Sonoma Housing Bubble

Pulling the cork out of Sonoma's bubbly housing foolishness

Friday, August 08, 2008

Bleakest market since the Great Depression

Fannie Mae (FNM.N) on Friday posted a much larger-than-expected second-quarter loss and slashed its dividend more than 85 percent to preserve capital as home loan defaults accelerated in the bleakest U.S. housing market since the Great Depression.

Fannie Mae Chief Executive Daniel Mudd told a conference call the company anticipates increasing its loss reserves.

"The housing crisis that we all observe as we drive home every single day continues to strain our results and our capital," he said.

By year's end, Fannie Mae will stop buying Alt-A mortgages, riskier mortgages that require less proof of borrower income. These loans made up about 11 percent of the company's total single-family mortgage credit business, but spurred about half of its credit losses in the second quarter.

Fannie said it has already reduced its holdings and purchases of Alt-A mortgages by 80 percent from peak levels. Far fewer such loans are being originated under tighter lending standards imposed as a result of the subprime lending crisis.

"With the slumping market, lenders are reevaluating borrowers' property values and risk profiles more frequently, triggering freeze notices for those with high loan-to-value ratios."

"During the first quarter of 2008, consumers fell behind on home equity credit lines at the fastest pace in two decades, according to the American Bankers Association."

"Morgan Stanley, the second-largest U.S. securities firm, is the latest to adopt the practice."

'"A segment of clients was recently notified of a change in the status of their home equity line of credit due to a change in the value of their property or their credit profile," Christy Pollak, spokeswoman for the New York-based lender, said Thursday."

"Washington Mutual, JPMorgan Chase and other big lenders have taken similar steps as home values continue to slide."

'"Lenders know real estate prices are dropping, and they're trying to mitigate their losses," said Dale DiGennaro, vice president of the California Association of Mortgage Brokers."

"So far, the trend hasn't spread to community-based banks and credit unions. "

'"We haven't taken that approach," said Anne Benjamin, vice president at Redwood Credit Union in Santa Rosa."

"The not-for-profit member cooperative, which has about 3,500 home equity lines outstanding, considers other kinds of security for its loans, she said."

"Santa Rosa's Exchange Bank also has avoided the practice, said spokeswoman Padi Selwyn. "We are not currently freezing home equity lines or loans," she said. "But we are reviewing the portfolio regularly."'

"Exchange Bank has more than 1,000 home equity lines outstanding."


At 8/08/2008 01:51:00 PM , Blogger marinite2 said...

Welcome back to the bloggosphere Athena!

I've moved into full spectator mode. Got popcorn?

At 8/08/2008 01:55:00 PM , Blogger Athena said...

I do indeed have plenty of popcorn. Looks like this will be a show our grandchildren will talk about.

At 8/09/2008 12:17:00 PM , Anonymous Anonymous said...

I'm really happy this blog is active again. Sonoma Cty seems to have some unique issues compared to cities closer to SF and near Sacramento.

As a recent arrival (1 year) it was very obvious how thin the job market was for decent well paying jobs. It never made sense to my wife and I that people could afford 600,700,800k,etc houses when the average wages were so low. I guess it didn't make sense after all.

On a personal level it's getting frustrating leasing a house. We have kids and want to settle down in a neighborhood. They're at that age where schools and making friends are important.

It doesn't seem like people here in Petaluma have completely connected with reality. Prices are still too high for houses we wouldn't even consider if shopping in other states.

We like West Petaluma and need 4+ bedrooms which puts us in contact with a lot of arrogant realtors and unrealistic owners. People won't accept offers but time and again the houses end up going to the bank. WTF!

I say wait another 12+ months. My wife may kill me in the meantime if she doesn't get her own home.

Anyone who understands Petaluma have any thoughts?

At 8/10/2008 07:16:00 AM , Anonymous Tom Stone said...

I am just beginning to see a few homes sell for an economic price in Sonoma County.There will be more after september when kids are back in school,and in a year the market as a whole will be approaching realistic prices.I do not anticipate bargains in good neighborhoods before 2010,but by then sellers (Banks) will be happy with any offer.

At 8/10/2008 12:32:00 PM , Blogger marin_explorer said...

"...puts us in contact with a lot of arrogant realtors and unrealistic owners.

Aren't they annoying? I think they've caught the dreaded Marin disease. The worst case I ran across was a converted office right on Petaluma ave that was so cheerleaded by the realtor--despite decades of zero improvements. And I simply got fed-up with seeing so much shoddy work on W.Petaluma homes that wasn't to code, and foisted on unsuspecting buyers. Prices need to fall another 1/3.


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