'Would you ruin the economy just to be moral?'

From the Sacramento Bee:

Almost from the start when struggling Dunmore Homes announced in September it was selling its assets to a loan consultant, rumors started in the home building industry that the deal involved an unconventional sales price and had something to do with a big tax refund. The gossip was on the money. The newly sold company filed for Chapter 11 bankruptcy protection in November. Now, documents filed in U.S. Bankruptcy Court in New York show that Sid Dunmore sold his Granite Bay firm to Sacramento-based loan consultant Michael Kane for $500. And there is an expectation that Sid Dunmore will receive an $11.2 million federal tax refund from selling the company his late father founded in 1953.

From the Wall Street Journal's Developments blog:

Median household income in the Sacramento metropolitan area, measured earlier in 2007 by the American Communities Survey, is $56,950. Realistically, if you don’t want to spend more than 33% of your take-home pay on a mortgage and you earn the median, you should pay no more than about $1,570 towards your mortgage and taxes. That caps your mortgage loan at $240,000 (which still leaves you a modest $150 a month to put toward taxes) at a 5.85% interest rate (this week’s going rate for a 30-year fixed). But the median single-family home price in the third quarter was $375,400 in Sacramento. That’s a $135,000 gap. What’s more, the median income to sales price ratio balloons to 6.6 in this equation. There’s nothing affordable about that.

You’d need to have a median income of at least $70,000 — or nearly 25% more than the median — and a 20% down payment to buy the same home in the Sacramento area. This situation plays out in dozens of pockets of the country every day, even as housing prices soften.

From the Modesto Bee:

Levitz is the second Northern San Joaquin Valley home retail store to announce this week that it's closing. On Tuesday, the owners of Youngdale's, a Turlock store that specialized in home appliances, announced they would close within the next month.

From the Redding Record Searchlight (hat tip Suzanne):

Chalk up another casualty to the housing slowdown. 84 Lumber closed its Redding store Wednesday after less than five years in business. The store catered to professional contractors and had five employees.

From the Sacramento Bee:

Q: Will this give a lift to the Sacramento-area real estate market?

A: ...Carey Covey, a Sacramento real estate agent who sells homes repossessed by banks, had one word when asked if the Bush plan will help here: "No." Covey's opinion: "There is a very small percentage of people who are going to be eligible."

Alan Wagner, president-elect of the Sacramento Association of Realtors, worries that borrowers with good credit who got in over their heads still account for more area foreclosures than subprime borrowers. Still, he called the move a "step in the right direction."

Q: Is this a bailout for irresponsible borrowers who took out loans they couldn't afford?

A: There are many who believe that's the case. Bush argued Thursday that no taxpayer funds are involved in this initiative. But many who bought their homes by saving their money, using down payments and getting fixed-rate loans believe a new generation of careless buyers is being rewarded for being foolish.

Lincoln retiree Steven Smith sums up the argument: "My wife and I drive 10-year-old cars, have zero credit card debt, and when we put new flooring in the house, we paid cash. That's what you do. You don't habitually live beyond your means and expect to have a good outcome."

Others, however, contend many borrowers were duped by mortgage lenders who took advantage of their inexperience. They say loan agents inflated their incomes on their applications without their knowledge and told them not to worry: They could refinance into a better loan when the value of their house appreciated – as it certainly would.

From the LA Times:

Ed Skebe of Manhattan Beach would agree that even if some people were duped by shady mortgage brokers or loan officers, many knew they couldn't afford the homes they bought and rolled the dice anyway in hopes that the boom had enough life left to shower them with profits. "They hurt everyone. They drove the prices up," said Skebe, a 61-year-old program manager at an air-freight company, who said the booming housing market prevented him from trading up to a larger home. "It's hard for me to believe that someone didn't realize they couldn't afford a $600,000 home."

From the Vacaville Reporter:

Tim Kearns, owner of Fairfield-based First Priority Financial, said he's seen more adjustable rate mortgages written in the past few years than were necessary. He believes that while the relief plan will help some property owners, it may hurt the housing market overall. "The backlash is that lenders and investors alike will likely be much more skittish about investing in adjustable rate loans in the future," he said.
...
The average client doesn't go into foreclosure because they don't understand their loan, according to Kearns. "Most people had an assumption that the future was going to be better. They knew the loan would get a lot more pricey. But they thought that would be OK, because hey, real estate always goes up in value. And that's the misnomer they were told."

From the Washington Post:

The agreement has sparked bitterness and anger among those who either sat out the housing boom or endured friends' snickers when they stuck with a traditional mortgage and a smaller house. To some who watched prices rise out of their reach or who moved to cheaper cities, the agreement looks like a penalty for those who didn't gamble. "What about those of us who played by the rules? Can we get six months of free gasoline? Isn't there something for the rest of us?" asked Tim MacKinnon.

From the SF Chronicle:

Despite the fact that the value of his 1955 bungalow has fallen $50,000 to $75,000 from its peak two years ago, Sacramento resident Gene Totten would rather see the housing market correct itself further on its own than see the government step in to halt the freefall. "When you're buying a house, it's a big deal, a big decision, and you need to read the fine print and know what you're getting yourself into," said Totten, an operations manager at a construction company. "I wouldn't consider myself a fiscal conservative politically, but this is tinkering with the free market."
...
GU Krueger, economist with Irvine's IHP Capital Partners, one of the nation's largest investors in residential development,...brushed aside concerns that the plan rewards irresponsible behavior by both lenders and borrowers. "Now's not the time to be prudent. It's too late for that," he said. "We're all morally outraged over what's happening. But would you ruin the economy just to be moral? What's the point in that?"