KeNo's Housing and Economic Portal: Friday November 20 Housing and Economic stories

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6 loans in 6 years: How one woman lost her house - (www.seattletimes.nwsource.com) Barbara Simonson, 90, had to sell her million-dollar home after a series of WaMu loans stripped much of its equity. Barbara Simonson lost her Blue Ridge house, designed by her husband, after repeatedly refinancing with WaMu. For more than half a century, Barbara Simonson lived on a bluff overlooking Puget Sound in Seattle's Blue Ridge neighborhood. Her late husband, a noted architect, designed the house. She liked to sit in the living room and watch the boats going by. She had hoped to live there the rest of her life. Simonson, 90, didn't get her wish. She was forced to sell after six Washington Mutual mortgage loans in six years stripped much of the equity from her nearly million-dollar home. She got them all from the same loan officer at WaMu's home-loan center at Northgate, loans that were far too complex for a stroke survivor to understand. In fact, not until going over her loan documents with a reporter did she realize that interest rates were adjustable. "I have to tell you, math was not one of my better subjects in school," she said. For years, Simonson had kept all of her money at Washington Mutual. She trusted the bank. Her monthly Social Security check, now roughly $1,270, was deposited there directly. Things began going wrong for Simonson when she borrowed more than $500,000 against her house to lend to her son. A contractor now in Iraq, he made payments for a while, then stopped. Worried about draining her savings to meet the payments, she visited WaMu's Northgate loan center and talked to a loan officer, Patricia Collins, about getting a loan with a lower interest rate and smaller payments. The loan officer drew up papers for a $551,000 loan in 2001. The loan application listed Simonson's monthly income at $10,300. Simonson says she has no idea where that figure came from. Collins didn't return calls seeking comment about the wildly inflated income. When it came time for Simonson to sign the papers for the adjustable-rate loan, she said, "I was told what to do and I did it." The next year, when her payments went up, she complained to WaMu and refinanced into a larger loan. In October 2003, the bank qualified her for a $680,000 option ARM. If she had been asking for a 30-year fixed-rate loan, Simonson wouldn't have come close to qualifying for it, even using the inflated monthly income figure. With the option ARM, Simonson started out making minimum payments that didn't cover interest or principal, piling up more debt. The bank had "qualified" her for the loan on her ability to pay the minimum amount. In other words, Simonson was put into a loan that she could not repay once the loan reset in five years, when the minimum payment was replaced by payments on full interest and principal. The loan cost more than $11,000 in fees, which were rolled into her mortgage. Her minimum payment was $2,266, nearly twice her retirement check. The loan officer used the bigger new mortgage to pay off Simonson's old mortgage and put the remainder in an account that made automatic monthly payments on the loan.

WSJ Presents Yet More Utter Nonsense from the National Association of Realtors - (www.prospect.org) For readers who didn't get enough information about the housing market from David Lereah, the widely cited former chief economist of the National Association of Realtors (NAR) and author of the Why the Real Estate Boom Will Not Bust and How You Can Profit from It, the WSJ is again presenting unchallenged assertions from the NAR. Today's wisdom from the NAR is that raising the homebuyers tax credit to $15,000 and applying it to all homebuyers (not just first-time buyers) "could be crucial for permanently righting the housing market again." Okay, the problem in the housing market is a huge excess supply of housing that has led to a record inventory of vacant housing units. How will a tax credit that encourages people to flip homes do anything to absorb an excess supply of housing? It is certainly possible that the extension of the credit will slow and possibly temporarily reverse the decline in house prices (that may have happened in the last few months), but this would just delay the inevitable adjustment process. Once the tax credit is removed, prices will resume their fall. The delay in the adjustment will have led some new homebuyers to purchase homes at bubble-inflated prices. It may also prevent some homeowners from realizing how much equity they have lost. As a result, they may put off plans to adjust their consumption and saving patterns to make up for their lost wealth. Given its counterproductive impact on the housing market, it is not clear that a homebuyers tax credit is the best use of $15-$30 billion. It would have been useful if the WSJ had not allowed the NAR view to appear unchallenged.

SF Real estate leader's name on bad-check warrant - (www.sfgate.com) Problems besetting one of San Francisco's largest apartment building owners appear to be hitting home more directly. According to the Clark County, Nev., district attorney's office, there is a warrant out for Walter Lembi, managing director of the financially troubled Lembi Group, for allegedly passing $298,500 worth of bad checks earlier this year at Caesar's Palace in Las Vegas. According to a document from the Clark County district attorney's office, dated July 1, the check fraud division is seeking restitution in the amount of $328,450 (including fees). The document lists Lembi's recorded home address in Burlingame. Bernie Zadrowski, head of the check fraud division, said Wednesday that his office had been in touch with an attorney said to be representing Lembi and that Lembi has until Sunday to comply. "We pitched an offer" of settlement, Zadrowski said, although he would not specify the basis of the offer. Failure to meet the deadline in similar cases usually results in a broader, nationwide arrest warrant being issued, Zadrowski said. A woman who answered Lembi's listed home phone on Wednesday evening said Lembi "doesn't live here anymore," but gave no more details, except to confirm that the name on the document, Walter Richard Lembi, is Lembi's full name. The attorney, listed as Robert Ryan of San Diego, according to Zadrowski, did not return calls. A call to the Lembi Group's attorney was not returned. According to Zadrowski, Lembi wrote two checks to Caesar's Palace for chips he was playing with at the casino, which usually waits 60 days before cashing such checks. Judging by the July 1 date on the notice issued by his office, Zadrowski believes the checks were written around the beginning of May. And if the accused doesn't make good in the specified time? "If he gets picked up, we'll prosecute him," said Zadrowski. Still sinking: Business-wise, things seem not to have gotten any better since we wrote in September that the Lembi Group was "disappearing beneath waves of debt." Once the owner of about 300 apartment buildings in San Francisco and on the Peninsula, its empire - founded by Walter Lembi's father, Frank Lembi - has been humbled by dozens of receiverships and foreclosures. Not to mention waves of lawsuits filed by former tenants suing for nonpayment of security deposits, and a long-standing city suit alleging unfair business practices and tenant harassment. In interviews, Walter Lembi has blamed the credit crunch for his company's woes. "The worst financial market I've seen in the history of my career in real estate," he told San Francisco Apartment Magazine. "But our bankers are working very well with us. They would like to see some kind of pay down."

U.S. Turns Screws on GMAC - (online.wsj.com) Thanks to a series of cheeky television ads that mocked its rivals -- and some of the highest interest rates on deposits in the nation -- Ally Bank was swimming in new money this spring. The upsurge couldn't have come at a better time for its ailing parent company, GMAC Financial Services, which had just been bailed out by the federal government. But federal bank regulators put an end to the comeback party. Viewing the high-rate strategy as a perilous one, the Federal Deposit Insurance Corp. tightened its leash. It ordered Ally to lower its bank-deposit rates and to restrict its lending to low-end car buyers. For GMAC, getting rescued by the federal government has been no picnic. In the 10 months since the consumer-finance company received its first dose of rescue financing, it has wrangled repeatedly with the FDIC over its turnaround plans. Currently the company is locked in debate with the Treasury Department about the adequacy of its capital levels, with the Treasury pushing GMAC to take billions more in federal aid. Inside GMAC, executives have expressed frustration that hard-nosed regulators are hindering its plans for digging itself out of its mess, according to people familiar with the situation. At one point, GMAC executives even applied to switch Ally Bank's charter so it would be overseen mainly by the Federal Reserve rather than the FDIC -- an effort it abandoned on Tuesday. GMAC's complicated relationship with the federal government stems from the government's conflicting priorities as it attempts to get the economy back on track. On the one hand, it needs the private sector to provide consumers with abundant credit. But it can ill afford to have financial firms engage in the kind of risky lending that precipitated the crisis. A spokeswoman for GMAC said the company "continues to work cooperatively with the FDIC, Federal Reserve and U.S. Treasury to restructure our business model." For years, GMAC was owned by General Motors Corp., and its mission was to provide financing to car dealers and buyers. Eighty percent of GM dealers came to rely on GMAC to get cars onto their lots. In recent years, it expanded into other businesses, including real estate, commercial finance and auto insurance.

NY's Upper East Side not immune - (www.pbs.org) Frontline video/news story: As the U.S. unemployment rate hits a 25-year high and the Dow Jones Industrial Average hits a six-year low, award-winning FRONTLINE producer Ofra Bikel chronicles the recession's impact on one unlikely American neighborhood -- New York's Upper East Side. In Close to Home, Bikel sets up her cameras in the hair salon she's patronized for 20 years. It's an intimate space where she has come to know well the surprisingly diverse clientele -- from athletic trainers and housewives to high-end bankers, actors and opera singers. Despite expectations that this neighborhood is a secure bastion of privilege, these days, when clients get in the chair, they offer a window into the country in recession: Some are broke, others don't have a plan, and they're all looking to commiserate. Deborah Boles, the owner and sole hairdresser at Deborah Hair Designs, started the business in 1985. "I wanted a place where people can go and they can feel comfortable," she says. "They know they belong here." But it's all on the line with the current downturn -- clients come less often; some skip coloring or skip the trim -- and as Deborah watches neighboring businesses go under, she wonders how long she can survive. Barbara, Deborah's sister, helps out at the salon, but she has been struggling with her own economic crisis. After buying a home in Florida at the height of the market, she now has a subprime mortgage that she can no longer afford. Unable to pay the exorbitant interest, she has had to take in four tenants, each with their own stories of foreclosure and unemployment.