Monday, March 19, 2007

"Collapse of the Most Exuberant Housing Boom Ever Seen in Sacramento"

From the Sacramento Bee:
Trouble begins with a slow-motion descent toward your first missed mortgage payment. It's a queasy feeling thousands of Sacramento-area homeowners know too well as their houses slip away.
...
So what should you do if you're in trouble? Put off car payments to make the house payment? Max out credit cards and exhaust the savings account? Stop eating out and drop cable TV? Foreclosure? Bankruptcy? Short sale?

Increasingly, these are the questions of real life nearly two years after a collapse of the most exuberant housing boom ever seen in Sacramento.
...
Antelope resident Elizabeth Tufts faced two choices when, following a divorce, she found herself with a home worth less than what she and her former husband paid for it in 2004. "In my case, it was either a short sale or have the house go into foreclosure," Tufts said. The young working woman was behind on house payments and lacking the income to keep up. In an oversaturated market she couldn't find a buyer.

Eventually Tufts found her least painful ending through Derek Kirk, an Elk Grove-based real estate agent who specializes in short sales. Kirk persuaded the bank to accept less than it was owed due to Tuft's hardship.

But Kirk said too many people have a misconception they'll be approved automatically for a short sale. Banks largely aren't saying yes unless the hardship is related to a lost job, bankruptcy, divorce, death, medical crisis, relocation or some other financial difficulty, he said.

"It's got to be something that involuntarily happened to the person to put them into a worse financial position," he said.

That usually eliminates homeowners who have seen their interest rates adjust higher or took a loan they couldn't afford. It rules out people who didn't read their loan papers before signing and investors who bought a house expecting to flip it for a quick profit.
...
If nothing works, bankruptcy protection may be the ticket to keeping your house, said Sacramento attorney Peter Macaluso. A bankruptcy specialist, Macaluso said owners who used 100 percent financing with an 80 percent first loan and 20 percent second loan for the down payment can sometimes avoid obligations to pay the second, depending on how the bankruptcy filing is structured.

"In the last five years I didn't do but one or two," he said referring to home-related bankruptcies. "In the last six months I've probably done 10, and I know my fellow cohorts are doing the same."

18 comments:

chuck said...

Wasserman seems to be an OK guy, but the Bee has been so far behind the curve it is embarrassing, for them...but if you scan the sections and sections of real estate ads for new stucco slum crap you can't really blame them, since the newspaper business is Kaput....

However this is about where I came in about a year ago...after the previous two years of everybody asking WTF is going on with this speculative market....

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Soros: "Gigantic Real Estate Bubble"
Submitted by Rich Toscano on June 24, 2006 - 6:30pm.
I just came across this blurb from George Soros' latest book:

I believe we are currently in the midst of a gigantic real estate bubble. It was caused by the determination of the Federal Reserve Bank not to allow a stock market decline in 2001 to turn into a self-reinforcing rout. The federal funds rate was lowered to 1 percent. Mortgage institutions encouraged mortgage holders to refinance their mortgages and withdraw the excess equity. They lowered their lending standards and introduced new products such as adjustable rate mortgages (ARMs), “interest only” mortgages, and promotional “teaser rates.” All this encouraged speculation in residential housing units. House prices started to rise at double-digit rates. This served to reinforce speculation, and the rise in house prices made the owners feel rich; the result was a consumption boom that has sustained the economy in recent years. Again, the bubble can be attributed to a short-circuit between the value of assets and the act of valuation. This short-circuit is called the wealth effect.

Nothing qualitatively new nor surprising to readers of this site; it's just always nice to have one of the world's most successful financial market players land on our side of the debate.

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(category: housing market)
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Patient Renter said...

The SacBee is definately behind the curve, but so is all of the mainstream media.

That bit in the article about possibly being able to keep the house despite bankruptcy, how does that work? That sounds ridiculous.

drwende said...

In California, you can file a Declaration of Homestead, which protects your primary residence against some claims in a bankruptcy. (Some sources say there's an automatic homestead on your primary residence, even if you don't file the paperwork.)

The problem is, the homestead protects at most $150,000 in value, often less, depending on the owner's circumstances. If you owe $400,000, you're still in a mess.

There are a lot of "help with your debt" firms offering to prepare homestead filings for a fee, claiming that this protects the whole house in a bankruptcy, so I think we see where the growth industry is there.

drwende said...

Looking closely at the article, I think the logic may be that you go Chapter 13, so you have a repayment plan for the first mortgage, then you use the homestead exemption to evade the second mortgage.

Perfect Storm said...

Is the homestead exemption really $150K?

Chapter 13 only delays foreclosure. The borrowers is still required to make the payment. Plus these notes are secured debt not unsecured.

No New Arena must have a ton of log ons for the Sac Bee, I know he always knocks my comments.

drwende said...

That limit was bugging me, too, so I made sure that I was looking at the actual California Code of Civil Procedure, section 704.730, rather than at someone's outdated Web site. Here's the exact text on the exemption:

704.730. (a) The amount of the homestead exemption is one of the
following:
(1) Fifty thousand dollars ($50,000) unless the judgment debtor or
spouse of the judgment debtor who resides in the homestead is a
person described in paragraph (2) or (3).
(2) Seventy-five thousand dollars ($75,000) if the judgment debtor
or spouse of the judgment debtor who resides in the homestead is at
the time of the attempted sale of the homestead a member of a family
unit, and there is at least one member of the family unit who owns no
interest in the homestead or whose only interest in the homestead is
a community property interest with the judgment debtor.
(3) One hundred fifty thousand dollars ($150,000) if the judgment
debtor or spouse of the judgment debtor who resides in the homestead
is at the time of the attempted sale of the homestead any one of the
following: [all of these exceptions involve being a senior citizen and/or disabled]


You see why I'm grasping at someone excusing the second while continuing to repay the first... this just isn't useful for the entire value of the house.

cba said...

Is the information on Housing Tracker correct??

Perfect Storm said...

I think the homestead exemption does not mean crap with secured property.

I have seen my share of foreclosures in my day and this never came up.

Perfect Storm said...

From the Imploder Forum "Adjustable Rate Reset Schedule:

The chart is from a recently Bear Stearns/Credit Suisse conference call was interesting.

Everybody should go to the imploder forum and see the graph, very interesting time line. Majority of subprime resets at the end of 2007 and Alt-A majority resets in two years. Double sting, it would be like dropping two atom bombs one after the other.

I do not care what anybody says this housing market is toast. Were talking huge price hits, major inventory, foreclosure tidal wave.

Got popcorn?

Perfect Storm said...

HOMESTEAD EXEMPTION: If you are sued for a debt that is not related to the house, the first $75,000 of equity in your home (see below) is protected from foreclosure under Connecticut law. The protection does not apply against the holder of first or second mortgage. If you think you may qualify for this protection, you should consult an attorney as soon as possible.

Yeah I think the homestead exemption does not apply in California also for holders of 1st and 2nd deeds of trust, which is secured property.

Perfect Storm said...
This comment has been removed by the author.
Jeff said...

If you want to read a few excelllent articles on this bubble, check out the guy who claims to have invented the interest only mortgage. Very well written.

http://tinyurl.com/yd8xvv
http://tinyurl.com/37gcbj

two more on fraud...
http://tinyurl.com/ybcs3t
http://tinyurl.com/2q7su7

Max said...

From the Imploder Forum "Adjustable Rate Reset Schedule:

Adjustable Rate Mortgage Reset Schedule graph
Thread

SCProfessor said...

A homestead does not effect the interests of secured creditors where the encumbrance is "voluntary." In the case of a loan secured by a deed of trust on the property, that is clearly a "voluntary" lien and thus not effected by a declaration or homestead (or an automatic homestead).

Having said that, there is a creative way perhaps to avoid the second. The argument goes something like this. The property value has gone down to a point where it is only worth what is owed the holder of the first trust deed. So in reality the holder of the second trust deed is an unsecured creditor and should be treated that way in a plan relating to the Debtor's reorganization.

Dr Housing Bubble said...

Great chart. Looks like the majority of subprime loans will be reset fully in approximately three years. Print it out and keep tabs since we are just starting.

If anything this will be a long drawn out process; sort of like watching a Brittany Spears movie.

Dr. Housing Bubble

Patient Renter said...

Judging from the chart, one could assume companies like Countrywide won't be feeling maximum pain for another 2-3 years. Makes it hard to guess at when possible trouble will happen in the company.

anon1137 said...

I liked this blurb re: the subprime implosion:

Accredited, among those losing altitude recently, saw its shares rise as much as 30 percent after it said it secured a five-year, $200 million loan from Farallon Capital Management. The loan carries an interest rate of 13 percent.

The question is, who's dumber: the companies that make loans to people with bad credit, or the companies that make loans to the companies that make loans to the people with bad credit?

I'm afraid the answer is going to be: the taxpayers.

Gwynster said...

As someone on Ben's blog pointed out - the subprime leader now has a subprime loan.