"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.
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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.
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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.' "
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Tony Brisbane, a caretaker for Coldwell Banker Real Estate..is 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.
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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.
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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.
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[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.
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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.
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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.
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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."
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"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.
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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.
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"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."
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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.
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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.
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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."