Sonoma Housing Bubble

Pulling the cork out of Sonoma's bubbly housing foolishness

Friday, April 13, 2007

Our Market Tanks Faster...

"The Sonoma County housing market remains one of the weakest in the Bay Area, with prices continuing to slide here."

"Prices and sales fell in the three North Bay counties -- Sonoma, Marin and Napa."

'"When our market tanks, it tanks faster, and when the rest of the Bay Area comes out of the slump, they come out first," said Rick Laws, Santa Rosa manager for Coldwell Banker, which provides monthly real estate data to The Press Democrat."

"Sonoma County had the second-biggest drop in home prices in March, down 5.5 percent from a year ago. Only Napa County fared worse, with a 9.2 percent drop in prices."

"The DataQuick report shows Sonoma County's housing market is lagging behind most other Bay Area counties."

'"In Sonoma County, the median price of a residential unit stood at $520,000 last month, down from $550,000 a year earlier."'

This is the 9th month in a row that the median price has declined.

'"We took more of a hit in terms of median price and numbers of transactions, and we have more inventory than most of the other Bay Area counties," Laws said."

The PressDemocrat reported: Sonoma County sales fell 19.2% puts the annual sales decline at 22.5% though they break out the condo/vs. single family home sales in order to make the numbers look better than they are. They also reported only a 3% decline in median home price and still claimed it was up to $556k. Since is done by realtors, I am going to say that dataquick's numbers are probably slightly more reliable, but only slightly.

Sonoma County Data

MLS: 3464

Price Reduced: 1038

Foreclosures: 1632

47% of Sonoma County homes on the market are in some stage of foreclosure

Sonoma Valley Data

MLS: 341

Price Reduced: 111

Foreclosures: 89

26% of Sonoma Valley homes on the market are in some stage of foreclosure

In other news...
(from the NYTimes)

“In a stark reversal, it’s now clear that people who chose renting over buying in the last two years made the right move. In much of the country, including large parts of the Northeast, California, Florida and the Southwest, recent home buyers have faced higher monthly costs than renters and have lost money on their investment in the meantime.”

“It’s almost as if they have thrown money away, an insult once reserved for renters.”

Local company speculates on Boomer demand...

"Reverse Mortgage Advantage Inc., a loan correspondent and brokerage, recently moved to a new Windsor office in anticipation of expected growth of reverse mortgage lending in the North Bay." "Reverse Mortgage Advantage originates and processes loans on behalf of banks, credit unions and mortgage brokers that do not have their own reverse mortgage services."

"Ninety-five to 98 percent of mortgage brokers don't want to be bothered with it," Mr. Nannini said. "It's just too small a product."

"Reverse mortgages have long been available to older homeowners, but once had a reputation for being risky because of penalties for selling a home too early and other pitfalls. "They were full of exorbitant fees and in a lot of cases, it was just not a good decision for the borrower," said Gale Davis, president and CEO of Tracy Federal Credit Union."

"Alan Nannini said that he helped start Reverse Mortgage Advantage in Santa Rosa last August to prepare for the demand for cash by baby boomers nearing eligibility."There's a potential there that it’s kind of betting on the future, but it's a pretty safe bet. I think it's going to be a real strong market. There's a lot of retirees here," Mr. Nannini said."

"Older homeowners who have paid off their mortgage or owe very little can use reverse mortgages to generate cash flow by borrowing against their home equity without having to repay anything until they no longer occupy the house."

"Lenders say that reverse mortgages have become more popular as real estate prices increased, making homes the most valuable asset for many people. A few years ago, Bank of Marin said it saw an opportunity to help cash-hungry homeowners take advantage of soaring real estate prices, and decided to get into the game."

'"We knew that there was a need out there in the community," said Try Aman, the bank's reverse mortgage officer."'

'"We knew that there were people who had a lot of equity in their homes, especially the high-valued homes in the area."'

"Since Bank of Marin was a business-oriented bank that wanted to offer a consumer product, it decided to distance itself by acting as the loan correspondent but not the lender. "We weren't 100 percent sure if this was a product we wanted to book ourselves," Ms. Aman said.Reverse mortgages originated by Bank of Marin are held by Financial Freedom, Ms. Aman said."

Friday, April 06, 2007

Protecting the Stupid is NOT the State's Job!

"Brad Cottrell was a paramedic when a friend introduced him to the high-rolling world of sub-prime mortgage lending.Within three years of landing a job with Ownit Mortgage Solutions Inc. in Agoura Hills, his salary had tripled. His wife quit working and they bought a 3,000-square-foot house in Camarillo."

"But late last year, defaults on risky loans began to rise. By December, Ownit was out of business, and the 35-year-old father of three was out of a job."It was a nightmare," he said. "I felt like I got hit by a Mack truck."

'"There's a lot of that going on. When Irvine-based New Century Financial Corp. on Monday became the latest mortgage company to file for bankruptcy protection, it handed 3,200 employees their walking papers."

"In California, mortgage industry job losses soared 367% in the first quarter. In California, the 3,679 mortgage industry jobs lost in the quarter pales compared with the 70,000 construction jobs that economists figure could disappear over the next two years."

By the way...
In March the number of houses on the market in the Bay Area jumped by more than 12,000 percent to just over 24,000. (??? 12,000% really??? who is their fact checker? 12,000 units maybe?)

News from Oregon...

"Now that many subprime lenders are going belly-up and causing jitters on Wall Street, housing advocates decided the time was ripe to seek new consumer protections for would-be customers. On Wednesday, the Senate Business Committee rolled out Senate Bill 965, which would enact new safeguards for home buyers against so-called "predatory lending."'

"Nearly one-third of all Oregon mortgages issued in 2005 required interest-only payments, according to the Oregon Center for Public Policy. Those buyers are banking on rising property values to boost equity in their homes. Many people are taking out negative-amortization loans, in which their loan principal grows rather than shrinks with each payment."

"Sen. Larry George, R-Sherwood, panned the bill. "If someone is being deceptive, I'm with you," George said. But it's not the state's role to "protect people from being stupid," he said."

Thursday, April 05, 2007

DreamLife to Prison Life

SAN FRANCISCO -- "A Central Valley man who was a finalist for naming rights to the 49ers football stadium was sentenced Wednesday to nine months in prison in connection with a real-estate fraud scheme."
"In 2004, DreamLife Financial (where Daniloo was branch manager) was a finalist for naming rights for the San Francisco 49ers football stadium at Candlestick Point."

"Tony J. Daniloo, 32, of Turlock admitted in December to embezzling between $2.5 million and $7 million from homeowners in the East Bay and the Central Valley. Prosecutors also said that he was responsible for more than $100 million in fraudulent loans. He pleaded guilty last year to all 122 counts that had been lodged against him in a federal grand-jury indictment handed down in August."

"Daniloo defrauded lenders and embezzled cash, in part by making false claims about liens on properties, while he was manager of the Dublin branch of a mortgage brokerage company from 2000 to 2002."

Spiteful, Jealous, Bitter, Renter?

Behold... the Internet is Mightier than the Homeowner?

"An off-duty cop on March 30 was surfing Craigslist for spare auto parts. His duty beat included an area of east Tacoma, so he paid attention to a posting that advertised the entire contents of an address on a block he knew."

'"It was along the lines of, free house, take everything you want," said Tacoma Police Department spokeswoman Gretchen Ellis. "He thinks, 'That's strange,' and filed it away in the back of his head."'

"Back on duty a few days later, Ellis said that the same police officer heard a call go out — a burglary report at the exact address he'd seen on Craigslist while shopping for parts. He looked up the original ad and it was gone."
"He's pretty smart with the Internet," Ellis said, "so he Googled it, and found the first 35 characters, the header, on Google cache. This information was subsequently added to the police incident report."

"Laurie Raye, a landlord in Tacoma, Wash., now has firsthand experience at Web-engineered looting. She received the call a few days ago from a neighbor, telling her that a rental property she owned was being burglarized."

"By the time Raye arrived, her front lawn was littered with unwanted personal items. Inside the house, the water heater, light fixtures, newly fitted vinyl windows and the kitchen sink had been pried loose and carted away."

"Raye was left devastated, tearful and confused. She also filed an incident report with police, who provided some insight."

"Craigslist declined to comment on this case as a courtesy to law enforcement, but said that "any activity that violates our terms of use is NOT welcome on Craigslist at all."'

"No charges have been filed yet in what Ellis described as a "civil matter." Of course, it's unclear how "civil" the case really is — Raye had recently evicted her tenants."

Yahoo! for Foreclosures

"In a sign of the financial times, Yahoo unveiled an online Foreclosure Center on Wednesday that gives tips on how to buy foreclosed homes and allows people to search for foreclosed properties by city or ZIP code."

"Yahoo executives said they started the site to help average house hunters find bargains in foreclosed properties. Although Yahoo has allowed people to search for foreclosed homes for several years, it has created a page dedicated to the service and added how-to articles and some statistical information."

'"Foreclosures offer a tremendous savings opportunity, yet for the average home buyer remain an area where access to information is limited," said Michael Yang, general manager of Yahoo Real Estate, in a news release."

"Yahoo's site is certainly an easier alternative to hiking over to the county recorder's office and sifting by hand through foreclosure filings. And there's no question that the number of foreclosures is rising."

'"This is a smart move by Yahoo to tap into a large market," said Ken Rosen, chairman of the Fisher Center for Real Estate and Urban Economics at UC Berkeley. "This new market dynamic (of foreclosures) is big, ugly and unfortunate, but it leads to opportunities as well."'

"Real estate experts and consumer advocacy groups estimate that anywhere from 1.1 million to more than 2.2 million Americans could lose their homes through foreclosure over the next several years. The rise in foreclosures nationally is due to a combination of factors, such as homeowners taking on risky or exotic mortgages and then finding their house hasn't appreciated they way they'd been led to expect during the boom years."

Wednesday, April 04, 2007

Fraud Files IX

FBI: Mortgage lenders, borrowers beware

"Consequences of fraud, criminal activity can result in steep fines and lengthy prison terms.

The Federal Bureau of Investigation, seeking to stem a rising tide of crime in home financing, said Thursday it will warn borrowers and lenders that mortgage fraud can result in stiff fines and prison time."

"The FBI is targeting "industry insiders" in pursuing a "pervasive and growing" problem, it said in a report released Wednesday. Heightened focus on mortgage fraud comes as the downturn in U.S. housing heads into a second year, pressuring lenders already beset with surging delinquencies."

"Suspicious activity reports regarding mortgage fraud schemes that included property "flipping" and inflated appraisals have more than doubled to 35,617 in the two years through 2006, the FBI said in a statement. The reports reflect losses of about $946 million, it said."

Oops... something tells me the old mortgage broker/real estate agent "everyone does it" excuse is going to get them a nice room reserved for them at the county jail.

"The once-booming housing market and rising popularity of nontraditional home loans have produced an unwanted byproduct: a 35 percent increase in suspected mortgage fraud.

A new report by federal regulators indicates the fraud is being perpetrated by people seeking to buy homes or others in cahoots with brokers and agents who cheat the system."

Top 10 states for mortgage fraud

1. Utah
2. Florida
3. California
4. New York
5. Idaho
6. Michigan
7. Arizona
8. Georgia
9. Minnesota
10. Illinois

10 red flags that could indicate fraudulent or predatory lending practices. Here are a few:

- asking the applicant to lie on a loan application or to leave certain fields blank.

- encouraging a client to refinance more than once in a short period of time. Borrowers sometimes find that monthly payments rise after each refinancing, a possible sign that the mortgage broker or lender doesn't have their best interests in mind.

- a loan value that exceeds the value of the house. That can indicate a loan officer who wants a bigger commission. It can also indicate an attempt to squeeze extra equity from the real estate, as alleged in recent lawsuits filed against a Murrieta brokerage.

- Another potential problem comes when homebuyers allow their real estate agent to act as their loan officer, Bonawitz said. The practice became more common in 2003 and 2004 when there was a sudden flood of deals and not always enough real estate professionals to handle them.

"Arizona has shot up to No. 7 in a ranking of states with the greatest amount of mortgage fraud, blowing past the 23rd spot it held the previous year.This is the highest Arizona has placed on the Mortgage Asset Research Institute's annual fraud survey, which is based on the number of mortgage fraud cases per total of state home loans. Data from the nation's biggest lenders are used to compile the survey."

"Arizona saw the biggest jump in mortgage fraud from 2005 to 2006 largely because of a wave of cash-back deals last year. The deals involve getting a loan for more than a home is worth and pocketing the extra cash.It's a scam that inflates home prices in neighborhoods, leaves recent home buyers possibly owing more than their house is worth and can cost lenders millions of dollars due to bad loans."

"Metro Phoenix's overheated housing market in 2004 and 2005 opened the door for cash-back fraud. Then, speculators sparked bidding wars and pushed up home prices. At the time, fraud was committed by investors lying on applications to purchase multiple homes. But the real problems began as the market slowed and investors could no longer quickly flip homes for a big profit."

"Groups made up of everyone from investors to real estate agents, loan officers and appraisers began devising schemes to do cash-back deals. "Really hot real estate markets mask mortgage fraud," said D. James Croft of the Mortgage Asset group, which tracks fraud for the Mortgage Bankers Association. "When home prices level off like they have in Arizona, fraud becomes apparent."'

"More than 20 homeowners are pursuing legal action against a Greeley home builder and his associates, who they say defrauded them into purchasing homes out of their price range by falsifying documentation to approve them for the loans."

"Families began organizing Feb. 27 after several have either filed or have considered foreclosure. The homes, located in the Gateway Lakes subdivision in southwest Greeley, were purchased in the last two years from builder Mark Strodtman of JS Real Estate LLC."

"The homeowners said Strodtman and people who worked with him falsified their employment information, annual earnings and gave them money to temporarily deposit in their bank accounts to make it seem as if they had more money."

"Homeowners also claimed Strodtman gouged the prices on the homes before selling them as much as $70,000 more than market price in some cases."

"Homeowners said they worked with Jessica Feliciano and Charles Brandt, with JC Distinguished Finance, to get approved for the homes. Brandt refused comment and Feliciano could not be reached for comment."

"Strodtman said he hires outside sources to do the loans because he is not a lender, mentioning Creative Mortgage, Professional Mortgage Solutions, among others he works with. He said it was not his job to do the loan process and terms, but says he worked with Brandt and Feliciano on many of the homes."

"San Diego law firm Lerach Coughlin Stoia Geller Rudman & Robbins LLP announced that a class action has been commenced in the United States District Court for the Northern District of Georgia on behalf of purchasers of Beazer Homes USA, Inc. common stock during the period between July 27, 2006 and March 27, 2007."

"The complaint alleges that during this period, defendants issued false and misleading statements regarding the Company's business and prospects and failed to disclose to the investing public the following adverse facts:"

(a) the Company lacked requisite internal controls over its lending practices, which, as a result of its improper lending practices prior to and during the Class Period, would lead to numerous foreclosures and other problems;

(b) the Company's business was growing in large part due to its improper lending practices to low-income borrowers;

(c) many of the Company's buyers would not be able to pay their loans after the first two years, which would lead to decreased sales and earnings and numerous foreclosures; and

(d) given the increased volatility in the lending market, the Company had no reasonable basis to make projections about its 2007 results and as a result, the Company's 2007 projections issued during the Class Period were at a minimum reckless. As a result of defendants' false statements, Beazer stock traded at artificially inflated prices during the Class Period, reaching a high of $48 per share in December 2006, and the Company's CEO and CFO were able to sell over $9.7 million worth of their Beazer stock.

"State officials on Tuesday announced the formation of a task force to better coordinate efforts to root out mortgage fraud in Missouri."

'“Mortgage fraud affects lenders, mortgage brokers, Realtors, appraisers and, most important, consumers,” said Doug Ommen, director of the Missouri Department of Insurance, Financial Institutions & Professional Registration."

"The Missouri effort takes place against a backdrop of growing concern nationally. Many subprime lenders, who were all-too willing to make risky loans at high interest rates in boom times, are now facing rising defaults threatening their existence."

"Recent estimates place the annual losses caused by mortgage fraud at more than $4 billion, more than triple the estimates of a year ago. Investigators have rated Missouri sixth nationally in the number of mortgage fraud cases."

"The Mortgage Bankers Association Tuesday said it had jointly approved with the FBI a mortgage fraud warning notice to be used by its members. Ommen said a big challenge to stopping the fraud is that it usually involves a clandestine web of conspirators that include unethical mortgage brokers, appraisers, investors, real estate agents and lenders."

'“What this group is looking for are ways to identity the problems at an earlier stage,” he said."

"The two men stood on a front lawn they both thought was theirs. They avoided eye contact and did not speak. A sheriff's deputy took the house key from one man and told him he risked a trespassing charge if he returned."

"The other man walked into the home he had once made beautiful and found it in disrepair.
"He was my best friend," he said of the man who had left. Now he felt like killing him."

"Teri Allen and her mother, Jacquie, thought Edward Seung Ok would rescue them from losing their Anaheim Hills home after they'd gotten behind on their house payments. Instead, he transferred title to their house to a sham buyer, borrowed huge sums against it and pocketed the loan proceeds, the Allens would later allege in a fraud lawsuit."

"Leif Brogren’s employer, Kitty Hawk Air Cargo, had filed bankruptcy nearly two years before. But now the company was saying the Fort Wayne operation could close and workers could be out of their jobs. With three children at home and the possibility of a layoff looming, Brogren searched for alternative income. He turned to the real estate market, thinking he could make money renting out houses."

"As he explored breaking into the rental business, he was introduced to Rex Wells, one of the biggest landlords in Fort Wayne’s rental market, who promised to help him get started."

"Five years later, the 70 houses Brogren bought from Wells have been foreclosed on, Brogren has filed bankruptcy, the mortgage brokerage that secured the loans for him has been dissolved, more than a dozen participants in the deals are defendants in a federal lawsuit, and Wells’ sales of 149 homes are under investigation by a federal grand jury and the FBI ."

"Three Anchorage residents have pleaded guilty to charges that they were part of a mortgage fraud ring. The three are part of a group of seven Anchorage residents federal prosecutors have charged with deceiving mortgage lenders by overstating income and assets on loan applications."

"The ring used the money to buy residential properties and then sell them at higher prices, federal charging documents say. Altogether, the group netted at least $750,000 in profits from those sales, federal prosecutors assert."

"The conspiracy started in 2002 and involved loan amounts ranging from $156,000 to $796,000, according to the government's charging documents. Hasipi, Dorman and Marquiss each admitted before Chief U.S. District Judge John W. Sedwick this week that they had acted as "nominee borrowers," or stand-ins for a co-conspirator, who was the true beneficiary of the transactions, Cohen said."

"In December, federal prosecutors accused Kourosh Partow of being the ringleader, falsifying documents while he was a manager at the Anchorage branches of national mortgage companies Countrywide Home Loans and American Home Mortgage."

"According to one research group, the state of Utah is the worst in the country when it comes to home mortgage fraud. After years in the top five, the state overtook Florida to move into the No. 1 spot based on 2006 data compiled by the Mortgage Asset Research Institute (MARI)."

"On a per-capita basis, Utah has 2 1/2 times the national average of loans containing alleged fraud or serious misrepresentation, said Jim Croft of MARI. In the category of subprime loans made to people with marginal credit, the rate of fraud is even worse - three times the national average, he said. Many people don’t realize they’re being scammed until it’s too late."

"Sean Anderson was sold on a deal to build a house and earn fast equity.“It sounded like a great deal,” says Sean. “They hooked us up with the mortgage company, hooked us up with the appraisal, which came in um at $464,000. And I built the house for $425,000.”'

"Sean was told he could use the equity to make the payments.What he didn’t know was the agent and lender used an inflated appraisal.“I can’t make the payments,” says Sean. “There was no equity.” Cases like Sean’s put Utah at the top for mortgage fraud."

"Mortgage fraud takes many forms. A buyer lies on a loan application. A mortgage lender inflates someone's income so they can qualify for a loan. A crook uses someone else's Social Security number and uses it to buy a home."


* Application fraud: Buyers lie on a loan application or supporting documents to ensure they qualify for a home loan, or so they can borrow a larger amount of money. '

* Straw' buyers: Crooks use someone else's identity to obtain a mortgage and can pursue a related type of fraud called equity skimming, in which they cash out of any equity in the property.

* Lender fraud: Lenders want so badly to make a loan, they lie on a loan application to ensure it will be approved.

* Lease scams: Buyers may think they are getting a home but are actually signing long-term lease agreements with an option to buy the home sometime in the future.

"MARI is the most comprehensive collection agency for mortgage fraud. The agency collects data not only from cases of fraud being pursued by legal and regulatory agencies, but those not reported to authorities."

"Another source of information about fraud is the website They are a nonprofit group that tracks fraud and tries to educate consumers about the problem."

Tuesday, April 03, 2007

What a F%*#ing Disaster!

Title and most of today's content is courtesy of a sharp cookie economist who happens to be a Sonoma Housing Bubble reader. (thank you!)

We are going to discuss what happens when payment shock sets in from ARMs and Negative Amortization loans. Otherwise known as NAVLP according to Harm and Surfer-X (Negative Amortizing Voodoo Loan Product)

What exactly is a Negative Amortizing Voodoo Loan Product?

"These loans allow buyers to make minimum payments that don't cover all the interest due each month. The interest that isn't paid is added to the principal. The shocker comes when the principal grows to a pre-determined level (perhaps 110%, or 115% of the original loan) and the loan is "recast" immediately as a fully amortizing loan, in some cases resulting in a doubling of the monthly payment."

Did you know...?

* More than 70 percent of the mortgages originated in California during the past two years were variable rate loans, and most were interest only, according to David Lereah, the National Ass. of Realtors chief economist, who notes in the June 2006 Real Estate Insights that a median-income household living in San Francisco had to stretch its credit with an interest-only mortgage to afford a home in a metro area where the median price was more than $740,000."

Well, now he would know wouldn't he?

* Something else true that Lereah actually said: '“If rates continue to increase, the higher monthly mortgage payment from the repricing of variable-rate mortgages could result in high delinquency and foreclosure rates that could aggravate already sluggish local markets.”'

* Nationally in 2005 about 28% of loans in the U.S. had some form of Adjustable Rate, where low initial interest rates expire and are replaced by current, presumably higher rates.

* In 2004 the % of Adjustable Rate loans was 33%

* In 2001, ARMs represented about 12 percent of all mortgages, according to national mortgage buyer Freddie Mac. But in 2004, the figure had risen to 33 percent. Last year, it dropped to 28 percent.

* Freddie Mac's survey in 2006 says that 40% of loans in their survey were 5/1 hybrids, with an average initial rate of 5.96 percent fixed for the first five years.

* Nationally, about 10% of the loans taken out in the past two years had negative amortization.

* New research by the Mortgage Bankers Association of America found that adjustables accounted for 59 percent of subprime loan originations as of mid-2006.

* In California, 60% of all loans made in 2005 were interest-only or payment-option adjustable rate mortgages. 24% were NAVLP. In the Bay Area 29% were NAVLP.< < * In Sonoma County 69% of loans in 2005 were interest-only or payment-option adjustable rate mortgages.

* About 13% of the owners who face a mortgage rate reset this year have less than 5% equity in their home, and therefore will not be able to refinance unless they have other assets.

* If prices fall 5%, the percentage with no equity would grow to 23%, according to Christopher Cagan, director of research for First American CoreLogic, a mortgage research firm in Sacramento. And if prices fall 10%, it would jump to 35%.

March 25th, 2007 the California State Senate Banking, Finance, and Insurance Committee held an informational hearing to inquire into the collapse in this state and the nation of the "subprime" mortgage market. There is concern over the ticking time bomb for ALL "teaser" rate adjustable rate mortgages, but of course they are only claiming to be worried about the "subprime" meltdown, though you don't need to be a rocket scientist to know from the stats that there is much more to worry about than Subprime.

When the teaser rates expire and the interest rate increases, it is predicted foreclosures will also increase. More white elephants will come out from under the carpet and onto the market, and will depress prices and make it difficult for owners to "dump" their albatross.

People like Paul Leonard, director of the California office of the Center for Responsible Lending made an appeal to help borrowers and strengthen mortgage laws.


I have an effing suggestion for you Paul! How about you let the market correct itself and rid itself of idjits who handed out money to people who couldn't repay it? Next time around try hiring people who can do math, and can calculate income vs. expenses and only lend to people who don't spend more than they make.

"It used to be that the mortgage industry refused to lend more money than borrowers could repay. There were strict standards requiring a hefty down payment and limiting the size of a loan. These standards helped create the largest secondary mortgage market in the world, which gave big investors the confidence that they'd get their money back with a nice return if they funneled trillions of dollars into the U.S. housing market."

"But that was before lenders realized they could make more loans and earn higher profits if they bent the standards, right under the noses of the investors who bought those mortgages."

"The result was an explosion of exotic mortgages, all designed to maximize the amount of the loan: adjustable-rate loans with little or no money down, loans with no documentation of income or assets, loans with a simultaneous second mortgage, mortgages with low initial "teaser" rates, and even mortgages with monthly payments so low they don't even pay all the interest due."

"It might be more accurate to call them "lemming loans," however, because that metaphor best describes the mass insanity and suicidal financial consequences of such loans."

"If it hadn't been for the extra leverage created by lemming loans, the housing bubble would have never gotten off the ground. It's how ordinary bungalows began to be priced like mansions -- suddenly families with ordinary incomes were getting approved for almost unlimited credit."

"For the first time in the nation's history, a significant number of Americans are being threatened with the loss of their home even though they still have a steady, good-paying job.
It's not just an issue for people with poor credit, those with subprime loans."

"It also affects people with good enough credit to qualify for a prime loan. Known as Alt-A mortgages, these loans were written for 1 in 5 U.S. mortgages and could have a big impact on the economy and on credit markets -- bigger, perhaps, than the effects of the recent shockwaves buffeting the subprime-lender market, economists say."

'"This is different," said Mark Zandi, chief economist for Moody's, who warns that the problems in the subprime mortgage market will spread. "It will mean the difference between an economy that will glide through the slowdown and an economy that sputters."
"The risks are all negative," Zandi said."

"In coming months and years, the credit crunch that's now squeezing mainly the poor is likely to hit millions of middle-class homeowners who took out risky loans during the great housing boom earlier in the decade. More than 1 million families will lose their homes in the next few years, by one estimate. Another study predicts 2.2 million foreclosures."

"According to a Credit Suisse report, tighter lending standards, increased foreclosures, more supply on the market, lower prices, and less construction of new homes will affect all parts of the market."

"It's not just a subprime issue," Ivy Zelman, a housing analyst for the bank, wrote in the report.

"This threat is new in American history. In the past, homeowners have generally lost their home to foreclosure only when they suffered a major life-changing event, such as loss of their job, a major illness or death of a family member. A big jump in foreclosures was unheard of outside a recession that brought high unemployment."

"Because this risk is so novel, experts don't have a clear grasp yet on how big of an impact the credit crunch might have on the economy."

"Researchers are studying three major channels through which a mortgage meltdown's shockwaves could rattle the economy. The most direct way would be through falling home prices."

"Demand will continue to fall. Tougher mortgage underwriting standards will eliminate about 20% of the potential buyers, including 50% of the subprime buyers and 25% of the Alt-A buyers, according to estimates by Credit Suisse. The supply of homes would also grow."

"Foreclosures and homes dumped on the market by desperate sellers would further depress prices, which in turn would further depress voluntary home sales and home building in a vicious downward spiral, some analyst say. Housing would remain a drag on the economy and on employment for far longer."

"In a weak market, some homeowners facing a large payment shock would find it difficult, if not impossible, to refinance their loan or sell their home for what they owe on it."

"And then there's the chilling effect of a slowdown on consumer spending. According to Federal Reserve data, consumers have taken about $3 trillion in equity out of their homes in the past five years, adding about 7% to disposable incomes every year. That boost kept the economy humming and has driven the personal savings rate below zero for the first time since the Great Depression."

"Homeowners experiencing rising equity felt richer and didn't feel the need to save as much. Economists say consumers spend about 5 cents of every extra dollar in (imagined) housing wealth."

"If home prices fall or even flatten out, consumer's ability to fatten their wallets based on home equity would be curtailed. In addition, households faced with much steeper mortgage payments would cut back on discretionary spending to avoid defaulting on their mortgage."

"Investors who eagerly bought these risky mortgages on the secondary market are having second thoughts, not just about subprime mortgages, but also all the other bits of paper in their portfolio that they didn't pay much attention to. They are finding out that there's not as much collateral in the collateralized debt obligations, known as CDOs, as they were led to believe."

"And once investors turn cautious, it's difficult to predict how it will play out. After all, in the Asian financial crisis of 1997-98, even countries with sound policies were punished by investors rushing to get their money out of Asian markets. There's not much reliable information about who owns the riskiest mortgages."

'"This has the potential to undermine global investor confidence," said Zandi of The result could be a general drying up of credit, even to the most qualified and untainted borrowers."

"In a paper issued last month, Joseph Mason, a finance professor at Drexel University and visiting scholar at the Federal Deposit Insurance Corp., and Joshua Rosner, managing partner of Graham Fisher & Co., concluded that the market hasn't accurately priced in the risk of default on non-traditional loans, or of the even-more complex mortgage-backed derivatives they are spun into."

'"Even investment-grade CDOs will experience significant losses if home prices depreciate," Mason and Rosner wrote. And decreased funding for mortgages from big investors "could set off a downward spiral in credit availability that can deprive individuals of home ownership and substantially hurt the U.S. economy."'

"In the worst-case scenario involving a credit crunch, "a vicious cycle of lower spending, weaker hiring and income gains, tighter credit and still lower spending could result, pushing the economy into recession," according to a recent report by Goldman Sachs."

"So far, defaults and foreclosures in the subprime market have received all the attention. The latest data show that more than 14% of subprime adjustable-rate loans were delinquent at the end of 2006, compared with 2.3% for prime fixed-rate loans."

"America's housing bubble wasn't fed by subprime borrowing alone. Especially on the coasts where home prices were soaring, many buyers with excellent credit, high incomes and good jobs took out more debt than they can repay. Nationally, these Alt-A loans accounted for about 20% of mortgages last year, and more than half of the loans in the states with the frothiest housing markets, according to Credit Suisse."

"Goldman Sachs economists have concluded that delinquency rates are rising nearly as fast for the riskiest prime ARMs, the loans some are calling "toxic loans," or "exploding mortgages."'

* "Last year, 55% of the Alt-A loans came with simultaneous second mortgages."

* "The average loan-to-value ratio was 88%. More than 80% of Alt-A borrowers chose to provide no documentation of their income, and 62% took an interest-only or option ARM that reduced payments at the beginning with the promise of higher payments later."

* "More than one quarter of the Alt-A loans were one-year adjustable loans, not the five-year adjustable that has been the standard for prime borrowers."

"During the big housing bubble, all these loans performed well. With rising prices giving homeowners additional equity, they could always roll one lemming loan over into another, and they could usually take thousands of dollars of equity out as cash. The credit rating agencies gave their seal of approval to these loans. Now, however, home prices are no longer rising, and that could make many of these loans go sour in a hurry."

'"Cumulative foreclosures on 'teaser-rate' mortgages -- which are classified as jumbo or Alt-A rather than subprime -- could significantly exceed those on subprime mortgages," Jan Hatzius, chief economist of Goldman Sachs, wrote in a research note."

"The danger of the lemming loans is that as more of them go bad, more homes will come on to the market. That will drive down prices even more, taking away what little equity the remaining homeowners have and eliminating any chance for them to refinance their loan or sell the house for what they owe. And even more homeowners will go off the cliff."

* "Cagan figures that every percentage point drop in home prices will mean another 70,000 foreclosures."

* "According to Cagan's research, about 8.4 million households have adjustable-rate mortgages that are expected reset to a higher rate in the next few years."

* "About 1.3 million have mortgages with initial teaser rates below 2% that will reset to a much higher payment when the introductory period elapses. On average, they'll face an increase of $1,512 in their monthly payment."

"Someone with a $500,000 mortgage (not uncommon in the Bay Area where such loans are popular) with a 2% teaser rate could find her $1,850 monthly payment rising to $3,500 or more. That would represent a mortgage payment of more than 50% of the median household income ($86,300) in San Francisco."

"For homeowners already stretched to the breaking point, the mortgage reset will be catastrophic. But there's something even worse: negative amortization."

"Large percentages of recent buyers ranging from California and Florida to Washington and Virginia will face an additional shock because they took out a negative-amortization loan."

"This comes on top of any scheduled reset of the mortgage rate."

"Negative-amortization loans were most popular in the areas with the fastest-growing prices during the real-estate bubble. Now most of those same areas have experienced falling prices, meaning the house may be worth less than what the owner owes the bank."

"According to the S&P/Case-Shiller index, U.S. home prices were falling in most metro areas at the end of the year. Even in the San Francisco Bay Area, prices fell at a 5.5% annual rate in the last half of 2006, and 9.2% in San Diego."

ps. Do you like rollercoasters? Hat's off to Speculative Bubble for this awesome production.

Monday, April 02, 2007

The Road to Housing Hell... Paved with Loose Lending Standards.

"The crisis in risky mortgage loans is shedding light on aggressive lending practices by some of the largest U.S. home builders, which stand accused of using lax standards and illegal sales tactics to arrange financing for buyers."

"Last week, Beazer Homes acknowledged that its mortgage subsidiary is being investigated by federal regulators for loans made to hundreds of people who bought Beazer homes. But the complaints about loan practices go beyond Beazer."

"The Department of Housing and Urban Development is taking more actions against home builders and their affiliated lenders, says Brian Sullivan, a spokesman for HUD."

"We are seeing increased consumer complaints about builders," Sullivan says. "Including kickbacks and illegal referral fees, phantom incentives and other violations of our real estate laws."

"One of those complaints was from Griff Carmichael, who looked at a new home built by Ryan Homes in Winchester, Va., in October. The builder said it would finish the basement and give him $10,000 toward closing costs, if he used its lender, NVR."

"Carmichael signed a contract to buy a $378,000 home and put down a 10% deposit. He had a good credit history. But with his auto and student loans, NVR's loan broker said Carmichael would qualify only for an interest-only mortgage, according to a letter from James Sack, NVR's general counsel."

"Carmichael, 34, was willing to apply for the loan but insisted it be a "full documentation" loan, which has a lower interest rate than "low-doc" loans. But the broker said he would likely be denied. Sack wrote that Carmichael's "refusal to apply for loan programs for which he is more likely to be approved is evidence of not using good faith." Ryan Homes is refusing to return Carmichael's deposit."

"New Century Financial Corp., overwhelmed by rising defaults from borrowers with poor credit records, became the largest subprime mortgage lender ever to fail as it filed for bankruptcy today."

'``They're clearly going to be the poster child for bad practices in the mortgage industry,'' said Matthew Howlett, an analyst at Fox-Pitt Kelton in New York. ``When all is said and done, the management team will be to blame.'''

I think we will see a wave of lenders who will become the Enrons of the housing bubble.

'"The company rode the U.S. housing boom to become the largest independent mortgage lender to subprime borrowers, only to collapse as interest rates rose and home prices fell. New Century's market value soared to more than $3.5 billion in December 2004, and last year it made about $60 billion in loans. Like rival firms, the company lowered its lending standards to keep business flowing after demand slumped."'

"In the past two years, New Century underwrote about $120 billion of loans, or more than half the total since its inception. Subprime loans accounted for 86 percent of all New Century loans last year, the company said in today's court filings."

"The Wall Street firms that provided about $17.4 billion in credit lines to New Century after March 2 demanded that the company post $150 million in cash as additional collateral. The company had to halt new loans after it failed to make the payment and couldn't persuade the Wall Street firms to keep the credit lines open."

"New Century ranked second only to London-based HSBC Holdings Plc last year in total U.S. subprime mortgages granted. HSBC said last week it's planning to slash subprime lending operations."

"U.S. prosecutors opened a criminal probe of accounting errors and trading in securities at New Century, the company said March 2 in a filing with the U.S. Securities and Exchange Commission. Since then, more than a dozen states have told the company to halt operations, citing complaints from borrowers that their loans weren't being funded."

"Ownit Mortgage Solutions Inc. of Agoura Hills, California; Mortgage Lenders Network USA Inc. of Middletown, Connecticut; ResMae Mortgage Corp. of Brea, California; and People's Choice Financial Corp. of Irvine are among rival companies that filed for bankruptcy. "

"The subprime mortgage crisis is likely to spread to a higher tier of loans known as Alt-A, according to an economist affiliated with the University of California at Los Angeles."

'``The question is to what extent,'' David Shulman, a senior economist with the UCLA Anderson Forecast in Los Angeles, said in an interview. ``That could be the next shoe to drop. Certainly, it's a very reasonable concern.'''

'``We suspect the problem in the subprime area is just the tip of the iceberg for the mortgage market as a whole,'' he wrote in a report released today."

"Lawmakers have criticized the Federal Reserve and other bank regulators in recent weeks for allowing too many borrowers to get mortgages they couldn't afford to repay."

Sunday, April 01, 2007

Sonoma County Facts & Stats

(4 Horsemen graphic shamelessly stolen from Dr. Housing Bubble since we have readers here very fond of the 4 Horsemen of the Housing Bubble Crash. Go ahead and impose Sonoma County instead of "southern california" and it will all still apply) ;-D

Foreclosures Active in Sonoma County: 1,500
Foreclosures 2/04/07 = 543
Foreclosures 1/20/07 = 523

Sonoma County MLS: 3287 (13.04 months supply)
Price Reduced: 957

Sonoma County MLS Listing Progression

3/20/06 = 1742
3/26/06 = 1766
4/03/06 = 1888
4/19/06 = 2828
4/25/06 = 2868
4/30/06 = 2898
8/10/06 = 4072
8/16/06 = 4298
8/18/06 = 4318
12/26/06 = 3002
1/06/07 = 2777
1/20/07 = 2832
2/04/07 = 2854
3/16/07 = 3160
4/01/07 = 3287

Sonoma Valley MLS: 325
Price Reduced:

Sonoma Valley MLS Listings Progression

2/14/06 = 172
2/14/06 = 183
2/24/06 = 193
2/25/06 = 200
2/27/06 = 214
3/01/06 = 219
3/04/06 = 220
3/12/06 = 230
3/20/06 = 236
3/26/06 = 238
4/03/06 = 268
4/19/06 = 291
4/25/06 = 305
4/30/06 = 315
8/10/06 = 471
8/16/06 = 487
12/26/06 = 304
12/28/06 = 300
1/20/07 = 281
2/04/07 = 269
4/01/07 = 325

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