Housing Bubble Blog

[lendaddy]

Does anyone know the saturation of any of these "interest only loans" in LA? I mean a good percentage of these have to go live soon yes? And at rates a bunch different than what these people were thinking when they signed on. Could get real interesting. "Yea Bob, this is your banker Vern. That note is gonna go live in 4 months and the P&I at todays rates will take your payment from $1,450 a month to $4,680. You want to set up direct payments from your checking account?"

[grudk]

A large proportion (about 30%?) of new loans are short-term ARMs in the LA area. I think a smaller number are 'interest only' (or even worse -- 'minimum payment')

I think the bigger problem is speculation, which is now rampant.

http://www.latimes.com/news/nationworld/nation/la-na-property27mar27,0,626986.story?coll=la-home-headlines

Once it's in the headlines lke this, the game is already over. By mid-summer, the presence of a 'bubble' will be all-too-clear in SoCal. And then the neighborhood RE tycoons will be most unhappy. Sadly, this will pull the state into a recession of significant magnitude, since so much of our economy in CA is now property/asset-driven.

[turbo6bar]

Haha, dude buys land in Nevada and says,"This is more exciting than a mutual fund," Boome said. "It feels safer too. You buy a piece of dirt, you feel you'll always have a piece of dirt."

5 years from now he may very well own nothing but a piece of dirt--worthless dirt.

I agree with grudk regarding speculation. Rental market is in the *****ter, and folks are STILL buying investment properties.

[SteveStromberg]

Bankrate.com
Lenders import ways to extend mortgages to immigrants
Thursday March 24, 6:00 am ET
Holden Lewis


Immigrants are increasingly getting the message: "Welcome to America. Now buy a house."
An immigrant with a scant credit history? Solvable. A family who wants to pool money to make a down payment? That's just fine. A borrower who is in the United States illegally? Not an insurmountable problem.

The federal government's policy is to raise the homeownership rate, and the most-efficient way to do that is to concentrate on minorities and immigrants. The white homeownership rate is almost 75 percent. A little less than half of black and Hispanic households own their homes, and the Asian rate is a bit higher than 50 percent.

For years, mortgage lenders have had programs for minorities, especially blacks, that involve relaxed credit standards and neighborhood outreach. Now those efforts are being tweaked and expanded for immigrants. There's a good reason for that: More than one in three new households are headed by immigrants, according to the Harvard Joint Center for Housing Studies. More than 1.2 million immigrants have arrived every year since 2000. Immigrants are where the housing growth is.

The nation's biggest mortgage lender, Countrywide, markets aggressively to immigrants. The California-based lender even sponsored a 13-episode home makeover show on Telemundo, a Spanish-language network based in Miami. In "Lo Dejo en Tus Manos" ("I'm Leaving It in Your Hands"), homeowners were given one-day renovations of part of the property -- a bathroom, kitchen, maybe the front yard. In one episode, Countrywide provided tips on how to qualify for a mortgage or home equity loan.

Education is key
"The major challenge when we're dealing with multicultural markets is the educational aspects," says Rodolfo Saenz, Countrywide's executive vice president of multicultural markets. Many immigrants don't know much about this country's banking system. "They don't really know what questions to ask, how to select the best product, what papers and questions will be part of the application," Saenz says.

Last year, Countrywide introduced its Optimum Loan program, under which borrower education is just one facet. Optimum combines disparate features of many loan products into one:

allowing low or no down payment;
supplementing the credit record with "nontraditional" credit;
recognizing cash income, and rent from housemates;
permitting the pooling of money for down payment and closing costs.
Mortgages with low or no down payments are relatively common nowadays. Optimum's three other features are relatively unusual. Take the nontraditional credit records. A lot of immigrants don't have extensive credit histories in the United States, both because they don't have many car loans and credit cards, and because they just haven't been in the country long enough to establish a track record.

Countrywide and other companies, such as credit scoring titan Fair Isaac Corp., are creating ways to augment meager credit histories with records of utility payments, rent and even money sent to families abroad. They are finding ways to confirm cash income from services such as child care and landscaping.


ITIN loans
Rent paid by long-term boarders is counted as income. Down-payment money from multiple sources is allowed. This last item is important for immigrant extended families.

Most mortgages are for people who can document that they are in this country legally. A few lenders are experimenting with providing home loans to people who have no such documentation. They are called ITIN loans because borrowers use individual taxpayer identification numbers (ITINs). These numbers are provided by the Internal Revenue Service to people who aren't eligible for Social Security numbers, but who pay federal income taxes.

A typical ITIN customer is a Mexican immigrant who has lived in the United States for a few years, says David Motley, executive vice president of Fort Worth-based Colonial National Mortgage, which has underwritten a few of the loans.

Colonial is still developing the loan program, which allows the use of nontraditional credit and recognizes cash income. The mortgages are risky because the borrowers are subject to deportation and the loans can't be sold in the secondary market. So they have higher interest rates -- anywhere from half a percentage point to 4 percentage points higher than for a standard, fully documented fixed-rate mortgage. The loans require substantial down payments. "That's kind of our hedge against that deportation risk," Motley says.

Motley is aware that mortgages to undocumented immigrants can arouse indignation among native-born Americans. "My experience is these folks want to work, want to work hard," he says. "These folks who sign up for an ITIN pay their taxes, they go to work, they take care of their families. They're an important part of the economy. Since they're paying rent on time and taxes and other bills, why not a mortgage payment?"

Homeownership training
The program requires borrowers to undergo training in homeownership and budgeting, and they have to have bank accounts, says Gloria Barreto, a Colonial loan officer in Dallas. She says some borrowers have misconceptions about the American banking system.

"Sometimes they think they have to stay in the house for 30 years, until they pay the mortgage off," she says. "I say, 'No, you can refinance or sell it.' A lot of times they don't understand about closing costs. I think in Mexico the seller holds the deed until it's paid for. I do a lot of education as far as the role of the title company and how the transaction works and how the parties get paid."

Undocumented Hispanic immigrants would take out an estimated $44 billion in mortgages if barriers to borrowing were lifted, according to the National Association of Hispanic Real Estate Professionals. The size of the market has captured the attention of nonlenders. Mortgage Guaranty Insurance Corp. offers private mortgage insurance to undocumented immigrants. Ameridream, a down-payment-assistance program, accepts ITINs. "It's another way for us to help people overcome obstacles to achieve homeownership," Ameridream president Ann Ashburn says.

The biggest mortgage lenders are staying away from loans to undocumented immigrants and instead are chasing after Hispanics and Asians who have come to the United States legally.

"We are a work in progress. We have historically been a plain-vanilla kind of lender," says Fran Clemens, senior vice president of emerging markets for ABN AMRO Mortgage Group. But this summer, the Netherlands-based lender plans to introduce DreamFirst, "which will be affordable-type loan products geared for outreach toward the underserved," Clemens says.

DreamFirst will share some similarities with Countrywide's Optimum, focusing on borrowers with nontraditional credit and seasonal or cash-paying jobs.

Saenz, of Countrywide, believes that a self-perpetuating cycle is begun when immigrants and minorities get mortgages.

"It's incredible when people get into their first home," he says. "They not only bring their family to a new level, but the extended family is going to benefit because they're going to come and say, 'How did you get a home?' The best advertising comes from people who are homeowners."

[Don Ro]

http://www.townhall.com/columnists/michellemalkin/mm20030829.shtml
.
Home loans for illegal aliens?!
.
Last week, The Washington Post published a rosy front-page tale headlined, "Illegal Immigrants Buy Into Homeowning Dream." The article detailed how illegal aliens in the Washington, D.C., area are successfully hooking up with cunning mortgage brokers and complicit lenders to secure home loans. Despite federal laws making it illegal to violate the borders, overstay visas, and recruit, harbor and encourage illegal aliens, the Post notes that the illegal alien home loan schemes are "legal."
.
That's just the tip of the illegal alien homeowners' iceberg. The Post failed to note that Federal Housing Administration-approved loans through the U.S. Department of Housing and Urban Development do not require lenders to obtain proof of citizenship or legal permanent residence. These FHA/HUD programs, primarily targeting minorities and first-time homebuyers, are federally insured and require minimal down payments.
.
A 25-year veteran of the mortgage industry in California confided to me recently: "It boggles the mind to think how many illegal aliens are homeowners in this country thanks to these programs, all fully insured by our government. Because of fear of lawsuits for discrimination I can also tell you that a lender may have a borrower who speaks little or no English who claims to be either a citizen or resident alien and it will not be questioned nor any proof required. Since FHA does not require any such documentation, a lender cannot cite their regulations as a basis for the request as they can on conventional loans."
.
Another easy avenue to home ownership is through the use of bogus Social Security cards. Moneylenders have no access to a verification system to check Social Security numbers before approving loans. A Department of Homeland Security investigator informs me that an ongoing federal probe of FHA/HUD-backed loans found that "a staggering number were approved to persons with false Social Security numbers." The Denver metro area alone accounted for 20,000 to 40,000 of the FHA-approved loans for suspected illegal aliens. "Even if a small percentage of the loans were foreclosed, HUD could be bankrupted," the homeland security official said.
.
A spokeswoman for the U.S. General Accounting Office told me this week that the agency's office of special investigations plans to report on the results of the probe later this fall. But "considering the size of Los Angeles, New York, Chicago, Houston, and other large cities throughout the United States known to be inundated with illegal aliens," says my source, "I don't think the federal government is willing to expose this problem for financial reasons as well as for fear of political repercussions."

[grudk]

In case any of you remain unconvinced of the presence of a bubble in CA housing, read this

http://www.latimes.com/business/la-fi-afford3apr03,0,4296610.story?coll=la-home-headlines

48% of mortgage loans in CA now 'interest only'

This is going to get very, very ugly for those who've bought near the top. But as the article suggests, I wouldn't be shocked to see ever more absurd new mortgage products emerge to keep this going as long as possible. And when it does go down, watch for the politicians to 'demand accountability' and fix the mess at taxpayer expense.

[widebody911]

There's a house down the street from me for sale, they're asking $499k. It's been on the market for close to a year now. Looks like someone got very greedy...

[Evans, Marv]

Thought I'd resurect this thread. I don't know about the rest of you, but in my area (So. Bay San Diego) there seems to be an explosion of for sale signs up all of a sudden. Seems to be fairly evenly distrubuted among the different priced areas. Anybody noticed a similar situation? It may be just random chance, but it is all of a sudden really noticable.

[Wrecked944]

Same thing has been happening in Worcester, MA for the past six to eight months. And yet, prices are still rising. Go figure...clearly we have not yet reached anything like a tipping point in MA.

[curlesw]

Marv, I have noticed the same thing in Escondido (I live in a community out by the Wild Animal Park)...I just assumed people were getting ready for "summer moves" since it's taking a little longer to sell homes these days. Prices seem to be steady or going up just a little...they do not seem to be going down though.

Wayne C.

[grudk]

The 'top' is seldom recognized until after the fact, but the signs are all here to suggest it's coming (or maybe we are there now).

-------------------------------------------------------------

From the Miami Herald:

"The specter of a South Florida real estate bust


This has the making of a ghost story.

As night snuffed out the last remnants of twilight in Fort Lauderdale, I looked up at the tall new residential tower by the New River and shuddered. It was a 31-story tower of darkness. Lights shone from no more than a dozen of the 315 condos. The rest were a study in black windows and empty balconies. As if the condo dwellers were phantoms.

But are they spectral beings? Or just speculators?

Speculation madness has gripped the real estate market in South Florida, particularly the high-rise condos going up along the beaches and in the old coastal urban centers. Real estate analysts estimate that anywhere from 50 to 75 per cent of our new luxury condos are being scarfed up by high stakes real estate gamblers.

Last month, Raymond James & Associates warned that ''anecdotal reports'' indicated speculators and investors accounted for 85 per cent of Miami high-rise condo sales.

No one actually knows, said Michael Y. Cannon, managing director of Integra Building Resources' Florida operation. Cannon, who predicted condo bust of the early '80s, said this time around the data is either sparse or a few months old and not of much use in market careening ahead at such reckless speed.

But Cannon knows that we're in the midst of a speculation epidemic. He calls it ''hyper flipperism,'' as buyers put up their 20 percent for condos under construction and try to flip the contracts, at a profit, before the buildings are completed. There are reports of condos changing ownership two or three times without an actual human being ever moving in.

OMINOUS WARNINGS

Robert Shiller, the Yale economist who warned that the late 1990s tech-fueled stock market was overheated, overpriced and in for a brutal fall, said Wednesday on National Public Radio that the U.S. housing market was now nurturing that same reckless abandon. He said the danger was particularly acute in what he called the glamor markets -- like South Florida.

And Shiller warned that this bubble, too, may burst.

Such talk casts a peculiar light over the raging debate about new residential construction in downtown Fort Lauderdale. The Broward County Commission reacted with something like outrage last month when the city commission requested approval for another 13,000 new housing units in the urban core. The county reduced the number to 3,000.

There were sharp words about so much traffic on the highways, so many more children in the schools and other stresses on the infrastructure if the city got another 13,000 units. But phantoms don't drive cars. Ghosts don't pack classrooms.

If those 13,000 new units were to be built, along with the 45,000 new luxury units coming on line in Dade County, the big problem might be avoiding speculators as they hurled themselves from the balconies of their overpriced high-rise condos.

HOUSING SOLUTION?

If nothing else, when the bubble bursts, South Florida will have a ready-made solution to its affordable housing problem. After the big bust in the 1980s, a regular Joe could land himself a luxury high-rise condo on Miami's Brickell Avenue for 60 grand.

I wonder if we're supposed to feel any sorrier for flippers snared in this real estate Ponzi scheme than, say, chumps who gamble away their paychecks at the Hard Rock Casino. But Shiller warns in his book Irrational Exuberance, updated to include the current real estate madness, that when they start abandoning their 20 percent deposits en masse, it could mean trouble for all of us. ``The bad outcome could be that eventual declines would result in a substantial increase in the rate of personal bankruptcies, which could lead to a secondary string of bankruptcies of financial institutions as well.

``Another long-run consequence could be a decline in consumer and business confidence, and another, possibly worldwide, recession.''

Suddenly, our little ghost story turns very, very scary"

________________________________________________

The good news is, for those with cash, buying opportunities are on their way!

[Mr Beau]

So what stocks do we invest in to profit from this coming "crash", or even short for those that are brave...???

[grudk]

I've asked myself the same thing, but I don't know.

Metals have been doing well and should continue to do so for a bit.

My short-term money is in cash. Long-term is indexed in the broader market -- though I'm not sure that stocks will yield the same returns in the next 30 yrs that they have in the last 30 (US stocks, that is)

[Mr Beau]

I guess I'm thinking more along the lines of stocks that will be impacted by the housing "bubble". Companies that deal with foreclosures was one that was mentioned as possibly a good investment...

I guess if things crash, it will have a ripple effect and cause other sectors to change.

Now where did I pack that crystal ball...???

[vash]

i dont know about that article, but i just read that bay area stuff is still going up.

with the rental rates where they are, it is still better than renting.

[grudk]

Funny you should say that... numbers disagree

http://money.cnn.com/2005/04/05/real_estate/rentprices/index.htm

[tabs]

I don't know what to say....

[vash]

three homes away from mine is a rental home. the landlady that lives two homes away, told me what she is renting it for. it is $50 more than my mortgage. and her property is a POS. not even a driveway or a lawn.

i have a bunch of friends that are in their mid 30's to 40's that live with room-mates. they all pay an average of $950 for rent, and they all dreams about owning something. i need to live somewhere, and i would rather own my tiny, relatively cheap house. i cant afford to move, so i dont even think about my house as an investment. it is just a house. no kids, and not married.

[ubiquity0]

Its crazy in the Bay Area now. Rents have been flat since 2000, but real estate has gone up a crazy amount (something like 24% in the past year, god-knows-what since 2000.) It is now more advantageous to rent than buy. Comparing a 20-year mortgage w/ renting the same property for 20 years the monthly rent payments are about half what the mortgage payments would be. Of course if anyone is counting on real estate prices continue going up a similar amount, say 20% a year for the next 20 years thats a different story. But then if that happens the median bay area house would cost $23M in 2025

[grudk]

23M in 2025! That is great!!

A Real Estate agent I know keeps telling me that 'the real boom hasn't even started in CA!' Right. And just who is going to finance that? Illegals from Mexico? Or maybe China? Mars?

Well, as my stock-broker friend says, 'trees don't grow to the sky.'

When it all goes South, we will see another gov't 'investigation' about fraud and abuse in the RE and Mortgage industry. But that won't help the families who've lost their savings (and their homes). By the way, House of Reps just passed the new bankruptcy bill yesterday. W has already said he'll sign it. So, those finding themselves underwater will be debt slaves for a very long time.