‘Liar Loans’ Taking Toll in Housing Downturn
Established in the 1980s mainly for the self-employed and non-U.S. citizens whose pay was difficult to verify, loans that require little or no documentation of income soared to $276 billion, or 46% of all subprime mortgages last year, up from $30 billion in 2001, according to Credit Suisse Group. First American Loan Performance says that home buyers with those loans defaulted at a 12.6% rate in February, compared with 1.5% of fully documented prime mortgages. Almost 60% of stated income loans were exaggerated by at least 50%, according to the Mortgage Asset Research Institute. Cheating on mortgage applications is so widespread and so seldom punished that it’s fueling an increase in foreclosures that will prolong the housing slump, says one expert. Borrowers and brokers commit fraud when they exaggerate the applicant’s income, qualifying the borrower for a home that would be otherwise unaffordable. Such fraud robbed lenders of an estimated $1 billion last year, according to data collected by the Mortgage Bankers Association and the FBI. “Misstatements about employment and income are being made every day,” said Robert W. Russell, counsel to the director of the Office of Thrift Supervision. “The brokers are just putting down on paper what the underwriters would require. There are borrowers providing false information as well.” (www.dailystar.com)
Arizona Daily Star (4/29/07); Bob Ivry, Bloomberg News
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Flippers Flop as Housing Market Cools
Having seen his house in an upscale part of suburban Henderson, Nev. jump $200,000 in value in 18 months, Sam Schwartz spent the night in the parking lot with a hundred other people waiting for a Pulte Homes sales office to open. He intended to buy a new home and then quickly sell it within the year — for a huge profit. Schwartz and his wife put down $5,000 on a home that would end up costing $560,000 with upgrades. While they were able to cancel before closing on a property that suddenly was worth only $490,000 — and recoup their deposit on a legal technicality — others were less fortunate. More than other states hit by the mortgage lending crunch, the high foreclosure rate in Nevada, California and Florida was driven by speculation, said Rick Sharga, vice president of marketing for Realty Trac. In March, the number of resale listings for single-family homes, condos and townhouses in the Las Vegas valley grew 30% from a year earlier to 27,282, according to the Greater Las Vegas Association of Realtors®. Sales and the value of homes sold were both down 38% from a year ago. About half the homes available have been on the market for more than two months. “Two years ago, you’d set a price that looked right and you’d get offers that were $20,000, $30,000, $40,000 over your list price. You have to be more realistic today,” said Devin Reiss, president of the Realtors® association. With Nevada’s fast-growing population and an estimated 8,000 new residents coming to the city every month, experts predict that the glut of housing will be cleared in six months to more than a year. (www.spokesmanreview.com)
Spokesman-Review (4/29/07); Ryan Nakashima, AP
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The Housing Glut of 1764
St. Augustine, Fla. can probably claim the dubious achievement of being one of the earliest thoroughly glutted housing markets in North American history. From April 1763 to February 1764 when all but a handful of the city’s 3,100 residents departed for Cuba or Mexico after Florida had been transferred from Spain to Great Britain, almost all of its private properties were up for sale. British subjects moving in to replace the Spanish found a buyer’s market, and emigrants from St. Augustine, who needed the money from the sale of their homes, found no buyer or had to settle for a bottom price. Many of the evacuees never saw a peso. When Great Britain transferred its Florida colony back to Spain in 1784, some of the exiled Spanish families came back to reclaim their homes and lands, asserting that as far as they were concerned, there had been no sale. And as the British departed, once again the local housing market saw a glut of available properties and consequent low prices. (www.staugustine.com)
St. Augustine Record (4/29/07); Susan Parker
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Conroe Housing Market Going Through the Roof
Conroe, Texas, a sleepy, semi-rural town 40 miles north of Houston, has become a hotbed for new home construction for the past three years, with a 96.5% increase in residential building permits between 2003 and 2006. And it looks like the numbers will keep pace in 2007, with 229 permits issued during the first quarter, according to city records. Home starts also have soared by 220% over the same period, according to Metrostudy, a Houston-based consulting firm. Conroe has benefited from an influx of new residents, many of whom are migrating from the crowded Houston area to enjoy pastoral living. Its population grew 33% between 1990 and 2000, and by 28% over the past five years, jumping to 47,042 residents in 2005. About five years ago, Conroe jump-started a sluggish housing market by reimbursing developers $1,500 per rooftop for the cost of extending water and sewer lines to homes. The incentives disappeared once housing development blossomed. City leaders also have been amenable to letting developers create municipal utility districts and public service districts within the city and its extraterritorial jurisdiction, or future boundaries. This enables developers to recoup infrastructure costs through a tax or assessment. Housing developers are buying every piece of available land, paying $20,000 an acre and more. In the area’s first master-planned community, which will eventually include 750 homes, four builders have offered houses ranging from $180,000 to $400,000. (www.chron.com)
Houston Chronicle (4/29/07); Renée C. Lee
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Fluorescent Bulbs Are Known to Zap Domestic Tranquility
Experts on energy consumption say that fluorescent bulbs seem to be flunking the “wife test” in most American homes. The current market share of CFL bulbs in the U.S. is about 6%, up from less than 1% before 2001, but well below rates in other countries such as Japan (80%), Germany (50%) and the United Kingdom (20%). Australia has announced a phaseout of incandescent bulbs by 2009, and the Canadian province of Ontario has decided to ban them by 2012. ”I have heard time and again that a husband goes out and puts the bulb into the house, thinking he is doing a good thing,” said Wendy Reed, director of the federal government’s Energy Star program. “Then, the CFL bulb is changed back out by the women. It seems that women are much more concerned about how things look. We are the nesters.” Compared to the bulky, expensive, flickering fluorescent lights that people remember from 20 years ago, today’s bulbs are smaller and much cheaper — often selling for as little as $1.50. Most bulbs pay for themselves in reduced power consumption within six months. They last seven to 10 times longer than incandescent bulbs, and the hum and flicker are long gone; many bulbs are designed to mimic the soothing, yellowish warmth of incandescent bulbs. A new Washington Post-ABC News poll showed that while women are more likely than men to say they are “very willing” to change behavior to help the environment, they are less likely to have CFL bulbs at home. Wal-Mart company research shows a similar “disconnect” between the pro-environmental attitudes of women shoppers and their in-store purchases of CFL bulbs. (www.washingtonpost.com)
Washington Post (4/30/07); Blaine Harden
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‘Either-Or’ Apartment Projects
With the glut of unsold condominiums on the market, and the four- or five-year period it takes to win approvals and develop multifamily projects, more and more builders are waiting until the last possible moment to declare their properties a rental or a condo. In most places, it’s legal to go through the approval process without informing the zoning board which way the property will go. As long as the local authorities know the size and number of the units, it usually makes little difference to them, according to Ronald Terwilliger of Trammel Crow Residential. To give itself flexibility, Trammel Crow tries to stay within a certain footprint that appeals to both buyers and renters. For example, unit sizes will range from 850 to 1,150 square feet, and the mix is usually one-third one-bedroom units and two-thirds two bedrooms. Post Properties in Atlanta is another major apartment developer that is delaying the rent or sell decision. “We will switch depending on the market,” said the company’s executive vice president, Thomas Senkbeil. Post doesn’t ever intend to abandon the for-sale sector. But with the huge inventory of unsold condos hanging over the market, Senkbeil said he doesn’t think condos will ever again represent more than 25% of his company’s offerings. (www.realtytimes.com)
Realty Times (4/25/07): Lew Sichelman
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