Holy Smokes!

Gov't may soon back troubled mortgage finance giants Fannie Mae, Freddie Mac

(AP) -- Fannie Mae and Freddie Mac are expected to be taken over by the government as soon as this weekend in a bold move designed to protect the mortgage market from the risk the companies could fail, a person briefed on the matter said Friday night.

Some of the details of the intervention, which could cost taxpayers billions, were not yet available, but are expected to include the departure of Fannie Mae CEO Daniel Mudd and Freddie Mac CEO Richard Syron, according to the source, who asked not to be named because the plan was yet to be announced.

Federal Reserve Chairman Ben Bernanke, Treasury Secretary Henry Paulson and James Lockhart, the companies' chief regulator, met Friday afternoon with the top executives from the mortgage companies and informed them of the government's plan to take over the troubled companies in a process known as conservatorship.

August Foreclosures....Wow!

Cruising the BMIT site today I saw the foreclosure numbers for August were posted. All I can say is WOW!

In August there were 5893 foreclosures in Riverside County! That's 280 per day!

Retail centers, the next ghost towns.

There was a good article in the LA Times today. It mirrors a similar article from the Press Enterprise from a few months back that spoke of the problems facing many of the new retail centers that have been built all over the IE. Interestingly both articles chose to single out the Dos Lagos center in South Corona as their poster child.

Dos Lagos is far from the only retail center that is in trouble. Many of these mega centers as well as many more smaller centers built in the last few years are finding customers are just not spending these days. What's going to happen to these centers? Well you need to look no farther than Moreno Valley to see what will happen. During the last boom several large centers were built. Many of those still sit empty. Right off the 60 Fwy is Canyon Springs center. Once home to a thriving retail center. When the bust hit in the early 90's roughly 70% of the stores moved out. What remained were discount shops or seasonal shops. Only Toy's R Us weathered the storm. Even well known eateries like Tony Roma's could not make it in an empty shopping center. Another example is the McKinley Center. That center is now deserted and a new center is being built right across the freeway. Just in time for the latest crash. Even worse is the new center they are building on the eastern end of MoVal. There is a new Target, WalMart, Kohls, Best Buy and I saw they are just finishing a Circuit City when I drove past a few weeks ago. That center is doomed. It was built in anticipation of several thousand new homes being built east of Lake Perris. Those homes aren't being built so who's going to drive way out there now? A year from now that center will be empty. Just like Dos Lagos and most of the other centers built on the edges of these former boom towns.

Here's the LA Times article

The Promenade Shops at Dos Lagos opened two years ago in Corona, aimed at serving the legions of people moving into upscale new housing tracts in the surrounding hills.

Discount center it isn't. This is where you go to find a $3,300 home espresso machine at Sur La Table, a $500 handbag at Coach or a $6 cup of Pinkberry frozen yogurt. Harder to find are paying customers. On a recent weekday afternoon, most stores had fewer shoppers than salespeople.

Outside the Starbucks, Melissa McVicar was selling sunglasses from a cart, $12 a pair. Five hours into her shift, McVicar had sold only six pairs. And most of her customers weren't paying cash.

"People are buying on credit, even if it's only $12," she said.

A year after the median home sales price in Southern California started to go down, Dos Lagos is a good example of how the housing slump is spreading into the broader economy. New housing developments were supposed to have brought thousands of big-spending residents to the area. But only a fraction of those houses were actually built and sold, leaving the rolling hills around the mall bulldozed and bare.

More Charts to start the new month

Cruising around this evening I ran across this report on Mish global economics site. It seems I'm not the only one that gets a dozen emails a day asking when I think the bottom will be. This article and attached charts echo my feelings. Prices will settle back to around 2000 levels give ro take a year. I also don't think we will see those peak 2005/06 prices again for a very very long time.

Here's the post.

When Will Southern California Home Prices Bottom?

Inquiring minds are wondering about California home prices. My friend "BC" pinged me recently with the following thoughts:

Were the Kuznets Cycle to confirm to past patterns, real median CA house prices will not again return to the '04-'06 levels for another 15-20 yrs., if then given the longer-term demographic profile, normalized lending standards, and likely slower real GDP growth trend (2% vs. 3-3.5%).

Seen another way, nominal SoCal median house prices will not bottom until prices return to the '99-'01 levels, implying another 20-30% avg. decline in prices hereafter; but even then nominal prices will likely not rise more than inflation for many years thereafter.

By the early to mid-'10s, CA mortgagees will have made no money in real terms on their real estate purchases for ~15-30 yrs. (worse when counting home-equity loans).



Well, that's another month in the bag. That's nearly the end of the traditional selling season. There will probably still be good numbers posting for the next month or two because of the 30 to 90 day lag to takes for sales to close. So the june/July sales should be closing in August making the numbers look good. Don't forget that last August we were already well into the sales freeze due to the credit implosion and the fact the word of the bubble popping getting out to more buyers. The year over year price declines will also start to level out a bit. After all you can only go dow 40% a year for so long before homes would be practically free (like in Detriot!).

Homeowner fraud exacerbates mortgage crisis

This timely article in the Press Enterprise speaks of an issue I wrote about as to why the market is doing so well right now. It's about the "buy and bail" and how those folks are both helping the sales numbers and adding to the foreclosure numbers. What I would like to know is HOW MANY of the current crop of sale are of this type. These are people who are obviously not scared to roll the dice and take a risk (After all this is clearly fraud) . Much like many of the buyers over the last few years. Those folks were not afraid of risk. They were not worried about taking on far more debt than they could possibly pay. So how much of the market is going to vanish when the new anti "buy and bail" rules take effect?

From the PE,

Some homeowners tempted to buy a more affordable house in a declining market have committed fraud to ditch the supersized mortgage they no longer want.

This month, Fannie Mae, the giant government-sponsored enterprise that buys and guarantee mortgages, began enforcing new guidelines that could help stop the practice, called "buy and bail.
The abusers are homeowners who could afford their (current) mortgage payments but didn't want to keep a house whose value had dropped below what was owed on it.

If they just walked away, their shattered credit would prevent them from buying again. Instead they continued making timely payments on the first home. On the loan application, they led the lender to believe they intended to put a tenant in the first house so they could afford the two mortgages. But once escrow closed on the new house's purchase, they stopped making payments on the first house, letting it go into foreclosure.

"This adds an element of fraud to a market that is already out of control," said Inland economist John Husing.

Phony 'Short Sales'

In another scam on lenders, homeowners have been lowering their mortgage payments by arranging fraudulent "short sales" at prices less than what they owe their lenders. The buyer whom the seller chooses, who may be a relative or friend or a "straw buyer" paid for his service, agrees to transfer ownership back to the seller, who winds up with a smaller mortgage on the same house and never has to move.

In such a short sale, the seller commits fraud by having a side arrangement with the buyer that he does not disclose to the lender. When lenders accept short sales, it is because they think the price is the best they can get. Mortgage industry officials say lenders would reject a sale in which there was a special relationship between seller and buyer on the grounds that the selling price most likely was not the best one available.

Putting License at Risk

But real estate agents and brokers can be held liable, said John Giardinelli, a lawyer who represents nine Southern California real estate associations.

"I am telling them, 'If you put your handprint on something deceptive or fraudulent, then you could lose your license or conceivably be brought up on criminal charges,' " he said.

Joe Cusamano, broker/owner of Pro-One Investments in Riverside and president-elect of the Inland Valley Association of Realtors, said he knows he has clients who have lied to lenders to "buy and bail" and done short sales between parents and children.

He said he tells them what the law requires but still works with them because he believes they are good people caught in a collapsing market who are not getting sufficient help from either lenders or the federal government.

Cusamano described one client as a young law enforcement officer and family man who was buying a bank-repossessed house next door to one he already owns in Moreno Valley.

The client could afford his current $1,900-a-month payment for his mortgage, taxes and insurance, but he saw "buy and bail" as a way to improve his family's lifestyle. He had bought his house in June 2005 with a $294,000 mortgage, and since then, its value had fallen to about $155,000.

He noticed that the bank-owned house next door was bigger and had more upgrades, and he put in a winning offer of $145,000.

The client's plan is to let his original house go to foreclosure, Cusamano said, and probably the only adverse consequence he will face is having bad credit for the next five years. Meanwhile, he will save $700 a month on his house payments.

7 Money Orders

A 55-year-old man said he let a house in southern Corona go to foreclosure and bought another in Lake Elsinore, lowering his monthly payments from $5,200 to $2,100. He wanted to remain anonymous because what he did "could be construed as fraud," he said.

He had seven money orders for $500 apiece made out to himself and asked a friend to sign a rental agreement so he could deceive the lender into believing he had rented out his first house and therefore could afford to buy a second one, he said.

His Christian beliefs told him lying was wrong, and his parents had taught him to pay his debts, he said.

"The only way I can justify it (lying to his lender) is that I think a lot of people made a lot of money selling bad mortgages to anyone who walked in the door," he said.

Sandra Gloshen said after her husband, an airline baggage screener, was transferred to Boise, Idaho, by his employer, they were unable to sell their house in Lake Elsinore, which was then worth less than they owed on it. But they had no trouble buying a home in Boise after they told the lender they would rent out the Lake Elsinore property, she said.

In actuality, she said, it would have been impossible to charge enough rent to cover the mortgage payment, which had ballooned when their interest-only loan reset. She said their original lender ultimately seized the Lake Elsinore home.

The million dollar club

Finding losses of $500k, $600k or even $700k is not that hard these days. But finding losses of a million or more on IE homes is a little unusual. Many of the high loss homes undoubtedly involve some kind of fraud. This home is probably one of those.

1062 Lowry Ranch Rd in Corona (I know the listing says it's in Riverside, it's not, it's in Corona). This is a big home in Crown Ranch. It sold new in feb 2006 for 1.255 million dollars. The next sale was very probably a fraudulent transaction. Even in the boom years tract homes did not double in price in a year. It sold again in mid 2007 for 2.2 Million bucks! Yes, you read that right, in the middle of the biggest real estate meltdown in history this guy flip a home in a year and nearly doubles his money.

I'd bet a bottle of scotch that no payments were made on that loan. The home went back to the bank a year later and now it's listed for $815K. That's a loss of $1.385 Million from the obviously fraudulent sale. However other homes in this tract were selling for about 1.5 million in that time frame. So the loss would still be impressive even if it sold at "market" price in mid 07.

This guys IS the biggest tool on the planet

Anyone remember the realtor/owner that was trying to sell the house with the fake grass for about twice the going comps?

he earned the Realtard of the Month award back in May of 2008 for listing his house for $875k to $925k. A price that was nearly 3 times what the nearby REO's were listed at.

Well, after a few months on the market and several price reductions that finally got his asking price down to $775k (still about double what it should be listed for), he has changed strategies. Price reductions are not working. Hey, lets try a big friggin increase. After all, the California Association of Realtors have just announced that sales in the IE are up 176%. Homes must be flying off the shelves, right?

So the Realtard of the month has RAISED his asking price to 1 MILLION dollars! HAHAHAHAHAHAHAHAHAHAHAHA. Oh man, I nearly messed up my monitor again when I saw it. This guy (or gal) is obviously off his meds.

And in the 3 months the home has been listed he still cannot quite find the time to take some pictures of a CLEAN house.

May 22, 2008	$875,000
Jun 10, 2008	$875,550
Jun 15, 2008	$850,000
Jul 07, 2008	$775,000
Aug 01, 2008	$1,000,000

Redfin, All better now

It looks like Redfin has fixed the glitch that was causing some of the newer tracts to drop off the map. I see that all those little green icons have reappeared. I also like the new feature where the tint of the icon changes once you have looked at the listing.

It's better now.......Or is it?

You would think that after the biggest financial boondoggle in history that the banks would be a little more careful. You'd be wrong! Check this out, Mortgage fraud is UP 42% in the first half of 2008"


The study found that the number of fraudulent loans issued during the first three months of 2008 skyrocketed 42% compared with the same period in 2007.The study found that the number of fraudulent loans issued during the first three months of 2008 skyrocketed 42% compared with the same period in 2007.


Huh? how can this be......

CAR July report??

Did anyone else see the July CAR report. They have Riverside/San Berdu with a 176% increase in sales over last year?? Huh, what kind of math is that. DataQuick already posted the numbers and their numbers indicated a 38% increase. An increase is to be expected since last year there were very few sales. But 176%? come on now, the CAR better go check those numbers. Maybe they have taken to counting trustee sales going back to the bank.

I think their number is actually a total yearly sales estimate based on current sales pace. I don't think the number they post is an actual number based solely on July sales. This approach would make things seem much better and further confuse the poor unejumacated knife catchers.

Even though sales are up if you look at the average (statewide) sales over the last 21 years the sales are WAY below the 21 year average. The average July is over 47,756 and this year it was 39,507 (about 18% below average). The CAR can try to spin the numbers any way they want. But the cold hard reality is that that sales are still low and foreclosures are still rising.

Getting there.

How's that prediction of Corona homes under $100 s/f working out? Pretty good actually. Here's a fine example today from South Corona.

If you like em BIG, then 25111 Cliffrose St in So Corona may suit you. This home is 4187 s/f and has 5 bedrooms and 4.5 baths. It features all the trendy niceties like Granite, tile floor, crown molding etc. This REO property was purchased new in late 2004 for $625,500 (that was a lot in 2004!). It's gone back to the bank and now it's offered for $369,900. That works out to $88 s/f. That is a 41% loss from a 2004 purchase price! That is easily 2 years before the peak and it's still losing 41%.



Also in Sycamore Creek there is 25205 Noble Canyon. This home is 4158 s/f and has 5 bedrooms and 3.5 baths. This one was purchased new in April 06 for 706K. It's now bank owned and is listed for $380K ($91 sq/ft). That is a loss of 46% assuming it sells at listing. They have already dropped the price once so it may sell for even less.



Not felling the love for South Corona? Well there is 14715 Rick Ln in Eastvale. This home is another big-un. It is 4148 sq/ft and also has 5 beds and 4.5 baths. This one is still in diapers at just over one year old. It was bought in Feb 2007 for $660k and it's already gone back to the bank. It's currently listed for $385k. Now don't get too excited the previous owners did take a few of the kitchen cabinets. Doesn't look that bad though, probably $5k to replace the missing cabinets.


There are plenty more like these and theres also a load of short sales listed sub $100 s/f.

Delusional seller of the month award

This month our delusional seller award goes to KB Homes. Since sales have ground to a halt in The Retreat, KB Homes is now selling off the models. With all the REO sales to compete with it looks like they may be throwing in the towel for now.

The homes that are selling in The Retreat seem to be fetching in the $130 to $150 a sq/ft range currently. KB is trying to get about $170+ sq/ft for their last few new homes. That must be a hard sell with the REO's asking about 20% less than that.

So, on to the award. Me and the wife stopped in last week and asked for a price sheet. Ready for this? they are asking 1.2 million, 1.3 million and 1.4 million for the 3 models! I actually laughed out loud when I saw the prices and handed the price sheet back. Man did I get the stink eye!

The average home in the tract is selling for (let's be an optamist) about $150 sq/ft. Yet KB Homes thinks they can get over $300 sq/ft. Yes, they are very nice and fully upgraded. But to think they will sell those at that price is ludicrous. There's no way they will appraise anywhere near that. So that means KB must finance the loan or find a cash buyer stupid enough to plonk down 1.3 mill on a house that would probably only fetch $500k next year.

We salute you, KB Homes. Delusional seller of August 2008.