Up With the Downpayment

Sen. John McCain of Arizona, the presumptive Republican nominee, proposed something that no other major presidential candidate has advocated in decades: raising minimum downpayment levels for home mortgages. Even the 3% minimum required by the FHA would be raised under his plan. McCain also said the giants of the mortgage industry, Fannie Mae and Freddie Mac, “should never insure loans when the home owner clearly does not have skin in the game.” His rationale for tightening up downpayments is that he thinks a key contributing factor to the national mortgage crisis was the tiny, or nonexistent, equity contributions required by lenders during the boom years. Whatever politicians decide to do, the private marketplace is heading back to more traditional standards, where equity up front was the rule. (www.washingtonpost.com)
Washington Post (4/5/08); Kenneth R. Harney

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A Road Not Taken by Lenders

According to a report on mortgage fraud released by the Financial Crimes Enforcement Network, a unit of the Treasury Department, only 31% of suspected fraud was detected before loan disbursements in the 12 months ended March 31, 2007. On stated income loans, only 19% of the cases of suspected fraud were detected before the loans were financed, versus 33.5% on more fully documented loans. Yet 43% of the case samples in the study involved misrepresentation of income, assets or debts. The degree to which mortgage lenders and Wall Street looked the other way on borrowers’ incomes, a sin of commission given the ease with which they could have been checked, raises an intriguing question. Can investors stuck with losses on these loans sue to recover their investments based on this due-diligence failure? After all, mortgage originators made representations and warranties to investors that the quality of these loans was good when it clearly was not. And they made these representations knowing that they had not bothered to conduct quick and easy borrower-income checks. (www.nytimes.com)
New York Times (4/6/08); Gretchen Morgenson

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Lenders Retreat as Housing Market Plummets

In thousands of ways big and small, across the San Francisco Bay Area and the nation, lenders are retreating after booking losses in the mortgage market. Households and businesses are suffering the consequences as money becomes tougher to get and more expensive to borrow, in turn spelling bad news for the economy. By 2004, Americans were taking out $180.5 billion in home equity loans, according to the Federal Reserve. Much of that cash was pumped right back into the economy, buying cars and furniture, renovated bathrooms and kitchens, airline tickets and hotel rooms. But as home prices started to sink, home owners had less equity to draw on. Lenders including Bank of America, Washington Mutual and Countrywide Financial cut back on home equity loans to reduce their exposure to the housing market. By the last three months of 2007, home equity borrowing dropped to an annual rate of $26 billion, the Fed calculates, and it has undoubtedly fallen further in 2008. Warren Leiber, a landscaping contractor, estimates that 80% of his clients used home equity loans or mortgage refinancings to pay for his services in which a typical job costs $30,000 to $40,000. Now, with that tap choked off, his strapped clients are backing off, knocking $10,000 or $20,000 off their work orders, if they go ahead at all. (www.sfgate.com)
San Francisco Gate (4/6/08); Sam Zuckerman

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Housing Troubles Immobilize U.S. Labor

When housing is not an obstacle, more than five million Americans, nearly 4% of the U.S. workforce, move annually from one place to another. Now this mobility is increasingly restricted. Unable to sell their homes easily and move on, tens of thousands of people are making the labor force less flexible just as a weakening economy puts pressure on workers to move to wherever companies are still hiring. No government agency counts those who move for jobs, either across state lines or just from one town to another. The Census Bureau, however, calculates how many people move across state lines for all reasons, and that number fell by 27% last year, after climbing by almost that percentage for each of the previous three years. With homes changing hands easily in a booming market, interstate migration reached 2.2 million people in 2006, excluding moves that followed Hurricane Katrina. As the U.S. economy and home prices began to unravel in 2007, however, interstate migration plunged to 1.6 million people. Mark Zandi, chief economist at Moody’s Economy.com, said he would not be surprised to see record low domestic migration this year. (www.iht.com)
International Herald Tribune (4/3/08); Louis Uchitelle

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Developer Defies the Downturn

Long-time home builder Jeff Blandford is opening his 717-acre, 1,200-home master-planned community of Mountain Bridge in northeast Mesa, Ariz. as headlines call attention to rising home foreclosures and personal bankruptcies. “The goal is to get a momentum going, and the market will eventually correct itself,” he said. The $75.2 million he paid to acquire the desert parcel was too much, he said, “but it will be worth it five years from now.” The developer can afford the wait, he said, and is offering the first customers homes in the mid-$200,000 range, a reduced price that is surprising for the type of development and its 304 acres of open space. “We’re not one of those builders in a big hurry,” he said. “We’re not leveraged. If we chose to be highly leveraged, this wouldn’t happen.” Realtor® Carol Schwan said that customers aren’t breaking down the doors, but property is moving well at Fulton Ranch, a similar community in the area. “A year ago this month, we opened the Island, a gated community of custom-home sites, and we have sold and closed on 23 lots,” she said. “That’s more than a third of the total number of these half-acre lots for multimillion-dollar homes.” Sales of production homes, with prices ranging from $539,400 to $690,400, are averaging about two per month, Schwan said. (www.azcentral.com)
Arizona Republic (4/6/08); Art Thomason

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Judges Agree: Roommates.com Is a Very Discriminating Service. Maybe Too Discriminating ...

The 9th U.S. Circuit Court of Appeals decided that a Web site may be found liable for violating fair housing laws by matching roommates according to gender, sexual orientation and parenthood. The judges said a site called Roommates.com may be brought to trial for possibly violating anti-discrimination laws because it requires users to provide information about gender, sexual orientation and whether they have children, and then uses the information to screen people for matches. “A real estate broker may not inquire as to the race of a prospective buyer, and an employer may not inquire as to the religion of a prospective employer,” Chief Judge Alex Kozinski wrote for the majority. “If such questions are unlawful when posed face-to-face by telephone, they don’t magically become lawful when asked electronically online.” (www.laist.com)
Laist (4/4/08); Ross A. Lincoln

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