Archive for October, 2009

Be careful when messing around with supply and demand


Sacramento has had more than one real estate bubble and this won’t be the last– Supply and demand will always prevail.  Our area is not the only one that seems to have a short memory…



Found this great article today and thought I’d share it.

by Randy Bright

Bubba was a manager overseeing maintenance work on his city’s sewers. The description of his oversight might have been a bit of a stretch, since most of what Bubba did on the job was walk around and look busy, while some other poor saps were down in the manholes doing the dirty work.

One day Bubba was walking from manhole to manhole, “inspecting” the work, and after making his rounds he sat down in the shade and lit up a cigar. After taking a few puffs, he thought it made for a better appearance to keep moving, so he began his rounds again. Stuffing his still-burning cigar deep into his cheek, he walked over to a nearby manhole.

This manhole was kind of deep, and kind of dark, so he leaned over to get a better look. Suddenly, there was a loud boom. Workers who were in the next manhole heard the noise and looked down the pipe, only to see a fireball hurtling down the pipe in their direction. In inspired panic, they scrambled out just in time to escape the explosion and to see several other manholes down the line blow their covers off.

Although Bubba’s hair was singed off and his cartoon-like exploded-cigar appearance was a bit embarrassing, he was otherwise unhurt by the explosion.

Bubba, who took his supervisory role a bit too seriously, did something he should have known better than to do. Anyone with a lick of common sense would know better than to stick his face, complete with an ignition source, into a manhole full of methane. Bubba’s arrogance led him to a life-altering experience. You can bet he never did that again.

The point of this story is when we mess around with the natural way of things, nature will always win, and one of those natural things is the simple law of supply and demand.

A lot of cities have been messing around with the law of supply and demand for the past thirty to forty years. But the housing bubble that occurred last year wasn’t the first one. There have been several, one about every ten years beginning in the early 1980s, and each one has been more intense than the last.

A housing bubble can be described as an increase in the value of homes until some trigger causes the values to fall, but the values don’t fall nearly as far as they had previously risen. The problem occurs when home values stay relatively high, but incomes fall far more than the home value rises. This becomes the classic “affordability” problem.

So if the law of supply and demand really works, why would not the lower demand (by people whose incomes have fallen) also cause prices to fall in proportion?

Randal O’Toole addresses this issue in a Policy Analysis paper entitled “How Urban Planners Caused the Housing Bubble”, released on October 1 of this year by the Cato Institute. It is his contention that the root cause of the problem was not the Community Reinvestment Act, Fannie Mae or Freddie Mac (although all of those played a role). He makes a strong case that it was growth management policies leading to land shortages that have triggered all of the housing bubbles that have occurred since the early 1970s, when Los Angeles, San Diego, San Jose and San Francisco were among the first in the nation to impose urban-growth boundaries in an effort to curb and control growth. Much of the data that O’Toole presents shows a strong correlation between areas where growth management policies had been enacted and how severely the housing bubble affected those areas.

Correlation does not necessarily mean causation, and although the global warming crowd doesn’t mind equating the two terms when it serves their purpose, the urban planning crowd will likely scream bloody murder over O’Toole’s use of correlation to prove his point. Only in this case, the circumstantial evidence, or the correlation between growth management and housing bubbles, is a bit overwhelming to dismiss out of hand. O’Toole, as he always does, makes a very methodical presentation of many anecdotal and statistical examples to prove his theory to be correct.

He wrote, “Between 2000 and the bubble’s peak, inflation-adjusted housing prices in California and Florida more than doubled, and since the peak they have fallen by 20 to 30 percent. In contrast, housing prices in Georgia and Texas grew by about 20 to 25 percent, and they haven’t significantly declined. In other words, California and Florida housing bubbled, but Georgia and Texas did not…This suggests that local factors, not national policies, were a necessary condition for the housing bubbles where they took place…The most important factor…(is) a regulatory system known as growth management.”

Like Bubba, Tulsa is about to get burned, that is unless we are smart enough not to impose growth management policies. I’ll explain more next week.

©2009 Randy W. Bright

Courtesey the Tulsa Beacon

Randy W. Bright, AIA, NCARB, is an architect who specializes in church and church-related projects. You may contact him at 918-664-7957, [email protected] or

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Fannie Mae / California Firm Says Delinquency Rates Up


Last Month’ 9129/09 from Calculated Risk;

Fannie Mae reported that the serious delinquency rate for conventional loans in its single-family guarantee business increased to 4.17 percent in July, up from 3.94 percent in June – and up from 1.45% in July 2008.

“Includes seriously delinquent conventional single-family loans as a percent of the total number of conventional single-family loans. These rates are based on conventional single-family mortgage loans and exclude reverse mortgages and non-Fannie Mae mortgage securities held in our portfolio.”

Just more evidence of some shadow inventory and the next wave of foreclosures.

Update: These stats include loans in trial modifications.

Than today from Chris Mcglaughlin;

According a report from California-based real estate market consulting firm Foresight Analytics, total delinquencies for first-lien residential mortgages grew to an estimated 11% during Q309.  The final figures for the third quarter are not due until the end of November, but Foresight’s report bases its data on earnings reports and call report filings from banks.  Residential delinquencies increased from 10.2% in Q209 and from 6.4% from the second quarter of 2008, according to the report. The delinquency rate rose approximately 1% every quarter since the Q108, except for a quick blip in Q408.  “We have been expecting the rate of increase to slow, but clearly this has not yet occurred,” said the report. 

Nonaccrual rates for residential mortgages also jumped to 4.7% in Q309 from 3.8% in the previous quarter, and delinquencies in commercial mortgages also ballooned for the quarter. The rate hiked to 4.7% in Q309 from 4.1% in the previous quarter and more than doubled the 2.1% rate a year ago, according to the report. “The delinquency rate has been increasing at an accelerated rate since Lehman Brothers’ collapse in September 2008 and the ensuing severe credit crunch and economic downturn.”  The delinquency rate in commercial loans is still well below the 8% delinquency rate in the third quarter of 1991, but the rate still worries analysts in light of a weak economy, constricted credit availability and a large number of commercial mortgages coming due the next few years.

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California Campaign Targets Loan Modification Scams


LATIMES: A national housing nonprofit has launched an education campaign in Southern California to combat scams targeting homeowners in peril of foreclosure.

Loan modification fraud is on the rise, costing troubled homeowners thousands of dollars up front for mediation and counseling services that are provided free by federally approved nonprofits, Eileen Fitzgerald, chief operating officer of NeighborWorks America, said Monday at a news conference on the steps of Los Angeles City Hall.

Washington-based NeighborWorks is starting its yearlong national education effort in Southern California because the region has been hit particularly hard by the foreclosure crisis, she said.

Troubled borrowers often pay fees ranging from $1,500 to $3,000 for help in reducing their mortgage payments, Fitzgerald said. The companies, in turn, promise to negotiate with their lenders on their behalf. In some cases the companies promise that loan amounts will be modified, a result that is difficult and rare, she said.

In addition to money paid to unscrupulous companies, those facing foreclosure can lose precious months that could be better spent with federally approved nonprofit counselors who don’t charge for their services, Fitzgerald said.

Poorly informed homeowners desperate for help turn to loan modification consultants — who often are attorneys, mortgage brokers or real estate agents — advertising on radio and television and in print.

“They are very good marketers,” Fitzgerald said.

California Atty. Gen. Jerry Brown’s office has reported receiving more than 2,500 complaints against loan modification consultants and businesses through Oct. 14 of this year, up from 163 in all of 2008.

Seniors, Latinos, African Americans and Asian Americans have been particularly victimized and will be a focus of the education campaign, Fitzgerald said.

For the next three weeks, community organizers and volunteers with NeighborWorks and its local affiliate, Los Angeles Neighborhood Housing Services, will be distributing marketing materials to warn people about loan modification fraud. The first stop Monday was the WorkSource center in Sun Valley.

“Many of these families believe they have nowhere to turn, nowhere to go for help or assistance,” Los Angeles Mayor Antonio Villaraigosa said at the news conference.

In April, the Los Angeles City Council passed an ordinance imposing penalties on companies that charge for such services.

Zulma Navarrete said that over the last year she had bad experiences with two loan modification companies.

The 36-year-old native of Guatemala, speaking in Spanish at the news conference, said the first company charged her about $2,000, and the second, a law firm, charged her $3,495. Neither has persuaded the lender to reduce the $2,900 monthly payment on her three-bedroom Huntington Park home.

Navarrete said she got her money back from the first company but not from the law firm.

“I was robbed,” she said. “And I want my money returned.”

[email protected]

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Senate REALLY Close To Replacing First-Time Buyers Tax Credit!

This will be HUGE for our Sacramento Housing Market!! I’ve beeen watching this closely…

Home Buyer Tax Refund

Oct. 27 (Bloomberg) — U.S. Senate leaders moved closer to an agreement replacing an expiring $8,000 tax credit for first- time homebuyers with a smaller one that would expand access to so-called step-up purchasers, two people familiar with the matter said.

The deal would reduce the size of the tax credit to 10 percent of the sale’s price, capped at $7,290, the people said. The credit would be available on home purchases that are under contract by April 30, and borrowers would have 60 days more to close the sale. The existing credit is due to end Nov. 30.

The new agreement, which is still being negotiated and may change, would grant the credit to borrowers who have lived in their current home for at least five years. Lawmakers want to keep home sales from slipping as the economy struggles to recover from the worst drop in home prices since the Great Depression.

The demand for new homes and condominiums may increase by “more than two times because you’re allowing step-up buyers into the equation,” said Andrew Parmentier, a managing partner at Height Analytics, a research firm in Washington. “ You just opened up a whole new pool of people who can buy into those empty homes and empty condos that were built out.”

The income eligibility for first-time homebuyers would remain the same at $75,000 for individuals and $150,000 for couples. The income criteria for step-up buyers would be $125,000 for individuals and $250,000 for couples.

The credit would be limited to homes costing $800,000 or less. There is currently no price cap on home purchases.

Unemployment-Benefits Bill

Lawmakers are trying to attach the legislation, which is also being considered by leaders in the House, to a bill extending unemployment benefits under debate on the Senate floor, said Richard Durbin of Illinois, the Senate’s No. 2 Democrat.

Senator Bill Nelson, a Florida Democrat, told reporters yesterday of the tax credit that “we should be able to extend that later this week.” Nelson was traveling with President Barack Obama on Air Force One to a speech in Jacksonville, Florida.

Lawmakers are also considering pairing the new homebuyer credit with a broader tax benefit for businesses with net operating losses, and passing that as a separate bill. The tax break, a priority for homebuilders, would allow companies to apply losses incurred in 2008 and 2009 to amend up to five years worth of earlier tax returns to get a refund of taxes paid in years when they were profitable.

That provision, along with the step-up, would be “extremely positive for the homebuilders,” Parmentier said.

A version of the benefit was included in February’s economic stimulus bill, though it was limited to companies with receipts under $15 million. Business groups, including the Washington-based National Association of Manufacturers and National Association of Home Builders, lobbied unsuccessfully to have the benefit expanded to larger companies.

To contact the reporters on this story: Dawn Kopecki in Washington at [email protected]; To contact the reporters on this story: Ryan J. Donmoyer in Washington at [email protected].

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New Loan Modification Law May Shut Down Many Sacramento Loan Mod Shops

Loan Mod Scam


Effective immediately, SB 94, which became effective Oct. 11, will ensure anyone selling loan modification services will take money only after they do what they have promised. Also they must advise potential customers that they can actually negotiate a modification with their lender on their own or obtain help free of charge from nonprofit counseling agencies that are pre-approved by the Department of Housing and Urban Development.

The law includes penalties up to $10,000 and up to a year in jail for violation of the law for an individual and a fine of up to $50,000 for a corporation.

Consumer advocates called the law “a step in the right direction,” but say more needs to be done to make loan modifications easier to accomplish in order to reduce the frustration that leads homeowners to hire the unscrupulous.

No Telling exactly how Sacramento areaq Modification shops are dealing with the law… It’s too early to tell.

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Treasury Department Issues Guidelines Reinforcing Compliance with Fair Lending When Modifying Mortgages



MINNEAPOLIS–(Business Wire)–
Wolters Kluwer Financial Services announced today the company has expanded its comprehensive Loss Mitigation Service to include fair lending compliance consulting. The company`s experts with strong experience and knowledge in helping financial institutions avoid discriminatory lending practices can now be deployed on-site at mortgage servicers to help them meet all state and federal fair lending requirements when modifying loans for distressed borrowers.

As U.S. mortgage servicers ramp up their loan modification efforts to help slow the exploding number of home foreclosures, the primary focus on doing so is mitigating financial losses for both the financial institution and borrower. However, the Treasury Department recently issued guidelines reinforcing the importance of compliance with fair lending requirements when modifying loans  within its Home Affordable Modification Program (HAMP).

Wolters Kluwer Financial Services` compliance consultants can evaluate a
servicer`s loan modification policies and procedures to help determine how they can address fair lending risks more thoroughly and rapidly. Next, they can review a representative sample of loan modifications the servicer has completed and denied to determine if any disparate treatment of borrowers exists. And inally, the consultants can conduct a statistical analysis of all completed modifications and denied applications, identifying certain modification criteria that might lead the servicer to violate fair lending laws.

Wolters Kluwer Financial Services is also offering financial institutions a free
Webinar on how to prevent discrimination in the loan modification process and mitigate associated fair lending risk on Nov. 12.

“While modifying loans at risk of default as quickly as possible is paramount
for servicers and their borrowers, so is making sure everyone is treated fairly and equally in the process,” said Don Morrow, Ph.D., senior consultant and statistician, for Wolters Kluwer Financial Services. “Regulators have put forth notice they`ll intensify their scrutiny of servicers` fair lending compliance.”

“Wolters Kluwer Financial Services` fair lending compliance experts possess
decades of experience analyzing loan data. They have the skills and knowledge necessary to help servicers begin addressing emerging fair lending concerns immediately,” said Kurt Sames, vice president and general manager of Consumer Compliance for the company.

Wolters Kluwer Financial Services Loss Mitigation Service also helps servicers ensure compliance with requirements surrounding various loan modification rograms, including the government`s Home Affordability Refinance Program (HARP), HAMP and HOPE for Homeowners programs, and meet Freddie Mac, Fannie Mae, Treasury and Department of Housing and Urban Development guidelines, through its expansive library of mortgage compliance documents. In addition, the company can help servicers make the settlement process easier and faster through a complete,
online suite of settlement services. And Wolters Kluwer Financial Services can elp servicers record loan modification packages within any U.S. jurisdiction through a partnership with CT Lien Solutions, another Wolters Kluwer company.

For more information on Wolters Kluwer Financial Services` fair lending
consulting services tied to loan modifications, visit For more information on the company`s comprehensive Loss Mitigation Service, visit it`s Loss Mitigation Resource Center at

About Wolters Kluwer Financial Services

Wolters Kluwer Financial Services provides best-in-class compliance, content, and technology solutions and services that help financial organizations manage risk and improve efficiency and effectiveness across their enterprise. The organization`s prominent brands include Bankers Systems, VMP Mortgage Solutions, PCi, AppOne, GainsKeeper, Capital Changes, NILS, AuthenticWeb and Uniform Forms.
Wolters Kluwer Financial Services is part of Wolters Kluwer, a leading global
information services and publishing company with annual revenues of (2008) €3.4
billion ($4.9 billion) and approximately 20,000 employees worldwide. Please
visit our Web site for more information.

Wolters Kluwer Financial Services
Jennifer Marso, 612-852-7912
Director of Corporate Communications
[email protected]
On Twitter: @JenniferMarso
Charles Miller, 320-240-5457
Senior Public Relations Specialist
[email protected]
On Twitter: @CharlesWMiller

Copyright Business Wire 2009

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The next collapse

Commercial Real Eatate Collapse
If there’s another real estate collapse on the way, it’s in commercial real estate, and the FDIC closing Chicago’s Corus Bank last month may have signaled the beginning of it.  Corus, whose balance sheet full of bad construction loans, was just one of many banks that have this type of debt on their books, and refinancing the $2 trillion in commercial mortgages is going to be tough as property values decline.  In this new age of cautious lending, few banks are willing to refinance loans.  Michael Haas, a real estate attorney at Jones Day, says, “There is a hesitancy to extend credit when there is a real possibility that the real estate may be worth less than it was a few years ago.” In a situation similar to the subprime crisis, we may be looking for a wave of foreclosures and loan defaults that could, in turn, trigger a collapse in the market of the structured bonds backed by commercial real estate and construction debt.


From Chris Mcglaughlin

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Loan modifications, foreclosure prevention not moving fast enough…

The numbers just keep piling up, servicers have been moving so slow and inefficiently for so long, the problem has just become too big for them to get a handle on. 

What gets me is that even though there are over 500,000 loan modifications now started through the  administrations HAMP program, less than 1% of the loan modifications that have been finalized through the system have seen any principle reduction– so why do it? If you are still going to be on the hook for $500,000 for your home that is now worth $310,000, how long will it be until you can sell tht home and not affect your credit? if the market were to quit going down tomorrow and started gaining at a more historically normal 3–5% annually how long would it take to get back above water? 20 years?

Here are some great articles that help zero in on this moving target:

TARP Watchdogs Say Government’s Not Doing Enough to Stop Foreclosures

Loan Vesting Plan Sparks Renewed Interest as Foreclosures Soar
Our Subprime Federal Government
Wells Fargo steps up pace of mortgage relief
$1,000 per loan modification

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BofA Suffers Huge Loss- More Foreclosures…


Bank of America (BOA) announced today that it suffered a $2.2 billion loss in the third-quarter quarter.  Contributing to that was a $1.2 billion dividend payment to its preferred shareholders, including the U.S. government, credit losses within some of its consumer-related businesses, and $402 million after it agreed to eliminate a loss-sharing agreement it had struck with the government earlier this year.  “Obviously, credit costs remain high, and that is our major financial challenge going forward.”  Most of this quarter’s losses were in Bank of America’s mortgage and credit card businesses, which together lost more than $1 billion during the July-September period. 

BOA funded $95.7 billion in first mortgages, selling purchase or refinance loans to nearly 450,000 borrowers, including $23.3bn in mortgages to 154,000 low- and moderate-income borrowers during the quarter.  About 39% of all the first mortgages were for purchases. Year-to-date at the end of Q309, BOA modified the mortgages of approximately 215,000 customers, and an additional 98,000 BOA mortgage customers are in the trial stage of a Making Home Affordable Modification Program (HAMP) workout. The overall results were slightly worse than Wall Street was expecting.  Analysts had anticipated that the company would suffer a loss of 21 cents a share, according to Thomson Reuters, but in fact lost 26 cents a share.

Foreclosures up

Since government intervention began in September 2008, foreclosure sales remain stunted, dropping 8.6% from the previous month and 40.6% from a year ago. But the percentage of foreclosures sold to third parties, who are usually investors, grew by 215% from last year and 3.27% from August, according to ForeclosureRadar’s monthly foreclosure report.  Arizona leads all states with an increase of filings by 36.1% in September, followed by Florida (29.6%), Texas (24.3%), and Michigan (18.22%).  Filings in California increased only 1.08% in September, but the volume has grown by 123% from last year. 

Urban areas were hit hardest and spurred the increases.  In Arizona, the statewide increase was fueled by a massive 81.3% increase in Phoenix foreclosures.  Foreclosures in Las Vegas jumped 47.4%; Atlanta had a 39.9% increase; Chicago’s rates climbed 36.2%; and Houston had a 33.2% spike in foreclosures, according to ForeclosureListings.comRealtyTrac says foreclosure filings in Q309 increased to a level unseen since it began reporting the figures in January of 2005.

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California Bans Upfront Fees For Loan Mods-

Schwarzenegger Institutes Nine New Mortgage Laws

Gov. Arnold Schwarzenegger signed nine housing bills into law this week. One in particular, Senate Bill 94, consumer advocacy groups are calling a clear victory for California’s many troubled homeowners facing foreclosure.

The bill, sponsored by Sen. Ron Calderon (D-Montebello) aims to reduce fraud against desperate borrowers looking to save their homes. It bans all foreclosure consultants, including loan modification firms and attorneys who specialize in loan mods, from asking for any fees or compensation before fully completing the services contracted, whether the mod is successful or denied by the servicer.

Because it was labeled an “urgency measure,” the bill is effective immediately. It remains in effect until January 1, 2013. One local paper in Sacramento said the government’s swift action on the issue follows a colossal number of complaints made to the state’s Department of Real Estate by borrowers who said they paid up to $4,000 upfront to firms that abandoned them.

According to the Del Mar-based American Mitigation Law Group, the new law will force many loan modification companies to close their doors, while many others will scramble to come into compliance.

Assembly Bill (AB) 260, by Assemblyman Ted Lieu (D-Torrance), takes effect January 1, 2010, and caps yield spread premiums so mortgage brokers can’t “steer” borrowers into high-risk, high-interest loans. It also outlaws negative-amortization mortgages and limits prepayment penalties to no more than 2 percent of the loan balance.

The governor vetoed similar legislation last year at the urging of several industry trade groups, but Lieu successfully argued this go-around that the measure was now more important than ever to stem the tide of foreclosures in California.

According to Walnut Creek, California’s PMI Mortgage Insurance, a third bill – SB 291 – could provide regulatory relief to residential mortgage insurers in the state, and go a long way to support the market’s housing recovery.

The measure, which takes effect in California January 1, 2010, is similar to legislation enacted by Arizona last month and North Carolina in July 2009. It gives the state’s insurance commissioner added flexibility in assessing the strength of mortgage guaranty insurers, with discretion to permit such companies to continue to transact new business if capital falls below government-prescribed levels. Prior law required mortgage insurers to automatically cease conducting new business if they failed to meet the mandated capital levels.

Other mortgage-related bills signed by Schwarzenegger:

– SB 36, by Calderon, establishes standardized licensing requirements for all residential loan originators.

– SB 237, by Calderon, creates a registration program for appraisal management companies (AMCs).

– SB 239, by Sen. Fran Pavley (D-Agoura Hills), makes it a felony to commit fraud on a mortgage loan application, punishable by up to a year of jail time.

– AB 329, by Assemblyman Mike Feuer (D-Los Angeles), requires lenders to provide seniors with “a clear and informative” written disclosure of the risks and suitability of reverse mortgages.

– AB 957, by Assemblywoman Cathleen Galgiani (D-Livingston), allows buyers of foreclosed homes to choose local escrow officers, rather than being forced to use the company chosen by the seller.

– AB 1160, by Assemblyman Paul Fong (D-Cupertino), requires that mortgage loan documents be translated into the same language used in verbal negotiations.

Courtesy DSNews 

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