Tuesday, September 04, 2007

'A Bigger Hit Than Anyone Saw Coming'

From About.com:

A few months ago, a borrower came to Fidelity National Title in Sacramento to sign loan documents. She was closing on her dream home. As the escrow officer explained to the borrower that her new PITI mortgage payment would be $2,500 per month, the soon-to-be home owner's jaw fell.

"But I take home only $2,500 per month," the borrower gasped. Apparently nobody explained to the borrower that she would be responsible for paying taxes and insurance. Those liabilities bumped her payment to $2,500 per month.
A Sacramento man bought a home two years ago by taking out a 2/28 mortgage. After it closed, he called his lender to complain that he did not realize his mortgage payment could go up 2 points on his two-year loan anniversary.

To further complicate the situation, since the value of the home rose after one year of occupancy, the owner refinanced his mortgage into another 2/28 mortgage. He also rolled the costs of the mortgage into his loan and financed them, which increased his mortgage balance.

As the owner watched home prices in his neighborhood fall, he became depressed. It's easy to point fingers at the mortgage lender, but this borrower was advised by his agent not to refinance. His home is now worth less than he originally paid for it. What's worse is he owes 120% more than the value of his home.
From the LA Times:
According to a recent Fox News poll conducted by Opinion Dynamics, there's 70% opposition to a taxpayer sub-prime bailout. "It is amazing all the sympathy we are seeing from politicians for people who knowingly took out loans they couldn't afford, often lying on their applications to do so," commenter "srl" posted at the LA Land blog I write for the Los Angeles Times. "Usually," added "Brian," "when the facts are examined closely, we find people who . . . took a chance that house prices would keep rising, that they could remodel the kitchen, buy the truck and the motorcycle, put it on the credit card and pile that debt into the next refinance. ."
How can these people oppose helping out their fellow Americans? Easy. Many or most of them saw this crisis coming years ago -- not through any real estate wizardry but by observing the signs that have been in front of us through most of this decade. In large parts of the United States -- and in all of Southern California -- the housing market turned into an obsession, a mania. So when the mortgage industry nearly collapsed this summer, Americans were fully versed in 100% financing, "liar loans," "teaser rates" and "flippers." There was no mystery here, no unforeseen "perfect storm."

And yet now, just as the market is starting to cool and possibly provide buying opportunities, many of these folks -- especially those patiently waiting out the bubble -- find themselves crashing a pity party for the very buyers who priced them out of the market. They are furious that the government appears interested in supporting overextended borrowers and high prices....
Politicians, by rushing to the defense of recent home buyers, give the appearance of endorsing price stability at historically high levels...Why should government favor today's owners over tomorrow's buyers?
From the Stockton Record:
Donna Kniess and a friend have their three-bedroom, two-bath Clarks Fork Circle home in Spanos Park West up for sale at $389,000 - and the for-sale-by-owner fliers specifically note to agents: "I am not interested in having my home listed with an agent. This allows me to offer a better price to the buyer."

Thus far, the only response has been a deluge of printed information or phone calls from agents who want to list the house, Kniess said...Actually, there has been one other response: Someone pulled the for-sale-by-owner sign out of the front yard Thursday and placed it by the garbage bin in the backyard.
Longtime real estate agent Kevin Moran of Coldwell Banker Grupe concentrates on foreclosure residential properties. "I saw the writing on the wall," he said. Moran, who has worked in real estate a quarter-century, said he decided to specialize in foreclosure properties this past spring, when it became clear how much the market was slowing for traditional sales.

"It's just a bigger hit than anyone saw coming," he said. He expected about a 30 percent drop in business. Instead, it's down about 70 percent from its heyday in 2005. Moran estimated three out of 10 homes on the market these days are foreclosures and expects that will increase in coming months.
From Newsweek:
When CNW Research asked consumers who were putting off plans to buy new cars why they were doing so, 17.6 percent cited housing issues like falling home equity or rising mortgage payments. That compares with just 2.3 percent in 2005. John Crane, general sales manager at Ron Smith Buick Pontiac GMC Jeep in Merced, Calif., a farming community of 80,000 that has experienced an influx of Bay Area refugees, has seen a tremendous slowdown in the past six to eight months. "People don't have the money to look at cars," he says. "They're having a hard time paying house payments. Now their second mortgages and 1 percent loans are coming up."


smf said...

Ah, that pesky PITI problem...

I wonder how many got suckered or played stupid with that pesky PITI?

Or maybe they got qouted with only PI, or I, or 1/2I only.

Patient Renter said...

"It's just a bigger hit than anyone saw coming," he said. He expected about a 30 percent drop in business. Instead, it's down about 70 percent from its heyday in 2005

This is directly in line with the sales numbers from August (sacrealstats has some numbers). Things are down about 2/3rds right now from the same time in 2005. Ouch.

smf said...

"Things are down about 2/3rds right now from the same time in 2005. Ouch."

But when they make a comparison with 2006, it doesn't look as bad.

While they are not lying, it does not provide the whole story when the stats are compared with 2006, which as people here now, the bubble had already popped then.

Patrick Hake said...

For Placer County, which is the area I follow closest, volume actually peaked in 2004, even though prices continued to climb until August of 2005.

Year Residential Sales (Placer)
8/2007 321
8/2006 369
8/2005 570
8/2004 609
8/2003 544
8/2002 430
8/2001 383
8/2000 412
8/1999 409
8/1998 350
Metrolist cuts off at 10 years back.

Volume is now almost half of what it was in 2004. Sales have not been this slow for over 10 years in Placer County.

Real said...

Year Residential Sales (Placer)
8/2007 321
8/2006 369
8/2005 570

Hey Patrick, what is the ratio of Sales / Realtor(TM) over that horizon? My assumptions is that not only are prices down somewhat and volume has cratered, but with the ballooning in the number of Realtors (TM), I would assume the pain on a 'per Realtor (TM)' basis is much, much worse.

Patrick Hake said...

I do not have access to historical numbers for PCAR or SAR membership, but the current membership number for PCAR appears to be 2675, based on their online membership directory.

Many agents work in both Placer and Sacramento County, but are members of just one of the associations. For our purposes, I will assume that all of the sales in August were performed by members of the Placer Association.

There were 321 residential sales in Placer County during August. Each sale was 2 sides, 1 side for the listing agent and 1 for the buyer's agent. That would mean for August 2007, there were 642 sides.

With a total of 2675 Realtors, that would mean there was 1 sale for every 4.16 Realtors in the Placer County Association of Realtors during August. This means 3 out of 4 Realtors did not receive a paycheck during August.

It is actually much worse than that, because the 80/20 rule applies to the real estate business. 20% of the agents do 80% of the business.

The top 10 agents, based on the number of closed sides, accounted for 53 of the 642 sides during the month or 8.25%. So 4/10ths of 1% of the agents in Placer County were responsible for 8.25% of the sales in August.

Patrick Hake said...
This comment has been removed by the author.
Patrick Hake said...

I just figured out a way to determine the total number of agents that closed at least one transaction in August.

There were a total of 287 agents who closed at least 1 transaction in Placer County during August in Metrolist MLS.

That means that on average, assuming all of the transactions in Placer County were performed by PCAR members, 8 out of every 9 Realtors in Placer County did not close a transaction or receive a pay check in August.

Diggin Deeper said...

Now there's a guy who really has a handle on his finances...Two 2/28's in a year. Yup, you figure out you're screwed once the loan readjusts and to compensate you go right back to the lender and sign up again...Brilliant!!

Diggin Deeper said...

The news picture isn't so rosey today. Job creation down, pending home sales down, layoffs on the rise.

Pending Home Sales Down 12.5% in July


Lay-offs surge 85 pct in Aug vs July: survey


Aug private sector job growth lowest in 4 years.


All due the the RE and credit excesses... Imho, home prices will be affected to the downside if we enter into a recession.

Gwynster said...

I have a dear friend who refi'd out of a 30yr fixed into an ARM. The sad thing is he also works for Intel. Him I worry about although I tried to warn him over and over.

B. Durbin said...

The good news for that first borrower— the one with the PITI problems— is that she didn't complete the paperwork, and the escrow officer refused to notarize it. In other words, she's not going to be an FB, just a sadder and wiser renter.