Friday, July 27, 2007

'Run Out of Time'

From USA Today (via Builder Online) (hat tip: HBB):

Lupe Arroyo and her husband, Richard, for example, just took their Sacramento home off the market. Having tried to sell it since April, they cut their $369,000 asking price three times, to $329,500. "This last reduction was well below market value," Arroyo, 36, says. "It was a giveaway (price), and we still had a low-ball offer. We've frankly run out of time. We were planning to move to a different area, and we wanted to get our daughter enrolled in a new school. Now, it's one month before school starts."

Their agent, Tracey Saizan, says five of her clients have taken their homes off the market in the past few days. "I've had heart-to-heart talks with sellers who refuse to keep reducing prices."
From the Tracy Press:
Neighbors are finding it difficult to tolerate the condition of the house on the corner of Kavanagh Avenue and Lincoln Boulevard. It’s a typical suburban dwelling, a home just like theirs. But the house at 2901 Lincoln Blvd., is in foreclosure and abandoned. The front yard has chest-high weeds in place of a lawn, the side gate and garage door are wide open, and cigarette butts are strewn across the driveway. It appears to be a sitting duck for vandals and squatters.
...
The Lincoln Avenue property is hardly the only one in such shape. More than 10 percent of homes on the market in Tracy are being taken over by banks in foreclosure proceedings, local real estate agent Brian Barringer said. That’s 104 homes citywide, many of them abandoned or neglected....

Tracy residents have been filing a record number of complaints about the unkempt yards, stagnant pools and attempted burglaries associated with foreclosed homes, according to city code enforcement officer Jim Decker. “We have had a lot of complaints about foreclosed homes,” said Decker, “and we’ve had a marked increase of calls in the last 2½ months.” Decker said complaints haven’t come from one neighborhood in particular, but from areas both rich and poor throughout the city. “There’s really no concentration of these abandoned homes. They’re just sporadic locations,” he said. “These are vacant homes people have just abandoned.”

But real estate professionals are quick to point to the root of the problem — bad loans.
From the Stockton Record:
He is a successful business man, owner of a restaurant, a home and some rental property with decent credit. You wouldn't think Efrain Flores, 47, was struggling with mortgage payments.

He wasn't, until a few months ago, after walking into a subprime lender office to refinance his home. Flores walked out with an adjustable interest loan, 5.5 percent more than his original loan. Flores, a Spanish-speaker, signed something he didn't understand.
...
The refinance was supposed to trim Flores' monthly payment, but instead it nearly doubled from his original monthly mortgage by $1,000. And now, his equity line is dissolved. "I've worked hard to be someone and now I feel the bank is robbing me"...he said.
...
"By far, the ones that got mixed up with the piggy back loans to finance 100 percent of the property are most at risk," said Richard Pittman, housing services coordinator with ByDesign Solutions, a credit counseling organization based in Los Angeles. Often, by the time homeowners seek help, 60 percent of them find out it's too late to save their homes, said Pittman. "They have to pick up the phone before the damage starts, as soon as they realize the adjustment is coming up," Pittman said.

12 comments:

Diggin Deeper said...

"He is a successful business man, owner of a restaurant, a home and some rental property with decent credit. You wouldn't think Efrain Flores, 47, was struggling with mortgage payments."

"Flores, a Spanish-speaker, signed something he didn't understand."

And what is the inference here? Here was a successful businessman with rental properties, his own business, a home, and decent credit... but because he was spanish speaking, he got duped and didn't understand?

What, "no habla ingles" is the new defense for those who took out bad loans?

Reminds me of a former President wanting to use the definition of the word "it" as part of his defense.

I guess anything goes...

Patient Renter said...

"This last reduction was well below market value,"

Bzzzzzzzt. Nope. Market value is whatever makes it sell.

anon1137 said...

I don't understand why there are so many vacant houses (except the new houses - I get that). What % are bank-owned vs. investor-owned? If the house was bought by an investor hoping to flip it and he got caught in a market downturn, why not rent it out for whatever you can get? Better to have someone in there and even a little cash flow than an empty house. If it's owned by a bank, why aren't they selling or auctioning them off ASAP? Is it just that the foreclosures are coming so fast that the properties can't be turned over quick enough?

Being partly susceptible to conspiracy theories, it makes me wonder whether the banks are trying to control the rate of damage to the market because it might affect the book value of their other mortgage assets. As long as something hasn't sold yet, they can assume the value is the same as the last sale, right?

smf said...

"If the house was bought by an investor hoping to flip it and he got caught in a market downturn, why not rent it out for whatever you can get?"

Because the flipper could purchase a house prior to it being finished, and expect to sell it for a profit before he would have to make a payment.

Or purchase a home and get a cashback deal to cover the payments till the house was sold.

In other words, you could have played the game and not use any of your money.

And now with having to rent, it officially means that you will lose some money, not including the risks of damage that a renter could do.

Most of the flippers did not know and did not plan for becoming landlords.

"If it's owned by a bank, why aren't they selling or auctioning them off ASAP?"

Because as you stated, once they lower the price on one property to get it to sell, it balloons into lowering the prices in all your properties.

Patient Renter said...

Bad news for free speach and for bloggers today:

http://ml-implode.com/viewnews/2007-07-26_JudgeFranklinR.TaftDeniesMlImplodeMotionToStrikeviaAntiSLAPP.html

Diggin Deeper said...

"it makes me wonder whether the banks are trying to control the rate of damage to the market because it might affect the book value of their other mortgage assets. As long as something hasn't sold yet, they can assume the value is the same as the last sale, right?"

In essence they are but it can't go on indefinitely as banks have shareholders to answer to. Non performing loans, that are growing each month, begin to eat into cashflow and reserves. The bigger banks can hold out much longer than smaller ones as their funding charters and loss reserves are much higher. But a some point they all have to get rid of these homes, take the hit, and move on. I'd bet the smaller banks flinch first.

smf said...

You have to also understand that once the full extent of the bubble and related problems come up, the lawyers will be all over it.

Few of us would be willing to take a $200K hit and chalk it up as a 'learning experience'.

I would not doubt that soon we will see lawsuits about bank and lenders 'deceptions', as losers try to shift blame to others.

Diggin Deeper said...

I wonder why it's so quiet at Freddie Mac and Fannie Mae. You got to believe they hold the bag on $Billions of subprime paper. I barely see them in the finanacial news.

paranoid renter said...

>>>>
I wonder why it's so quiet at Freddie Mac and Fannie Mae.
>>>>

They're still trying to figure out what kind of spin to put on it.

Looks like we're headed for a big time taxpayer bailout.

norcaljeff said...

"This last reduction was well below market value,"
How is it below market value if no one is buying it? Its not market value until someone is willing to pay you that price. Sounds like Sippinlogic.

anon1137 said...

I don't buy that most of the vacant houses are new. The house in the story above, 2901 Lincoln Blvd., appears to have been first sold in 2002. And flippers/investors don't have to be landlords if they don't want to, since all they have to do is hire a property management firm to rent the house.

So, why are all these houses vacant? I get that builders can't stop building so I expect to see lots of empty new houses sitting around for the next few years and the stocks of these builders will keep plunging just like US carmakers. But in resale neighborhoods? with green pools? These flippers/investors need to take their losses and get on with life - this thing is only going to get worse.

Nothin' but time said...

"these flippers/investors need to take their losses and get on with life - this thing is only going to get worse."

De-nile ain't just a river in Egypt, my friend.