Monday, April 07, 2008

Cocktail Party Talk: How Many Bank-Owned Properties Are on Your Block?

From CNBC's Funny Business with Jane Weils:

[T]wo doors down [in West Sacramento] lives Karnial Saini, a realtor (the irony!) who says he put down 20 percent on his home when he bought it in '04, but got an adjustable rate mortgage he can no longer afford. "Yesterday I tried to refinance," he says, but his mortgage is for more than a half million dollars, "and the house appraises at $450,000." He says he is probably going to lose his home either through a short sale or by "just giving the bank the key."
[W]hen I asked him if it's fair to bail him out, Saini admits not everyone deserves it. However, he didn't do a zero percent down loan, his home is just now less than his mortgage and he desperately needs a new mortgage. What he finds hard to understand is that the bank will agree to a short sale, but it refuses to lower the principal.
From the Tracy Press:
Chestene Dean, who moved from Minnesota to Tracy three years ago, called the state’s housing market a scam. She and her husband, Dennis, sold their stocks and borrowed from their retirement plan to buy a $600,000 home. Now they’re doing everything to keep the home, which now markets at about $390,000...The Deans wouldn’t say how many months they have been late on their mortgage payment, which is $4,700 a month. “There are other people hurting like us,” said Dennis Dean, glancing at the roomful of people. “Like them, we’re going to fight for our home.”
From Marketplace:
Seth and Joanna Goslin paid a final visit to their former home a few weeks ago...They haven't paid their mortgage since last summer. Now they're in bankruptcy and foreclosure proceedings...We sat on the living room floor of their 1,200 square foot condo in Elk Grove, California...Seth is 33 and worked for a mortgage broker until he was laid off early last year...
The Goslins bought their home with what's known as a 2/28 ARM -- the interest rate is fixed for only the first two years, then adjusts up. They also did 100 percent financing -- no down payment -- but later, they refinanced into an even riskier mortgage called an option ARM. It allows borrowers to make payments that don't even cover the interest on the loan. That's how they ended up owing even more than their purchase price.
Seth: I think because it's happening to so many, it doesn't really feel like a stigma. It sort of feels like... there seems to be a lot of sympathy.

Joanna: It seems like a couple of years ago, everybody at cocktail parties talked about how much their home value had increased and now it's, you know, how many bank-owned properties there are on their block.
From Marketplace:
[Realtor Alan] Waggoner and I do a little experiment. He checks the regular listings in Elk Grove. The average price is $447,000. Then he does the same search, but includes bank-owned homes and short sales -- those are the ones in pre-foreclosure. The total inventory more than doubles and it knocks the average price down to $370,000. The bank-owned homes have pushed the average price $80,000 lower.
[Real restate agent Michael] Freeman: We have bank REO properties that are coming on... they're trashed and they are artificially driving the price down, because it's not really what the market would be bearing, but the buyer is going to take advantage of that.
From the Sacramento Bee:
Lenders took back the keys for 1,224 Elk Grove homes from October 2006, the earliest month for which figures are available, through the end of 2007, according to a Bee analysis of Federal Home Mortgage Disclosure Act data.
From the Sacramento Business Journal:
The Sacramento County Association of Realtors expected thinner ranks this year with the housing downturn, and the prediction has held true...The association listed 5,577 Realtors as members this year, compared with 6,337 last year...The Placer County Association of Realtors also reported a 12 percent decline from last year, with about 2,300 active members this year, 320 fewer than in 2007.
From Investment News:
Speculation is growing among analysts and home-building executives that the battered housing industry finally may be approaching a bottom, at least in terms of inventory of both new and existing homes. It could be the first sign that the hemorrhaging in the housing sector could be approaching an end. But if history is any indication, home prices may not start to bounce back for at least two years, and at least one analyst thinks it could take as long as four years.

In the past, new-home sales typically started increasing about a year after supply and demand fundamentals stabilized, while home prices took at least two years to tick up, according to James F. Wilson, director of research and senior analyst with JMP Securities LLC of San Francisco...Mr. Wilson said that he has seen early signs of inventory stabilizing in certain markets such as Sacramento, Calif., and San Diego.
From the Sacramento Bee:
A fancy new campus rising in East Natomas has become the latest flash point in the toxic relationship between the Grant Joint Union High School District and the new school system that soon will absorb Grant. The new district, Twin Rivers Unified, will take over Grant and three other elementary districts on July 1 in a merger.
Twin Rivers officials...are deeply worried about the current housing downturn, as well as a building moratorium in the Natomas basin while levees are improved. "Two and a half years ago, when they planned this and there was a housing boom, it made sense. Today it doesn't," said Rob Ball, Twin Rivers' associate superintendent. "We're going to have a brand new building and no students to put in it."
From the Sacramento Bee:
The economic downturn hasn't bypassed Loomis, population 6,529. The sales tax portion of its $3.5 million budget is down about 20 percent, largely from the struggles of construction- related businesses. But since Loomis' city government relies lightly on development fees, the town avoided the worst effects of the downturn.
From the Sacramento Bee:
Sacramento, where unemployment has risen to 6.2 percent, is particularly vulnerable as the economy softens. Foreclosures have run into the thousands, and housing prices have fallen more than 25 percent in two years, making it among the hardest-hit markets in the country.
[J]ob losses are spreading beyond the housing sector...The past few months in the Sacramento area have seen layoffs at employers as diverse as Intel Corp. in Folsom (112 jobs) and Sutter Medical Center's two main hospitals (54 jobs), although Sutter said all but 20 employees found jobs elsewhere in the organization. The general downturn loops back to housing: Consumers who have lost equity are less wealthy and less likely to spend.
From the Stockton Record:
You own a winery worth about $850,000, you've built up $1 million in real estate equity between the winery building and a couple of homes and, as a married couple, have a combined income well into six figures. So what have you got to worry about?

With the housing market collapse, a big new mortgage, uncertainty on Wall Street, a wife who is retiring this year partly for health reasons, looking to his own retirement in three years and a recent, sudden slump in wine sales, there was plenty to concern Rod Ruthel. "It was too many things happening at once. I was a little freaked out about it," said the owner of French Hill Winery in Mokelumne Hill.

He was particularly concerned when sales at the winery, normally a recession-proof business, had suddenly fallen by nearly half. Also worrying was a switch from credit card charges, usually nearly 100 percent of the trade, to one-third in cash - a sign customers were watching their spending more closely.


Deflationary Jane said...

What the employment article doesn't state is all the contractors at Intel that were let go too.

Buying Time said...

"artificially driving the price down, because it's not really what the market would be bearing.."

There is nothing artificial about this market. (I will be charitable and assume the banks know what they are doing.) The banks price the condition of the home into their listing. Not everyone wants to pay for high end remodel jobs or pricy upgrades that the builder overcharged for.

Of course nobody seemed to care back when creative financing, and cash back at closting to buyers was "artificially" driving prices higher.

watchingthebubble said...

$4,700 a month mortgage? OMG! I think I'd just die if I had to pay that much per month, even if I could afford it.

Patient Renter said...

Chestene Dean called the state’s housing market a scam.

Did someone put a gun to her head and force her to buy?

they (REOs) are artificially driving the price down

Ahh, kinda like how loose money "artificially" drove up prices, eh? What do you think caused all the forclosures? The loose money certainly did its part.

AgentBubble said...

[T]wo doors down [in West Sacramento] lives Karnial Saini, a realtor (the irony!) who says he put down 20 percent on his home when he bought it in '04, but got an adjustable rate mortgage he can no longer afford.

Let's see here...You paid $586,500 for your house on 12/10/04. Your loan was for $448,000...But then you decided to take out a second for $150,000 (why was that part left out of the story??)...

Sorry, no sympathy here.

Jacob said...

Seth and Joanna Goslin paid a final visit to their former home a few weeks ago...They haven't paid their mortgage since last summer

So they bought a home with 100% financing and no doubt credits at closing to cover any closing costs.

Then Refi'ed and no doubt took money out. Got an option arm and likely only paid the 1% teaser. Thus getting cheaper rent from the bank.

Then they stop paying altogether and get to live rent free for almost a year.

So to recap: Put in none of their own money, took out free money from the bank, got a year of free rent.

Now they want sympathy on top of that? Lol.

Tyrone said...

$600K. What's the big deal?

Lets say they put down $100K. That leaves $500K so they must have a household income of approximately $500K/3.5 = $143K.


Seriously though, who in their right fu**ing mind would willing "buy" a house in Tracy (s***hole) for $600K?

mopar777 said...

Hey Lander,

There was once a time about 2006 when we had a Gallery of Insane Greed on this blog. I think the time is right for the Bottom Chaser of the Month Award.
My nominee is the greedy fool at 7961 Cavalli Way, 95628. It's a really nice 2 story duplex that he bought for 235k back in early '03.
After a pulling a couple hundred grand out of it, he listed the thing for a whopping 800 thousand dollars in the spring of '06! No takers. Over the past two years this moron has reduced all the way down the $449,500, the breakeven point according to his realtor.
Think how happy he would be right now if he would have found a sucker for $630K back then instead of dreaming of yachts, hookers, 'vettes and european vacations.

watchingthebubble said...

Could somebody tell me when it became officially "cool" to take out equity for non-emergencies or reasons other than to send one's kids to college? Maybe I'm old school, but I remember when my parents were just working toward paying off their house ahead of their retirement. Whatever happened to THAT goal? I remember they took out some equity to help pay for my college, but then they were back on track, trying to pay off the mortgage ahead of retirement.

When did debt become so darn pretty?

Rich said...

"What he finds hard to understand is that the bank will agree to a short sale, but it refuses to lower the principal."

Sigh. One would hope that a Realtor would understand basic economics.

How is the fair value of the property calculated? By whatever someone else is willing to pay. If the bank is willing to reduce the loan amount to, say $400K, then what's to say I wasn't ready willing and able to give the bank $420K? Until it gets listed, the bank doesn't really know how much they could have cut their losses.

Cmyst said...


Debt became "pretty" about 20 years ago. It began to snowball about 6 years ago.
There are many culprits beyond a complicit government which shows by example that debt is unavoidable and that it's ok not to pay as you go. Has anyone seen the billboard for the company that is planning on projecting ads onto the full moon up along Hwy 50 near Zinfandel? Our whole culture is based on a constant bombardment of advertising, which is basically the art of convincing people that they really need things they don't really need. Our basic human frailty makes us constantly compare ourselves to others, and we usually feel like we don't measure up. Our society used to value community and family, and while we give lip service to these values now - in reality, we value money and power. Most of us don't have it, but for many people that won't stop them from borrowing to project that image.