Impossible Loan Turns Dream Home Into Nightmare
To escape their subsidized apartments and get a real house, Alberto and Rosa Ramirez, who earn $300 a week picking strawberries and don’t speak English, decided to pool their resources with the Martinez family, who had $500 in weekly income from mushroom farming, and they estimated they could afford monthly housing payments of $3,000. One of the first homes they were shown was a $720,000 four-bedroom, two-bath house in Hollister, Calif. in San Benito County. When they heard the price, the Ramirezes worried that they couldn’t afford it, but they were assured it was possible. “The monthly payment was supposed to be $4,800, but then, after we bought it, it went up to $5,378,” says Rosa, speaking of their zero-down mortgage with a one-month “teaser rate.” “Our agent told us that once we refinanced, we could get the payments down to $3,000 or less.” For a number of months, the real estate agent paid the difference between the $3,000 the buyers had said they could afford and the loan payment. The arrangement was supposed to carry them over until the group refinanced, they say, but the money-saving refinance failed to materialize. After the Ramirezes stopped paying their mortgage and sought the advice of an attorney specializing in predatory lending cases, they discovered that the home had only been purchased in their name and not with the Martinezes and that it was actually worth between $560,000 and $580,000. According to the National Council of La Raza, 40% of Latino families and more than half of African Americans who receive home loans get higher-cost mortgages, predominately subprime loans. In a study released last month, an analysis of 2005 federal mortgage lending data of large subprime originators in six metro areas, African American borrowers were 3.8 times and Latino borrowers were 3.6 times more likely to receive a high-cost home purchase loan than white borrowers. (www.sfgate.com)
San Francisco Gate (4/15/07); Carol Lloyd
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Appraisal Inflation: Some Lenders in Denial About Bogus Appraisals
Led by the 22,000-member Appraisal Institute, the four largest trade groups representing appraisers are asking federal financial regulators to crack down on lenders and loan officers who put pressure on appraisers to raise valuations to allow overpriced deals to go through. Lender complacency about appraisals has enabled con artists to bilk banks and investors of billions of dollars in home mortgage fraud schemes. The FBI estimates that mortgage fraud losses are now approaching $3 billion a year, according to the appraiser groups, and many of those schemes start with intentional inflated property valuations that lenders fail to spot. The basic scenario for a “cash out at closing” scam that is popping up around the country involves real estate agents with listed houses that aren’t selling. To move the properties, they entice buyers or friends to submit an offer for the home that is above the current list price. Working with a cooperative appraiser and an unscrupulous mortgage broker who simply wants the commission, they change the loan documentation to reflect the artificially inflated sales price. The loans are typically for 100% of the price of the home. The seller gets the price at which the home was originally listed, and the buyer gets some or all of the inflated differential as cash at closing. The real estate agents and loan brokers pocket their commissions; the buyer pockets the cash from the closing proceeds and makes loan payments for a while, and then stops. Within months, the property is headed to foreclosure. (www.washingtonpost.com)
Washington Post (4/21/07); Kenneth R. Harney
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Sherwin-Williams CEO: Home Building Dip Will Slow 2007 Sales
Although most Americans continue to spend freely to redecorate their homes and contractors involved in painting and redecorating commercial and industrial buildings are busy, Christopher Connor, chairman and chief executive of Sherwin-Williams Co., expects his company’s sales and earnings growth to be slower in 2007 than the strong performance of the past three years, largely because of the drop in new-home construction and slower existing-home sales. Management for the major producer and retailer of paints and other coatings estimated that sales for the year will rise “in the low to mid-single digits” from the $7.81 billion of 2006. Despite the housing slowdown and the widely publicized financial problems of some home buyers, “the country is doing well economically,” said Connor. Rising employment and incomes are reflected in a willingness to spend on home decorating and redecorating, he said. In addition, household formations continue at a brisk rate. Initially, that mainly drives the rental market, a company spokesman said, but over time it will help produce a recovery in home construction and sales. “In the last several years we had significant price increases to pass through rising materials costs,” Connor said. “However, this year we expect paint industry materials costs to be about flat to up 2%, and at that level there would be very little price impact on our sales.” Sherwin-Williams estimates that new construction of all types accounts for 15% to 25% of the industry’s architectural paint sales, and new residential construction only 8% to 14%. (www.djnewswires.com)
Down Jones News Service (4/18/07); Ralph E. Winter
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More Home Owners Extending Their Living Space to the Backyard
Dominick Tringali, president and CEO of Dominick Tringali Architects, which is based in Bloomfield Hills, Mich. and does two-thirds of its work in the Midwest, told an audience at the International Builders’ Show that almost eight or nine out of 10 houses have some kind of outdoor feature. “The trend that began in high-end homes is now becoming popular even in starter homes,” he said, and he doesn’t believe that it has nearly hit its peak. Part of the reason home owners are paying more attention to their outdoor rooms, he said, is that they are downsizing. Also, Americans are spending more time at home. A recent survey on outdoor living spaces conducted by the Propane Education and Research Council, a member of the National Council of the Housing Industry, found that 50% of those polled said that they were spending more time at home than they were five years ago. Relaxation and the desire to spend more time outside were the top reasons to create an outdoor room, according to the survey. Earlier research by the group in 2005 found that 35% of home owners had a finished outdoor room, and 34% planned to design and purchase one by the following spring. The most recent survey found that nearly two-thirds of the households surveyed owned a gas grill; free-standing gas grills often were their first outdoor appliance purchase. And last year was a good year for the grilling industry. According to the Hearth, Patio & Barbecue Association, more than 17 million grills were shipped in 2006, a 15% increase over 2005. There were more grills shipped in 2006 than any year since 1985. (www.djnewswires.com)
Dow Jones Business News (2/20/07); Amy Hoak
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Making a Mint Out of the Moon
Exploiting a loophole in the 1967 U.N. Outer Space Treaty and claiming ownership of the Earth’s moon for more than 20 years, entrepreneur Dennis Hope has spawned a multi-million-dollar property business selling plots of lunar real estate at $20 an acre. Hope says he has so far sold more than 400 acres, leaving a further eight billion acres up for grabs. Buyers include Hollywood stars, large corporations — including the Hilton and Marriott hotel chains — and even former U.S. presidents Ronald Reagan and Jimmy Carter. George W. Bush is also said to be a stake holder. Hope claims to be selling 1,500 lunar properties a day. He allocates land by simply closing his eyes and pointing to a map of the moon. There is a growing belief that within a matter of decades, the moon will be much more than a scientific outpost and could become a vital commercial frontier. Data collected from the Apollo moon landings have indicated that large deposits of an extremely rare gas called helium 3 are trapped in the lunar soil. Scientists believe that this gas could be used to create a new source of almost inexhaustible, clean, pollution-free energy on Earth. (www.news.bbc.co.uk)
BBC News (4/9/07); Nick Davidson
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Housing Slump Takes a Toll on Illegal Immigrants
Offering more than $10 an hour as well as new skills and a shot at upward mobility, construction provided many illegal immigrants with the best job they ever had, a step up from pruning and picking in fruit and vegetable fields in California’s Central Valley. The growing presence of illegal immigrants in home building, mostly working for small labor contractors, might help explain why government statistics have recorded only a small decline in construction employment despite the downturn in residential investment. As building jobs have grown scarce, many of the workers have returned to farm labor. According to the Pew Hispanic Center, a research organization in Washington, D.C., immigrants from Mexico and other Latin American countries account for about one in five construction workers. Those who arrived since 2000 — who are likely to be unlawfully in the U.S. because they had virtually no way of immigrating legally — account for an estimated 7% of the construction work force. They were pulled into the building frenzy of the first half of the decade. According to the analysis by the Pew Hispanic Center, based on Census data, Hispanic immigrants took 60% of the million new construction jobs created from 2004 to 2006. Those recently arrived took nearly half. According to the Labor Department, employment in residential construction has declined by only 28,000 jobs — or some 3% — since its peak last fall. NAHB Chief Economist David Seiders isn’t sure about the quality of the data. He also suggested that reported employment might not be falling as starkly as other statistics because builders do not employ construction workers directly. Instead, they use subcontractors to build different parts of a development. These often use labor contractors, who may also turn to subcontractors to fill their crews. (www.nytimes.com)
New York Times (4/17/07); Eduardo Porter
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