Thursday, January 31, 2008

In Come the Government Layoffs

From the Sacramento Bee (hat tip Gwynster):

Sacramento City Manager Ray Kerridge said layoffs and other financial cuts will begin in February as the city scrambles to deal with an estimated $55 million budget shortfall next fiscal year. The Development Services Department, hit hard by the real estate downturn, will lose 16 employees in February. In a Wednesday letter to employees, Kerridge said, "employees in other departments may be affected."
From the Appeal Democrat:
The Sierra Cedar Products sawmill facility in Olivehurst will close March 31 or sooner, leaving more than 60 employees without jobs. Market conditions and log costs were two reasons cited by company representatives.
John Fleming, Yuba County's Economic Development coordinator, said Sierra Cedar's closure is not a unique event, especially when the market is in a downturn. "Nobody's immune," Fleming said. "This company represents only one of the many industries in Yuba County that supports construction and is affected by the market." Fleming said business that focuses on the wood industry and residential construction is down 90 percent because of the downturn in the housing market.

"Sierra Cedar Products is the tip of the iceberg," Fleming said. "This is a challenge we are going to face over the next few years."
From the Modesto Bee:
Diablo Grande, the luxury golf resort in the hills of western Stanislaus County, is in financial trouble and is closing both golf courses at the site. The Ranch course closed last month, and golf members were told it would reopen in March. Members found out this week that the Legends course will close Saturday for at least a month. Dwain Sanders, vice president of development at the resort, confirmed today that both golf courses and the club house are closing, due to the downturn in the housing market.
"We are in a temporary suspension mode. We don't know how long it will last," he said. "We are feeling the effect of the housing market, just like everyone else. We aren't getting enough revenue to keep them open during the down turn," Sanders said.
Oak Valley Bank CEO Ron Martin confirmed that the resort, owned by a partnership headed by pharmaceutical entrepreneur Don Panoz, is in default.
From the Auburn Journal:
Anna Mendez was just one of the more than 300 residents who turned out to a mortgage workshop Tuesday night seeking help from state officials and roughly 21 lenders. "My husband and I just purchased our home in 2006 and we have already seen the value decrease $250,000," Mendez, a resident of Woodland who drove from Yolo County to attend the workshop said. "We bought it thinking we could refinance it at a later time. We had plans. We thought everything would be fine."


aggiealum said...

"My husband and I just purchased our home in 2006..."
"We bought it thinking we could refinance it at a later time. We had plans. We thought everything would be fine."


smf said...

"Diablo Grande, the luxury golf resort in the hills of western Stanislaus County"

Am I the only one who sees a problen with that statement? Would they have been better off by building something...less cheap?

Just because you could build 'luxury' does not mean that you have the clientele within easy reach.

Gwynster said...

Oh I wish I knew which house she bought in Woodland. I have a few guesses.

Professor Shays said...

Lander, et al.

I've been spending more and more time on the website, volunteering advice to those facing foreclosure. Having been involved in the transactional side of foreclosures during both the 79-83 and 90-94 downturns, this is a much more gummed up mess given the creative nature of the financing and the inability of loan servicers to deal with the workload.

I've been on these forums for a long time and I'm in agreement with the majority of posters that point to the FB and have expressed little sympathy. Nevertheless, there are some real lousy situations out there for consumers who unfortunately listened to the advice of so called real estate professionals who were what would be better characterized as professional fraudsters.

Professor Shays said...

All I could think about when reading about the golf course was George Carlin's comedy routine about converting golf courses to places where the homeless could live. So funny and in a sense so appropriate given the content of this thread.

wrong moves said...

If only the Menendezesess's had a T.V., or a newspaper, or ears. They could have avoided getting themselves into such a mess that the rest of us taxpayers will have to deal with.

I had posted elsewhere but here it is again 'cause it fits.

My immediate neighbors are all feeling the effects of the downturn. #1 is in construction, or should I say was about 5 months ago. #2 is a high end jewelry designer (like maybe 2 copies are ever built) who works from home. I haven't been seeing the ultra expensive cars his clients drive in his driveway. #3 is a manager in a higher end supermarket. He complains that discount markets like Winco and Foodmax are killing them.

People are tightening their belts and purse strings.

Sold in '05 said...

My neighbors across the street is going for the jingle mail switch-a-roo plan.

Within the last two months they bought a new truck, then two weeks ago listed their home as short-sale for $370k (bought in 10/05 for $501k), and I hear through our kids that they are now about to close a deal on a new house in one of the new West Roseville neighborhoods.

It's one thing to read about it hear on the blogs, but it really makes you wonder how much of this is going on when you see it on your own street.

Cmyst said...

I stopped doing anything more than emergency one or two item shopping at Raley's in EDH about 6 months ago.
It's Costco for most stuff now, and Winco for the rest -- with a rare trip to Trader Joe's.

Prof.Shays, I hear you. Most people are not very well informed, politically or financially. They don't start paying attention until it's the lead-in story right before the latest Britney disaster that they're really tuning in for. It's hard for people like us who spend a lot of time debating the bubble to believe. A similar phenomenon happens on political blogs, where people are amazed that the average Joe doesn't care about an issue when he simply isn't aware that the issue exists. You can despise people for this, or you can try to gently educate them. I applaud you for your humanitarian actions!

Diggin Deeper said...

There's no doubt a percentage of the people that acquired loans were defrauded during the boom. Anytime there's money to be made, there'll be people looking to take the fast and easy off unsuspecting people. I highly doubt it was more the rule than the exception. Anytime things are going sour, there's a witch hunt to punish the guilty and that's exactly where we're headed now. There's 600-700,000 attorney's in the state that need to bill their hours somewhere.

I think the problem rests more with the banks that crafted these products, sold them to the mortgage brokers, who passed them on to the consumer. Now the banks are eating their own poison as the consumer is incapable of servicing the debt. When a cab driver making $12,000 a year can get a $500,000 mortgage, the fricken lights should have blinked somewhere!

The poor Mendez's bought at the market's peak. So did thousands and thousands of others. Are they all victims? Didn't they have a part in the decision?

The Mendez's thought they could refinance based on home prices continuing to rise. Hmmm...they were smart enough to know what the drill was when prices increased. They thought wrong! Therefore it was thoughtful bad decision based on bad timing, equalling a tough outcome. The bank thought wrong too equaling the same outcome. Both parties were completely stung by the market. For the most part, the problem has no victims... only willing paricipants.

Maybe the next go around, all prospective buyers ought to be given a mandated test by the lender that determines their financial IQ, ability to read a contract, and whether they can afford the debt under good or bad times. Pass the test, sign the waiver, and your decision is your own.

Cmyst said...

Sold in '05:
Stories like that make my blood boil, and it's probably why I don't care much for status symbols. A Chevy and a Lexus will both take you down the road. You could have worked hard to earn that Lexus, or you could have stolen the bank's money and left them holding the bag, or sold drugs, or ripped off other people. Since most of the people who really care about status symbols seem not to care how they earn them, I'd rather just drive the Chevy.

Jacob said...

So shouldnt the banks, I dunno, check your finances and see that you have a mortgage that you can barely afford already and not loan more money for you to buy another home until you sell the first one?

I mean the one bank may not care about the other loan from another bank, but at some time some other bank will screw this bank as well.

Diggin Deeper said...

We were at a party last weekend, where one person was mulling over what he should do with his home. He was so far upsidedown pricewise, having bought year and a half ago, had an interest only note, and put no money down on the deal. He came to the conclusion that night he would stay current on the note just long enough to buy another property, close the deal, and then walk from the old one. I guess the bank will be the victim once this deal's done.

Gwynster said...

Prof and 05',

would they be restircted to a bridge loan? Last time I looked, bridge loan were incredibly expensive rate-wise if you try to go fixed because their is a risk premium. I'm guessing he's thinking he got lucky with a 3 or 5 yr adjustable and that he'll just refi later. We all know how well those plans work out.

mbc said...

I have little sympathy for anyone who bought after the fall of 2005. We put our home on the market in February 2006, and it was very apparent by then that the party was over. We aggressively dropped our asking price to get the place sold, because the last thing I wanted to do was chase the market down. No doubt the folks who bought our house in June 2006 are kicking themselves now, as similar houses in the neighborhood have sold for, and are on the market for 20 percent less than they paid.

How's the person going to close on a new house while he still owns another? I thought this is the sort of thing the lenders were now cracking down on.

Diggin Deeper said...

This guy's got some money. His whole premise was that if the banks were going to give it away, he wanted to be the first in line. He makes a good income and could easily afford two housing payments. We'll see if his plan works out. Quite frankly, I'm not into ruining my credit, as foolish as that may seem, so the whole scheme seems foreign to me.

anon1137 said...

Like some of you mentioned, I'm also surprised that homeowners who are underwater are able to escape from their problem simply by buying a second house before the foreclosure begins on the first house. OK, you're going to have a foreclosure on your report for several years, but in the meantime you've handed your $100-200K mistake to someone else and you're building equity again (eventually) as a homeowner. That's a pretty soft landing! Are lenders that dumb?

smf said...

1. There is one secret to having a lot of money, and it is:


Or at least know HOW to spend it.

We have shopped at Costco for many years, and 95% of the time shop for deals.

There are plenty of millionaires walking around that people don't know are. They know how to spend very wisely.

2. Those who are attempting to purchase a home while foreclosing on another one may be in for a rude surprise. Their predicament already insinuates that they are not economically literate, and I would guess that the lenders would certainly go after the assets that they have.

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

Also, it was my understanding that the tax forgiveness was on S/Ss, not foreclosures and that if you close, the feds will still tax you.

I really hope these people get seriously legal and financial advice but if it sounds too good to be true, it usually is.

Diggin Deeper said...

"I would guess that the lenders would certainly go after the assets that they have."

I would think the same...I guess there's fraud and then there's premeditated fraud...A homeowner can walk from his mortgage, no malice intended, fairly risk free.

Can a homeowner with an untapped HELOC and a negative equity position in their home, can go out and buy a new car, pay off all their credit cards, pay college tuition for their kids, and then decide to foreclose on the property? I've got to believe there's some criminal liability involved....

Gwynster said...

From reading Calculated Risk, it sounds like lenders are cancelling Heloc lines now to stop that from happening.

sacramentia said...

These people that think they are pulling one over on the bank are going to ruin their credit. This will be with them a lot longer than they expect when the banks have the credit rating agencies change the formula. Don't forget who is in charge of the lending.

Diggin Deeper said...

"These people that think they are pulling one over on the bank are going to ruin their credit"

I used to think my credit score meant something...In light of what's happened over last couple of years there's been little more than wrist slapping for poor credit management.

Until there's a new set of teeth in the banking regs, credit abuse will continue to be a problem.

smf said...

"I really hope these people get seriously legal and financial advice but if it sounds too good to be true, it usually is."

But the bubble taught us that a LOT of people have forgotten this lesson.

I would bet that some are going to start a business with the purpose of legally collecting some of this debt. Even if you go for pennies on the dollar, you could make a good living...

...hmmm...growth area there...

SacramentoCrash said...

"so called real estate professionals"

How the h@ll can a developWhore, house pimp or loan whore be even remotely linked to the term "professional"?

Sold in '05 said...

As long as he is "honest" with the lender for the new home and does not try to hide the existence of his current mortgage, I don't think anyone can go after him for fraud. Mostly he can just deny his intent to default by saying instead that he was intending/hoping to sell or rent and it just didn't work out.

It's my understanding that on first mortgages in CA they are "non-recourse" meaning that the only thing the bank can do if someone decides to walk is take the house back. I also believe that 2nd's and HELOC's are "recourse" and the banks CAN attach earnings and other assets to try to recover losses. As far as taxes I thought that only the Short Sales carried any real burden with the IRS, and in most cases, foreclosures were not reported to the IRS.

No matter what though, the housing market looks like it is in for even more serious battering as more people default and it becomes less of a social stigma. If it becomes common enough, it won't even bother lenders and landlords when they pull credit reports.

SacramentoCrash said...

"more people default and it becomes less of a social stigma. If it becomes common enough, it won't even bother lenders and landlords when they pull credit reports." -

is a sad sign that morals have dipped to a all time low. Rap music, grilles (gold teeth on punks), freak dancing.... buying a new home then walking on the prior lender.... crimes in Washington DC. What a societal sewer!

Jennifer said...


Applause to you!!!! I too am a frugal spender. I don't believe in credit cards or car loans, or any debt, except a house of course, and I will attempt to pay it off ASAP--that is if I EVER buy another house!

Americans today are so soft and whiny, and "I want it NOW!!!" What ever happened to saving up for that item and paying cash.

We make a pretty good living, but I don't have a Lexus or Hummer! We have a 10 year-old Toyota and a newer compact with no power anything.

I am not attempting to be self-righteous, but people should live within their means.

norcaljeff said...

So all the people on here who said RE would not fall very fall since there are a lot of state job here and those are never cut just got proven wrong. Never say never. Market will still decline at least 12-18 more months, or until job growth starts again and since most jobs in this area were tied to RE, good luck with that one.