Housing Doom

A big thank you to VERSUS, who give us a chance to laugh at the "Doom" and sent us this video:

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From Minyanville today- a great quote ofnthe current "crisis":  [Thanks L!]

Unlike many, I have never thought that the U.S.’ current crisis was a “subprime” crisis, or even a more-broad mortgage crisis. No, to me, this has been and will continue to be an evolving consumer consumption crisis which started with the largest and most leveraged consumer asset (housing) and the weakest population of consumers (subprime borrowers).

But I think it’s important to recognize that with each passing day, as credit is tightened and unemployment grows, more and more asset classes and population groups will be affected. And you need only look at the news from BMW above or last week’s earnings report from Harley-Davidson and Starbucks to see that consumers can no longer afford their aspirations.

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In spite of government efforts to reduce the foreclosure rate in the U.S., the percentage of Americans going into foreclosure is accelerating: [Thanks G!]

April 29 (Bloomberg) — U.S. foreclosure filings more than doubled in the first quarter as payments rose for subprime adjustable mortgages and falling home prices left property owners unable to sell or refinance without losing money.

Almost 650,000 properties were in some stage of foreclosure during the quarter, or 1 in every 194 U.S. households, Irvine, California-based RealtyTrac Inc., a seller of foreclosure data, said today in a statement. The number was 112 percent above a year ago. Nevada, California and Arizona had the highest rates.

The median U.S. home price may drop by a record 5.8 percent this year, Fannie Mae, the world’s largest mortgage buyer, said April 7. Congress, the Bush administration and regulators have urged lenders to renegotiate terms for borrowers so they can stay in their homes, easing the glut of empty houses. Such efforts may mask the slump’s extent by delaying foreclosures, RealtyTrac Chief Executive Officer James Saccacio said in the statement.

“This country needs a cleansing,” billionaire real estate investor Sam Zell, chairman of Equity Group Investments LLC, said yesterday at the Milken Institute Global Conference in Los Angeles. “We need to clean out all those people who never should have bought in the first place, and not give them sympathy.”

There seems to be a whole lot of "cleansing" going on:

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Thinking of buying a nice investment property in this "buyer’s market"?  Financing that dream "flip" just got tougher: [Thanks L!]

Major lenders and mortgage insurers are turning off the money spigot for investors who want to buy rental houses or condos with minimal downpayments.

The most dramatic cutback takes effect next week, when giant mortgage insurer United Guaranty — a subsidiary of AIG International, the world’s biggest underwriter — says it will stop covering loans to investors in any of the thousands of Zip codes from coast to coast that it defines as "declining" real estate markets.

The ban includes all non-owner-occupied rental houses or condos — including "mom and pop" two-to-four unit properties where the owners occupy one and rent out the rest.

United also is cutting off coverage of all condominiums and cooperatives - whether owner-occupied or rental — plus all second home purchases. It’s even refusing to look at loans to investors or owner-occupants that have limited documentation in any market, whether declining or not.

Other major mortgage insurers are expected to follow some, if not all, of United’s tough new restrictions in the coming weeks.

Add to that Fannie Mae’s and Freddie Mac’s new guidelines on condominium financing, which are causing condo associations to adopt stricter rules on the percentage of units owned by investors — and you’re looking at some crunching changes underway for small-scale investors.

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It’s Monday, and we’re hearing a number of opinions on the credit crisis.  Is in nearing the end, or only the beginning? Here’s the opinion of a number of industry sources:

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As we look at the "Vacantvilles"- those communities at the far reaches of the metro areas- where foreclosures and walk-aways number more than sales, it’s hard not to wonder, "What will become of all these empty homes if buyers don’t show?"  Perhaps it’s possible to see their future by looking at Youngstown, OH:

YOUNGSTOWN, Ohio (CNNMoney.com) — Youngstown, Ohio, has seen its population shrink by more than half over the past 40 years, leaving behind huge swaths of empty homes, streets and neighborhoods.

Now, in a radical move, the city - which has suffered since the steel industry left town and jobs dried up - is bulldozing abandoned buildings, tearing up blighted streets and converting entire blocks into open green spaces. More than 1,000 structures have been demolished so far.

Under the initiative, dubbed Plan 2010, city officials are also monitoring thinly-populated blocks. When only one or two occupied homes remain, the city offers incentives - up to $50,000 in grants - for those home owners to move, so that the entire area can be razed. The city will save by cutting back on services like garbage pick-ups and street lighting in deserted areas.

It’s not a program without its problems, but other cities are looking at Youngstown’s decision to "embrace downsizing".

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Well, I suppose desperate times, call for desperate measures….. [Hat tip L!]

In February, throngs of people gathered at a $100,000 poolside party in Miami, downing Roberto Cavalli vodka, sampling food from local restaurants and dancing to a DJ blasting hip-hop and house music. Nearly 1,000 more people showed up than expected, sending the hosts scrambling to provide extra booze and triggering noise complaints from neighbors.

It wasn’t a wedding or a birthday bash. The swanky event — designed with a film theme, with a red carpet and a giant movie screen — was hosted by the Related Group, a luxury developer, to get people to see, and eventually buy, apartments in its new 1,000-unit complex.

"I was nervous when I saw how many people had shown up," admits Ricardo Vadia, an assistant vice president of development for the company. "But it was well worth it. We got people into the buildings who otherwise wouldn’t have come."

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The "Ideas" thread has gotten pretty long, [Sometime I'll get around to starting a new one.] so when I get a good comment like this on it, I think it’s worth a post.  hpylori2 asks:

I would love ideas from the group…I (my wife included)made a huge mistake and moved to Miami December of 2006 and bought a house.  We hated it and moved back to Denver (I would prvide more sordid details about the whole process but it would serve no purpose)…Given the housing slump, I cannot sell the house and I cannot afford to continue paying my mortgage…what would you do in my situation?

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Thanks to Luke Mullins of U.S. News and World report for letting us know about a little slip over at Lending Tree.com.  From a letter issued by Lending Tree:

April 21, 2008

Dear LendingTree Customer:

We want you to know that some loan request forms our customers sent to LendingTree may have been seen by lenders without our consent. These lenders then used the forms to market their own mortgage loans to our customers. While we don’t believe that the forms were used for any other purpose, we want you to know what happened and what we did to correct this situation, as well as what you can do to monitor your credit records.

 

What Happened and What We Did

Recently, LendingTree learned that several former employees may have helped a handful of mortgage lenders gain access to LendingTree’s customer information by sharing confidential passwords with the lenders. When we learned of this situation, we quickly contacted the authorities, and LendingTree is helping with their investigation. We promptly made several system security changes. We also brought lawsuits against those involved.

Based on our investigation, we understand that these mortgage lenders used the passwords to access LendingTree’s customer loan request forms, normally available only to LendingTree-approved lenders, to market loans to those customers. The loan request forms contained data such as name, address, email address, telephone number, Social Security number, income and employment information. We believe these lenders accessed LendingTree’s loan request forms between October 2006 and early 2008.

 With all the lenders going under- all the files lost, or in the hands of folks who don’t care, I feel obligated to ask a question John and I have been asking since last January:

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Housing woes have not only caused lenders to fail and foreclosures to mount, but apparently have impacted the coffee market as well:

Starbucks Corp said on Wednesday it was the latest victim of the U.S. mortgage meltdown.

Blaming hard-hit housing markets of California and Florida for slowing sales, the coffee shop chain slashed its quarterly and 2008 profit forecast below Wall Street targets and said it faced the "weakest economic environment" in its history.

The company’s shares tumbled 12 percent on the news, which came four months after company founder Howard Schultz returned as chief executive with a mandate to turn around the struggling U.S. business.

"The wheels have really come off of this train," RBC Capital Markets analyst Larry Miller told Reuters, noting his surprise at the warning. "It’s amazing how fast business has derailed. If sales are down mid-single digits, that is a rapid erosion."

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