Monday, December 17, 2007

"Loans to Sacramento Trailer-Home Buyers...Trigger a Global Credit Crisis"

From the Toronto Star (hat tip Tyrone):

Anatomy of a credit crunch
Who would have thought questionable loans to Sacramento trailer-home buyers could someday trigger a global credit crisis

The current calamity arises from a systemic failure over, of all things, home mortgages – one of the most dead-simple financial transactions in existence. When the housing bubble was gaining altitude, lenders, regulators, debt-rating agencies, buyers of bundled mortgages and central bankers couldn't imagine that questionable loans to Sacramento trailer-home buyers could someday trigger a global credit crisis.
From the Sacramento Bee:
Even in a region with more than 7,600 foreclosures in just the first 10 months of the year, no place has been hit as hard as Western Avenue in North Sacramento. On the block where Marshall lives, 16 of 45 homes have been foreclosed in 2007 – more than on any other block in the four-county region, according to a Sacramento Bee analysis of thousands of foreclosure records...Of the 16 homes foreclosed on the street's hardest hit block, at least 13 had been bought with adjustable rate mortgages, according to a Bee review of property records.
But, by several accounts, Western Avenue was getting better when multiple new homeowners – most carrying expensive subprime loans given to borrowers with shaky credit – moved into the neighborhood during the past three years. They were chasing bargains and believing the hype about everyone being able to own a home.

Now, with the collapse of the housing market and the plunge of home values, Western Avenue's best chance to escape its past appears to have come – and gone. "This is like a Third World country," says Michael Davis, who grew up in the neighborhood and lives in a rented house on the street.
Jack Poe is among the few who has seen opportunity in Western's crisis. The ATM repairman and his sister were able to buy half a duplex from US Bank a month ago for $86,000, well below the $125,000 to $200,000 prices similar homes on the street were going for just a few years ago. Poe got a taste of reality right from the start: Someone stole the air conditioner from his new place while it was vacant. "We don't have a lot of neighbors right now," says Poe, 47, who formerly lived in a rented house in Rancho Cordova. But he's upbeat about having 800 square feet of his own now. "It's finally nice to say, 'I've got a home.' "
Tony Brisbane, a caretaker for Coldwell Banker Real in charge of trying to keep three houses on Western clean and free of squatters. He oversees more than 50 such properties in the region...He is not optimistic about where things are headed. "It's going to grow," he says. "It's going to get worse."
From the Sacramento Business Journal:
Warren Adams, a broker with Security Pacific Real Estate, has been selling REO property for 20 years and has watched the industry shift. When the real estate market was in a frenzy, most foreclosures were older homes in tougher neighborhoods. During those times, the majority of REO brokers sold to home investors who preferred a low price to a home in good condition. The investor added value by doing the work. "A few years ago, we could sell those all day long to investors," he said.

But things have changed. Such a flood of REO is hitting the market that there aren't enough investors to buy the homes. That means REO brokers are now primarily marketing to people who are actually going to live in the home, which means a home's condition takes on more significance, Adams said. "The banks are realizing that the target buyer now is an owner-occupied buyer, and the homes have to be move-in ready for those people," Adams said.
One key job for an REO broker is putting the right value on a home. They send the lender "broker's price opinions" on the market value of a home. Typically, they offer a timeline with that opinion for 90 days, 120 days and 180 days on the market. In a regular market, the shorter term is the lowest price; prices usually go up when a broker has more time to market and show a home. But now that calculation isn't working, [Ron] Leis [co-owner of Diez & Leis Real Estate Group] said. These days, the longer-term price is actually lower, with perhaps a 10 percent discount on the value for a home at 180 days versus the present value.
What got the real estate market to this point was a lot of misdirection from lenders and mortgage companies trying to make a sale during the run-up in housing prices, said Robert Dillon, a broker with Security Pacific Real Estate. "I'd get people who earn $12 an hour telling me they qualified for a $300,000 loan," Dillon said. "I warned people against that kind of loan."
From the Sacramento Business Journal:
Last month, Dann Ingrim, co-manager of Lyon Real Estate's downtown Sacramento office, went to market confidently with a 985-square-foot, three-bedroom house priced in the low $400,000s. It sold in three days at full price. Sacramento is bearing the brunt of what some are calling the worst housing slump since the Great Depression, and houses three times that size have been sitting on the market for half a year. But this home is located in East Sacramento, one of the city's venerable neighborhoods along with others such as midtown, Land Park and Curtis Park that have in many ways resisted the ravages of the housing downturn.
[T]he price per square foot for homes in core areas has been historically much higher than suburban areas, often about $300 or more according to TrendGraphix....While that figure has leveled off or declined slightly for core neighborhoods, the decline has been much sharper in the suburbs. In Elk Grove, the price per square foot is approaching half what it is in core neighborhoods -- a disparity that's only growing wider as the slump rolls on.
Despite the resilience of the core neighborhoods, they're not immune. Just as in Sacramento as a whole, the inventory of homes for sale in core neighborhoods has crept up over the past two years. Gone are the days when two or three offers was the guaranteed response after a home had been listed for a week, [Coldwell Banker agent Polly] Sanders said.
From the Sacramento Bee:
[R]ecently announced plans by the federal government and the state of California to save some of them in the name of saving the economy are provoking protests from people who say they've played by the rules. Their rallying cry is personal responsibility and living within your means.
A homeowner for 33 years, Ron Loutzenhiser opposes a mortgage bailout of subprime and other borrowers and pronounced himself "infuriated" by a recent spate of "tear jerker" Bee stories about people in foreclosure. Dozens of others said the same in calls, e-mails and reader comments on the newspaper's Web site.
Proposals to modify global financial contracts to bring short-term relief to U.S. borrowers risk long-term damage by sparking enduring uncertainty in the mortgage system, he said. "For the greater good, you're talking not just about the immediate future of these borrowers, but the future of their sons and daughters," [Steven] Sheffrin [economist and dean of the division of social sciences at the University of California, Davis] said. "It's really about a small set of today's homeowners against a whole future set of homeowners."

Talk to someone waiting to buy a home, and you'll see what Sheffrin is talking about. They're offended the government is stepping in. They worry that a bailout will artificially prop up home prices that have been fast falling in their direction. "There's a lot of us waiting on the sidelines for prices to come down to an affordable level, says Chris Stafford, 34, a commercial insurance broker in Sacramento. "A lot of us were priced out of this market."
"We saved our money while our friends and co-workers bragged about how much equity they just cashed out to buy their new boats and cars," says a recent post on The Bee's Web site. "Now while they're on the verge of losing everything we are preparing to buy our first home next year. … Life lesson: Live within your means."
From News10:
Salvation Army Capt. John Brackenbury...said donations stuffed in the organization's familiar red kettles are off by $36,000 in Sacramento County when compared to this same time last year. Nancy Richards, is manning the Salvation Army's toy donation desk inside the Arden Fair Mall. "Hardly anybody's buying," Richards said. "This is the worst I've seen it in 15 years." She blames high gas prices and the sagging housing market. "Because of the foreclosures and stuff, people can't afford to buy. They're losing their homes. They're just buying what they can for themselves," Richards said.
From the Sacramento Business Journal:
Investors will likely find favorable real estate deals next year -- if sellers are willing to bargain -- in land, apartment complexes and office buildings around Sacramento, according to a market forecast from the region's top brokerage, CB Richard Ellis. The discount is courtesy of the severe housing downturn and the global credit crunch, which have pushed values down for all kinds of non-housing assets.
Land values are plunging, and broker William Ayres expects the same in 2008. So far, owners have been reluctant to deal, holding out hope that their once-skyrocketing values will return as the housing crisis passes. But not all of them will be able to stand pat and will be forced to sell to cover debt on their holdings.
"It is troubling that we have 2.5 million square feet under construction with another 6 million vacant," [office specialist Greg] Levi said of the overall downtown market. "That's an eight- to 10-year supply."
CB Richard Ellis 2008 predictions: Average home prices will drop well below $300,000 before stabilizing.
From the Modesto Bee:
The cost to secure and maintain a neglected home here for a year? Nearly $3,000 by the [Manteca] police chief's tally. This city, hit hard by the housing market downturn and upsurge in foreclosures, passed strict requirements last month to keep up appearances at vacant houses. Owners, some of which are banks, are responsible for neatly boarding up windows to keep out squatters and for maintaining the front yard. Those who don't, risk getting a bill from the city for the work. Today, Police Chief Charlie Halford is scheduled to ask the City Council to allocate $102,725 for landscaping and boarding up about 35 houses. That amount is what it would cost to fix up and maintain for a year, 5 percent of the estimated 700 residences in the city in some stage of being repossessed.
From the Modesto Bee:
Another foreclosure record was set in November as 1,336 properties were offered to the highest bidder on the courthouse steps in Modesto, Merced and Stockton. Now here's the real surprise: Only 17 of them sold, despite lenders offering deeply discounted prices.
On Friday, [ForeclosureRadar owner Sean] O'Toole said, a foreclosed five-bedroom Modesto home on Hemstead Avenue went up for auction with a starting bid of $301,500, even though the lender was owed $537,000 from a delinquent mortgage. But that $235,500 discount apparently wasn't enough. O'Toole said no one bid, so the lender now owns the house.
From the Stockton Record:
Existing home sales in San Joaquin County rose last month from October, making it the second consecutive monthly increase in a season when sales usually fall off...The median sales price also slid last month to $310,000, down 20 percent from $388,000 a year ago.
The majority of sales and pending sales reportedly are foreclosure houses, more than 2,000 of which have piled into the residential market since just the beginning of the year. Brokers and agents said that those foreclosures are clogging up the market and most of the demand for traditional resale homes as would-be buyers watch prices slide. "Every sale counts," said Jerry Abbott, president and co-owner of Coldwell Banker Grupe, Stockton. "I still think September was the bottom of the sales market."


Diggin Deeper said...

""Proposals to modify global financial contracts to bring short-term relief to U.S. borrowers risk long-term damage by sparking enduring uncertainty in the mortgage system, he said. "For the greater good, you're talking not just about the immediate future of these borrowers, but the future of their sons and daughters,""

Not to mention it will cause one helluva court battle in order to change the terms of a legal contract... midstream. Since tiny slivers of these mortages permeate mortagage investments througout the world, I can only imagine how tied up this bailout will get before some court eventually strikes it down as a breach.

Patient Renter said...

"It's finally nice to say, 'I've got a home.'"

I've got a home too, and I didn't even have to go several hundred thousand into debt to get it. Neat trick, huh? They call it renting.

Cow_tipping said...

But ... But ... But ... But ...
Everyone wants to live here ... NO ???
The gays are going to prop up the market ... NO ???
What about the 365 days of golf ...
NO ???
They're not making land anymore ... NO ???
I blame the Sac Bee for the bad press they are causing.

Bakersfield Bubble said...

Land values are plunging, and broker William Ayres expects the same in 2008.



Who could have predicted this would happen.

What happened to all those who claimed that land prices were fixed and home prices would not come down...

Diggin Deeper said...

New Beazer boxes(Riverdale)in Natomas had a special starting at $225,000 about 3 or 4 months ago. Over the weekend, they dropped to $199,900. They aren't worth $150,000 and I'll predict they drop into the $130's before the last one sells.

smf said...

Why are we even talking about 'investors' at this stage of the game.

'Investors' were a major cause of the problem, since their interest was not necessarily getting an end user who actually wanted to live in the house, but sell their investment at a higher price.

Now these investors are in for another rude awakening when the expected market bounce does not materialize, and their rent is not enough to cover their mortgage, when they can get someone to rent the house.

I get so upset when I take a look at the higher end areas and find it easy to see many things:

1. Price is the same or lower than previous sale.
2. The purchase was made to renovate a smaller house into a 'mansion', and this house is way, way bigger than neaby homes (remember that you do NOT want the biggest house in the neighborhood.

This is another metric lost in these high end areas. An 'investor' purchases a home for $700K, to renovate and flip for $2 million. No wonder the median for that area changes.

Fanchew said...

Building on Diggn's comments on Beazer:

In December 2006, a 1568 sq model for the Discovery collection listed for $284,500. Flash forward to yesterday when they released their new price list and it's now $239,000. That's almost a $50K drop in 6 months. Just goes to show that it pays to wait in today's market.

SacramentoCrash said...

$110 to $125 a square foot and 3X income:

Take the prices back to the $100 - $110 a square foot range in most of the bubble neighborhoods and you might see some action.

Price it no higher than 3 times the income for a typical buyer in the neighborhood.

Otherwise it will be a cold day in hell before all that inventory gets sold.

2008 will be the year of blood running down the streets from a market perspective.

2008 will also be a year of deep discounts on used gas suckers (full sized SUVs), boats, "toy haulers", RVs, fifth wheel trailers, full sized redneck wagons (pickup trucks).

Fanchew said...

Ack. sorry. it's was June 2007 when it was $284K. -__-

Cow_tipping said...

From the Toronto Star (hat tip Tyrone): - and they are commenting about the Sacramento trailer loans ...
OK isn't that like pot calling the kettle black ???
Remember the groucho marx bit in that movie about football ... groucho will be giving a motivational speech to the other team. His team wouldn't listen to him. This is like that.

anon1137 said...

Nice to see you again, Lander. I was afraid you had left for the year.

Re: SBJ "higher values in core areas", I'm skeptical that this will hold for much longer, especially if there's a recession. You know how they always say that a piling on of condo conversions signals the peak of a housing market? I notice that there are loads of second units being built or refurbished all over east sac. At the same time, I also see an increase of for rent signs in midtown. I drove down G st. the other day and saw about six in a 2-3 block area. Maybe seasonal or hourly workers are being laid off? Renters are leaving the area?

Neighborhoods around here are starting to look more ragged for some reason, and it's not just the homeless moving from the river parkway into the 'hoods because of the cold. I look at zestimates of houses in my neighborhood and many are $50-150K less than their last sale price. What do the buyers think about this? It's not the kind of thing that makes you want to go out and put up xmas decorations, or even rake the leaves. Especially since ESac is, in many ways, a starter neighborhood for young couples who move out to the burbs when the 2nd child comes along.

anon1137 said...

This is a little off topic, but it's an amazing story that I read on LA Land Blog.

The Oropezas are the kind of homeowners we're supposed to feel sorry for?

WSJ: Mortgage-Relief Plan Divides Neighbors

Diggin Deeper said...

Up to this point, I still don't detect any panic on the sell side. Banks still think they hold the upper hand and continue to try and prop up their losers. The bottom, imho, has not fallen out. However, it probably won't be able to take much more pressure before we really begin to see just how serious the problem has become.

News this morning on the homebuilders...

November home starts down 3.7 percent

I still can't believe how many new home projects are being completed in the area. Whether they have to be completed or not, it appears to be financial hari kari to keep building when all signs say STOP. This "thing" is really setting up to be very different from anything we've experienced before. While it's fun to predict, without precedence, its flinging darts at best.

Cmyst said...

Here's a great article highlighting the Fed's (and particularly Greenspan's Fed) role in this debacle. There's a nice graphic on the left side.
Once again, I'm awed by the foresight of bubble bloggers, who consistently have predicted all of this months to years before it unfolded. It's not easy being the voice of reason. We are called doom-mongers and accused of wishing harm to the economy (which brings an entirely new meaning to VooDoo Economics). In reality, we have tried to convince friends and loved ones individually and the greater public via blogs to avoid this kind of risk. If we were truly evil, we would have shut up and just stepped aside. Seems like the truly evil folks are the ones that took the money. I guess that world-wide savings glut isn't such a big problem to the financial geniuses any longer, huh?

Diggin Deeper said...

These blogs are not "doom and gloom". What's real IS real, and some don't want to face facts or won't accept that we have basically allowed ourselves to be drawn into this mess. It doesn't take a psychic to predict the obvious, but it does take a lot of work to get to the REAL truth. And once uncovered it often doesn't resemble anything we're being "lead" to believe.

If people really want the scoop about Sacramento real estate, they've got to wade through half truths, partial fabrication, outright lies, truth with caveat, bias, and host of other agenda related issues. In the end they end up with a bunch of jagged pieces that have to be put back together in order to see what's really up.

And this blog provides a forum that basically ends up giving the reader a novelty in today's society....truth from the public's perspective. That's why its such a problem to the real estate industry... the doping of American stops here.

smf said...

So far, owners have been reluctant to deal, holding out hope that their once-skyrocketing values will return as the housing crisis passes.

Missed that beauty first time around.

What do you all think will happen once MOST realize that the above will NEVER happen in our lifetime, huh?

Why is it good for most that home and commercial prices stay high? If businesses have to spend more money for their locations, would it not follow that it would trickle down to the consumer?

And the consumer who has to spend 50% income for housing cannot spend it in other parts of the economy.

The initial pain will be hard, but the cure currently proposed by the government is worse than the disease.

Let the price collapse to reasonable levels.

Cow_tipping said...

In the early 90's LA area crashed. Bay area in northern CA did not. Partly due to tech boom. But when the current loose credit boom got underway, LA made a huge jump and drew level with Northern CA. I however now see both areas crashing. Tech is gone to china/India. credit is gone the way of the dodo ... I forsee CA catching up with the rest of similar areas. Like AZ or North florida or GA. Why ... well I'd have to compare it to places with similar geography and weather. No matter what happens to housing, people will want to live in CA/FL/GA more than say Minnesota/WI/MI. A crash will not change that unless CA alone crashes without any thing else following suit.

Gwynster said...


You'll love this little gem

It's one of those El Macero condos, now up for rent >; )

AgentBubble said...

Great find Gwynster! I saw that it went off MLS and wondered what happened...

Gwynster said...

OK now here is the fun part. I spoke too soon. 44713 Garden Ct is a new rental. It hasn't been offered for sale yet.

The old listings were:
MLS #: 70082038 44785 GARDEN CT
MLS #: 70075726 44710 GARDEN CT
MLS #: 70071889 44737 GARDEN CT

I don't see a closing on any of them. So we now have a comp to rents on these turkeys - sweet >; )

AgentBubble said...

Actually, 44713 Garden was listed twice before...

60061541 - Sold 7/11/06 for $660K
70065793 - Withdrawn on 12/14/07 @ $699K

Gwynster said...

wow I missed it. So 4 condos for sale in "prime" el macero.

Anyone want to take a stab at what the owners carrying costs are? The listing mentions HOAs and I can't tell if they want the renter to cover them or not. I'm not even sure they'll get the 1995 a month they want to begin with.

SacramentoCrash said...

Grandma Bandit - Victim of Subprime Loan?

By Ryan Lillis and Denny Walsh -
Published 10:58 am PST Tuesday, December 18, 2007

Federal authorities say they have nabbed the "Grandma Bandit."

Valerie Harris, a 50-year-old Rocklin resident, was arrested Tuesday morning in connection with the robbery of a US Bank branch inside the Safeway grocery store on Sunrise Avenue in Roseville last Wednesday.

Harris, who was facing foreclosure on her home, made an appearance in federal court Tuesday afternoon and was ordered held without bail.

Harris showed a note to a teller demanding money and flashed a handgun in her purse, authorities said.

According to the FBI, a tip led police and federal agents to Harris' home. Authorities said she later confessed to the robbery.

Steve Dupre, a special agent with the FBI, said Harris cited "overall financial hardship" and "mounting debt" for robbing the bank.

A man who answered the telephone at Harris' home would not comment.

Harris was tripped up after she allegedly went to a Carmichael auto repair shop Dec. 12 to pay a bill, court records say.

She offered the shop owner $1,200 in cash for work he had done on a 1947 Chevrolet for her husband, the court records state.

The shop owner recognized the woman from bank surveillance photos publicized in the media and called the FBI on Dec. 13.

FBI agents went to see him Dec. 17, court records say.

Victor Russum, who owns Rods R Us, the automobile body shop where Harris' husband had taken his 1947 Chevrolet for custom work in early November, said the news that Valerie Harris had been arrested Tuesday "blew me away."

"I feel sorry for them," he said. "What led up to all of this, the difficulties they said they've had, it's mind-boggling."

HappyinSF said...

OMG! Yeah having custom work done on your hubby's hot rod shows you are in real financial hardship!

Diggin Deeper-
I've heard referenced many times on here that the builders land holdings go back to the 90's. So, while builders are not doing so well these days, they could still continue to severely undercut the "frozen" resale market by slapping up cheap homes, say in the mid 100s? I realize this is pretty general but they do have a major advantage over Joe Six-pack who was stupid enough to buy a house in South Sac for 350k and can't sell.

alba said...

I'm sure we'll find out that there was a good reason why Greenspan turned away. If you were the architect of this beautiful scheme, secondary money markets, you wouldn't be the first to blow the whistle on yourself. He'll die before he admits monetary failure of such grand proportions.

But history will eventually catch up to his legacy.

Diggin Deeper said...

"I'd get people who earn $12 an hour telling me they qualified for a $300,000 loan,"

I think we're coninuing to witness the dumbing down in America. The lowest public common denominator has been falling for years. The dumber they get the easier they are to fool.

Diggin Deeper said...
This comment has been removed by the author.
SacramentoCrash said...

"I think we're coninuing to witness the dumbing down in America. The lowest public common denominator has been falling for years. The dumber they get the easier they are to fool."

That is really scary and the truth.... Four more years of incompetence in the White House? Another war in the Middle East?

alba said...

Speaking of J6P, why can't I go the the local Chinese Government-Controlled Store (WalMart) and buy a 12-pack from China for $2?

And when do they, the Chinese Govt-controlled stores, start carrying prefab homes?

smf said...

"I think we're coninuing to witness the dumbing down in America. The lowest public common denominator has been falling for years. The dumber they get the easier they are to fool."

Please, this s**t is getting old.

This has beem going on for a looooong time, and it applies to basically everyone in the world.

Research bubble history, and you will see that this is NOT new at all. This has been going on since Tulip Mania, and will happen again with some other asset in the future as well.

Gwynster said...


On the prefab homes, they're working on it. I've seen some prototype projects in Europe.

Diggin Deeper said...

Morgan Stanley sells stake to China amid losses

The Sacramento Trailor home buyers have triggered more than a global equity crisis...we're having to sell bits of America to foreign sources to shore up losses taken by our financial institutions...Bear Stearns, Citi, Morgan Stanley...who's next?

And they said that our real estate bubble would be contained...

Gotta wonder what we're going to be asked to believe when the next "Don't worry, be happy" report comes in. What's worse we'll all be asked to hold hands like 3rd graders going on a field trip.

Diggin Deeper said...


You're basically putting the cart before the horse...

The dumbing down of America has nothing to do with bubbles past or present.

smf said...

"The dumbing down of America has nothing to do with bubbles past or present."

But worldwide, the lack of economic knowledge is staggering.

And to single out Americans when this has been worldwide seems a little excessive.

Diggin Deeper said...

Agreed...I would only contend that bubbles end up as finished products. Degenerating American values(along with the world if you will) provide the raw material to produce that product.

Diggin Deeper said...

S&P downgrades ACA to junk status

Talk about toxic, now the AAA municipals are getting whacked.

"Many municipalities get high credit ratings because their bonds are insured," said Schiff. "Higher borrowing costs for cities will force them charge higher property taxes, which will increase the strain on consumers. And some cities may be shut out of the credit markets."

Somebody ought to hunt down those Quant Kids, they got some "splainin" to do.

smf said...

"Degenerating American values(along with the world if you will) provide the raw material to produce that product."


For some reason, most people have forgotten that to get ahead in life you have to work HARD, and continously to stay where you are.

I have met plenty of very wealthy individuals in the construction industry, and most (if not all) of them started with nothing. They work all the time.

It is a sick attitude that allows people to believe that they had a 'right' to a profit after purchasing a home or homes with no money down, and then to cry a river when their gamble doesn't pay off.

The rich (millionaires) family members I have lose only a little less money than they make, but they don't look to anyone else to bail them out.

dvobell said...

Anyone who was the LEAST bit prudent and delayed gratification JUST A LITTLE made out like a bandit in this bubble, Including speculators.

I personally know many long-time homeowners who refinanced at insanely low rates, or got their loan switched from 30 years to 15 without increasing their payment, etc. J6P had every opportunity to jump off the ride while it was still very profitable. Many did.

But Greedheads and Fools will pay dearly in the coming carnage.
Oh, the humanity!

Realtors, Mortgage Brokers, many FB's: These are not rocket scientists here. Mostly young, not well schooled, oblivious to the fact that there even ARE downsides in cycles.

To wit, this from Sac Craigslist:

The spelling and grammar testify to the size of the brainpan at work, here.

"Supper Cheap"!
"The Hole set up"!

This person is -- Running -- a mortgage business?

Or rather, WAS.

*schadenfreude tingle