think everyone saw home ownership as a 0% risk, 100% guarantee to be wealthier for it.

I sold in 2004 and I am SO, SO glad. I haven't bought again, and won't until I am no longer competing with yo-yo's who have no skin in the game. Sorry, rant off -);

 
At 3/16/2007 11:09:00 AM , Blogger marin_explorer said...

"It does not matter if you have perfect credit. The problem is that your salary does not cover the real mortgage payment you own."

I think you've hit on the deeper problem that will surface in Sonoma, Marin, and the greater SF Bay: too many people took advantage of easy money to buy into nicer areas. Has anyone seen stats of how many prime+ buyers used these loans to "upgrade their lifestyle"? These are people who had an option to exercise some restraint, but thought the burgeoning market would provide a nice safety net. Oops.

I think this will be a startling shakedown--and much wider than the "subprime" crowd.

 
At 3/16/2007 12:29:00 PM , Blogger Athena said...

Oh Marin Explorer! Marin and Sonoma will be ground ZERO and the Poster Child of Prime and Alt-A who shat in the fan.

You should come on up and have lunch with MV and I sometime soon. We can go do some sight seeing at all the empty houses on the market and play "Who's in Foreclosure?" and take pics. I've been meaning to do a little fun piece on the number of specuvestor houses on the market here.

 
At 3/16/2007 03:22:00 PM , Blogger LisaM3 said...

I live out of state, but eventually plan to move to Sonoma Co. (when housing prices become more realistic). I recently visited Santa Rosa, and randomly stopped by a few houses listed for sale. Every house I visited was vacant. At one of the homes I saw, the realtor told me two contracts had fallen through on the home. In one case, the borrowers could not qualify for the loan.

This really feels like a market headed for a huge crash. I don't think it could just be a coincidence that so many homes I chose to look at were vacant.

Does anyone know the percentage of homes for sale in Sonoma Co. that are vacant?

 
At 3/16/2007 03:53:00 PM , Blogger Athena said...

Hi Lisam3- that is a great question. I just invited MV and Marin Explorer to do a little investigating with me. At this time the stats on vacant houses seems to be a guarded secret. They won't be able to keep it secret for long... but it is going to take some prodding. It is obvious to me here in Sonoma that practically every for sale sign is in front of an empty house, or a staged house made to look as if someone is there.

 
At 3/16/2007 04:08:00 PM , Blogger LisaM3 said...

One of the homes I visited was staged. When I first walked into it, I was not sure if it was staged. I opened some cabinets in the kitchen, and they were all completely empty. When I got to a bedroom, I opened a closet -- empty again.

I am not very high on the concept of staging. It can give the house an artificial, weird feel.

 
At 3/16/2007 05:08:00 PM , Blogger Athena said...

I am not big on the staging thing at all. Pet peeve to walk into someone's house and KNOW that it is not possible to LIVE in it. I want a house that will look great when I LIVE in it. When I need places for my $hit to go, storage etc. I want to see how does a house and space and layout stand up to being lived in.

So the staged theme is an automatic turn off for me as a buyer. It is proof that if it was a livable space they would have left it as it was.

Personally, we just moved. I suck at the whole decorating, and deciding where crap should go. I could definitely use one of those staging/organizer kind of peeps to come to my real residence and show me how to maximize space and make the place look good. but staging so I buy a place... nopey nope nope. Won't work.

One thing is I am completely shallow... I need a library, or a room that has floor to ceiling bookshelves or one I can put them in. Too many of those crappy stagers tell people to take bookshelves out of the house and not to have books up etc. Well, I tell ya, likely the house I will buy will have books from floor to ceiling in a room.

Also, they have them take down personal pictures and good art and they put up that crappyass hotel looking stuff. I don't have any crappyass hotel looking stuff and tons of family fun pics and I want to see a place where that stuff looks good!

Anyway... it is just a hollow money making parasite industry hanging on to the REIC gravy train of years past... probably made up of bored housewives who have a good eye for decor. They too will pass.

 
At 3/16/2007 05:22:00 PM , Blogger marin_explorer said...

Athena-
That would be interesting!
After I get past this initial product launch, it would be fun to get the buzz on Sonoma...

 
At 3/16/2007 06:55:00 PM , Blogger moonvalley said...

One thing is I am completely shallow... I need a library, or a room that has floor to ceiling bookshelves or one I can put them in. Too many of those crappy stagers tell people to take bookshelves out of the house and not to have books up etc. Well, I tell ya, likely the house I will buy will have books from floor to ceiling in a room.
I hear ya there. Our old house in LA had a library, one big room of floor to ceiling books. We gave away about 30 boxes of books to the Library when we moved everything up here last year. This house we're leasing has three bed rooms. They;re large rooms but we have no library per se. Instead we have shelves all around the garage. They were built in and they're currently holding our 5000 + books.
When we buy again we'll once more have a library, even if we have to build it.
I also don't get it when they tell people to remove their books from a house. Our house in LA appealed to us mainly because the stuff in it looked just like our stuff, so we could already visualize where everything would go. They were movie people too and it was uncanny we had the same taste. It was NOT staged, they didn't do that back in the mid 90's.
We should definitely make the rounds of the houses up for grabs, but we must behave ourselves and not let on what we're up to. Who knows how scarey these RE people get when they get frustrated??

 
At 3/16/2007 07:13:00 PM , Blogger Athena said...

Definitely! Let's prioritize the ones with snacks at the open houses. ;-)

 
At 3/17/2007 10:58:00 AM , Blogger moonvalley said...

Just be careful of the ones that have been on the market going on one year..those snacks might be a little stale by now.

 

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