Monday October 22 Housing and Economic stories

The story at bottom is one of the more interesting individual stories I have seen. The guy is in a negative amortization loan on his primary property, yet he just bought a 1.4M dollar penthouse and is afraid of his future and he is counting on a new invention he is marketing (a motorized surfboard).

It sounds like he was afraid to move forward on the penthouse project but would lose a 15% down payment so decided to move forward.

Funny how the Realty (aka thief) is helping him with the penthouse so they obviously don't give a darn about his financial situation or his ability to ever pay this back. As long as Jim Abbott gets his commission check (cha-ching), he will advise his client to do this deal.

*****************************
For Mike Railey, 44, hope outweighed fear as he closed escrow early this month on a $1.4 million, 1,500-square-foot penthouse at The Legend, Bosa Development's 180-unit condo tower next to Petco Park.

He and his wife, Denise, and their two sons, Dillon, 16, and Baylen, 11, live in a modest home in Del Mar that carries a negative-amortization loan. As a mortgage broker, Railey knows the risks of a loan on which the balance grows if you don't pay enough per month.

"I'm scared right now; I'm struggling a bit," he said. And now the family faces an additional $6,100 monthly payment for the mortgage, taxes and homeowner fees for the downtown unit with a breathtaking view of San Diego Bay. He briefly considered backing out of the purchase until Bosa told him he could risk losing his 15 percent down payment.

"I've done good in San Diego," he said. "I barely make enough to survive, but with my real estate I can hang in there."

He hopes to lease the unit out for the time being and bank on an invention he's marketing – a motorized surfboard – to boost his earnings and stabilize his future.


Mon Oct 22 2007 Stories:
Want a life of leisure? Be a renter (sfgate.com)
Vultures Are Circling Over Distressed Properties (washingtonpost.com)
Crushing ARMs squeeze houseowners (denverpost.com)
Greenspan "didn't get it until very late in 2005" (morgan-florida.org)
Time for the Banks to Face the Hangman (counterpunch.org)
Curing SIV (economist.com)
Lessons from the credit crunch (economist.com)
Mortgage Bondholders Face Cutoff of Interest Payments (nytimes.com)
People Still Asking for Nothing Down Loans (doctorhousingbubble.com)
Why FHA is a Terrible Solution to the Foreclosure Crisis (efinancedirectory.com)
Land-value drop good news for preservation (orlandosentinel.com)
Central Valley house prices continue to plummet (modbee.com)
Levitt and Sons halts work on houses (tcpalm.com)
Condo developer sues lender over loan (denverpost.com)
Which projects will survive the condo shakeout? (startribune.com)
Housing Declines: Don't Forget About Inflation (Charles Hugh Smith)
Anti-trust: Competition and Real Estate (usdoj.gov)
Price Declines Shake Buyer Confidence (realtownblogs.com)
Hold an auction, then reject all offers, even above minimum? (youtube.com)
Easier to get out of marriage than mortgage (youtube.com)
Bankers wary of investment fund rescue effort - Reuters (10/21/2007 06:48 AM)
Mortgage Security Bondholders Facing a Cutoff of Interest Payments - NY Times (10/21/2007 05:49 PM)
Credit squeeze and criticisms deepen crisis - FT (10/21/2007 08:09 PM)
US loan default problems widen - FT (10/21/2007 08:10 PM)
Greenspan questions 'superfund' - FT (10/20/2007 05:12 PM)
Crisis was "accident waiting to happen": Greenspan - Bloomberg (10/21/2007 05:44 PM)
No time out for builders - San Diego UT (10/21/2007 09:02 PM)
Area home auctions hit the roof - Boston Globe (10/21/2007 08:55 AM)
Subprime crisis forces McMansions to take McBreather - Reuters (10/21/2007 05:45 PM)


Down-market home prices could be alluring, but buyers should be prepared to move fast
By Roger Showley
UNION-TRIBUNE STAFF WRITER
October 21, 2007
The fourth quarter of the year had hardly begun Oct. 1 when home builders and industry experts wrote it off as a disappointment and gloomily predicted 2008 won't be much better.
However, what's bad news for builders may be good news for savvy buyers.

JOHN GASTALDO / Union-Tribune
In Escondido, The Briars at Eureka Springs is one of several Lennar developments that offered up to $70,000 in discounts and incentives in a special weekend sales campaign. Prices start in the mid-$500,000s on floor plans of 2,750 to 3,198 square feet.

"Coming up on year's end, I guarantee that in December you'll see some of the best deals that you'll see all year," said industry consultant Jeff Meyers.

A veteran watcher of the building industry with offices in Orange County and a home in North County, Meyers said buyers will be able to get 10 percent to 15 percent discounts off asking prices at certain projects. But they must be ready to close escrow without contingencies to meet the end of builders' fiscal years, which can range from Oct. 31, Nov. 30, Dec. 31 or early into next year.

Meyers said the availability of deals also depends on whether it's a private company – which can take its time to sell at target prices – and a public company, with shareholders and analysts demanding greater profits every quarter.

Judging by recent sales campaigns, it's the public companies that are desperate to sell, even at a loss.
But even then, the outlook for builders isn't promising, as BusinessWeek's recent cover story depicted with the headline, "That Sinking Feeling."

NEW HOMES BY THE NUMBERS
(For San Diego County as of Sept. 30)
296 Housing projects
4,562 Homes for sale
58 Weeks of unsold inventory at current sales rate
62,665 Homes planned and unreleased

Source: Hanley Report

"You've got to go back to the early 1980s when it was that bad – and it took four years to work that off," securities analyst Jeffrey Laverty told the magazine. "I don't agree that there's a turnaround in sight. It's ugly out there."
In short, the rose-colored glasses so many builders wear in this risky, entrepreneurial business have been replaced by bifocals, as optimism gives way to realism and executives retrench.

Paul Tryon, chief executive of the San Diego Building Industry Association, said local builders knew back in July and August, when the credit crunch spooked investors and buyers, that 2007 would end up as a bummer.

"I think there was more optimism for 2008 until the latter part of the summer, he said. "Then, traffic was down, sales were down, cancellations were up and people who put deposits in were electing to stay on the sidelines."
Since October to December is traditionally a slow sales period, Tryon said builders now are just hoping to generate cash and redeploy resources for the future.

Meanwhile, he said, offices are closing or consolidating, staffs are being laid off and companies cling to hopes of hanging onto their undeveloped lots, which took so long to entitle through San Diego's highly regulated land-use system.

CHARLIE NEUMAN / Union-Tribune
Jeff Meyers and Ada Kaiser predict the best bargains at new housing projects will offered by year's end.

"I think it's both good and bad," he said, that it is so hard to build housing here. "The upside is, we have a very limited amount of projects in the development pipeline, pending approval. We don't have a lot of inventory by comparison with most metropolitan areas in America, so those assets remain very valuable."

The bad news, he said, is that housing will remain unaffordable to many would-be buyers and prices are unlikely to slump enough to make a big difference.

"Long-term, if you look at the San Diego marketplace, if consumers are waiting for the bubble to outright burst, this is a very controlled, stable market," he said.
For Mike Railey, 44, hope outweighed fear as he closed escrow early this month on a $1.4 million, 1,500-square-foot penthouse at The Legend, Bosa Development's 180-unit condo tower next to Petco Park.
He and his wife, Denise, and their two sons, Dillon, 16, and Baylen, 11, live in a modest home in Del Mar that carries a negative-amortization loan. As a mortgage broker, Railey knows the risks of a loan on which the balance grows if you don't pay enough per month.
"I'm scared right now; I'm struggling a bit," he said.

EARNIE GRAFTON / Union-Tribune
Denise Railey and her son Baylen checked out their new downtown penthouse at The Legend, overlooking Petco Park. The family lives in Del Mar and hopes to rent out the condo to cover the $6,100 monthly carrying costs...>..>..>And now the family faces an additional $6,100 monthly payment for the mortgage, taxes and homeowner fees for the downtown unit with a breathtaking view of San Diego Bay. He briefly considered backing out of the purchase until Bosa told him he could risk losing his 15 percent down payment.

"I've done good in San Diego," he said. "I barely make enough to survive, but with my real estate I can hang in there."

He hopes to lease the unit out for the time being and bank on an invention he's marketing – a motorized surfboard – to boost his earnings and stabilize his future.

"That gives me a little confidence," he said.

Confidence is what's lacking among consumers and builders, according to the latest polls. San Diego's unemployment rate is up, job growth has slowed to a crawl and asking prices are falling at many open houses and subdivision tracts.

Robert Kleinhenz, deputy chief economist at the California Association of Realtors, said buyers continue to have problems getting home loans at favorable rates, as lenders tighten underwriting standards in the wake of high foreclosure and default rates.

BUYER'S PLAYBOOK
Jeff Meyers, a principal in the Meyers Builder Advisors consulting firm, offers these tips for how to get the best deal on a new home:

Have near-perfect credit to get the best loan terms, secure a down payment by having sold your existing home if necessary and have a preapproved loan ready to fund.

Identify a completed, unsold home that you like in a project built by a publicly held builder.

Determine when the builder's fiscal year ends and promise to close escrow by that date.

Monitor the growing number of advertised discounts and incentives and incorporate them in your beginning offer.
Make your offer on a Sunday, then get ready to negotiate from a position of strength.

"The credit crunch that emerged in July continues to be a constraining factor getting buyers into a position where they can consummate a deal," he said.

Major home builder Lennar Corp., which according to BusinessWeek has a 56 percent drop in total returns year to date, is advertising up to $70,000 off at local projects including its 80-lot Eureka Springs development in Escondido.

According to the Hanley Report's weekly survey at the end of the third quarter, there had been 41 sales and five homes were available in the $552,000-$570,000 price range.

Horace Hogan II, president of privately owned Brehm Communities, said while his company many not face the pressures of a public company like Lennar, it is following a similar strategy.

"We don't want to start houses without buyers lined up," he said. "We're seeing our production cut back to bring supply and demand into balance. It's going slowly."

However, expressing more optimism than most, he said Brehm still plans to open a large-lot development in Jeffries Ranch in eastern Oceanside about a year from now.

"The housing market has a strong potential for the second half (of 2008)," he said. "The good thing is there's no recession, and it doesn't appear there's going to be."

Executives of several publicly traded home builders with operations in San Diego County did not return phone calls from the Union-Tribune for comments on their year-end strategies.

Peter Dennehy, senior vice president of Sullivan Group Real Estate Advisors, said the steps taken so far by many builders need to be more aggressive if they want to clear out unsold inventory and beef up their balance sheets.
"Price discounting has to become more noticeable," he said, calling auctions, weekend sales and five-and six-figure incentives "last ditch efforts" to close out the final few units in many tracts.

Looking to the future, he predicted that new projects are likely to be started by local and regional infill developers since national firms cannot generate the quantity of sales expected by Wall Street investors. But he said land sellers have yet to cut prices commensurate with the slowdown in construction.

"The bottom line is we still have too many active projects in the county for the level of sales," Dennehy said. "The level of sales remains depressed. If they're trying to move inventory, price is the generally best way to go."
Jim Abbott, whose downtown Prudential Realty office is helping the Railey family deal with its high-priced penthouse, said so far most builders are reluctant to cut.

"Do they become like Steve Jobs with the iPhone and go back and give everybody a credit? What do you do as a developer? They're in a very tough situation," Abbott said. "You could almost feel sorry for one."

Friday October 19 Housing and Economic stories

Minneapolis - More than 300 homes on auction block

Of course, CFC (Countrywide) is in the middle of this mess offering to finance these auctions.
More than 300 homes on auction block

More than 300 homes on auction block. Want to purchase a house for half its price? More than 300 foreclosed homes across Minnesota will be auctioned this ...

www.startribune.com/462/story/1496691.html
More than 300 homes on auction block
Want to purchase a house for half its price? More than 300 foreclosed homes across Minnesota will be auctioned this weekend. "It's a sign of the times" and just a fraction of the fallout from the subprime mortgage meltdown.
By Chao Xiong, Star Tribune

Last update: October 20, 2007 – 12:37 AM

In the largest sell-off of its kind in Minnesota, more than 300 foreclosed homes across the state will go on the auction block this weekend.

The mass two-day sale at the Minneapolis Convention Center will unload one-bedroom condos, tiny ramblers, stately gabled Victorians and even sprawling suburban houses to the highest bidders. Repossessed after their owners didn't make payments, the properties are victims of a real estate market devastated by the subprime mortgage meltdown.

Minnesota Association of Realtors vice president Chris Galler said it's the biggest auction he's seen in his two decades in the business. Auctions normally dispose of a half-dozen to a dozen homes. "It's a sign of the times," Galler said.

For Irvine, Calif.-based Real Estate Disposition Corp., the boom in foreclosures has meant opportunity. The company has criss-crossed the country auctioning as many as 600 repossessed homes at a time. The company has stopped in about 10 cities this year and has five more scheduled after Minneapolis.

"It seems like six months ago the spigot was turned on and all of a sudden there was a lot of inventory," said Real Estate Disposition Corp. Chairman Robert Friedman.

The properties listed offer some enticing potential bargains. At a starting bid of a mere $9,000, someone could pick up a 1,072-square-foot cheery home with red shutters, hardwood floors and 1907-vintage woodwork on Upton Avenue in north Minneapolis. It was once valued at $47,900.

Across the river in southeast Minneapolis, a 1,574-square-foot unit 14 floors up in the La Rive condominiums is vacant and awaiting a new owner. It has shell-shaped his-and-her bathroom sinks, updated appliances and sweeping views of the historic riverfront. Previous valuation: $515,000. Starting bid: $229,000.

Looking for a suburban retreat? A 1978 home in Shakopee offers three bedrooms, three baths and a 1-acre lot with 150 feet of shoreline on O'Dowd Lake. Previous valuation: $710,000. Starting bid: $229,000.

Real Estate Disposition Corp. got its start with property auctions in the 1990s. Properties auctioned that decade originated with developers and, unlike this year's auctions, not from homeowners who defaulted on mortgage payments.

The number of houses being auctioned today and Sunday isn't even a notable fraction of the number of foreclosed homes in the state.

According to the foreclosure website, www.realtytrac.com, there are about 8,900 foreclosed properties in the seven-county metro area.

Last month, foreclosures in Minnesota were up 183 percent from a year ago, to 1,510. The rate was one filing for every 1,491 households.

Minding the neighborhoods
Hennepin County Commissioner Gail Dorfman may show up at the auction today but not because she's thrilled with the event. Dorfman fears that investors without a stake in the community will snap up the homes and overload already fragile neighborhoods with more rental properties.

"These neighborhoods where we've seen concentrations of foreclosed homes are neighborhoods where we've been investing in, so we feel this is undercutting our public investment in building healthier communities," Dorfman said.

Dorfman pointed out that the auction's on-site financing is provided by Countrywide, the nation's largest mortgage lender and one buffeted by defaults on subprime mortgages.

One possible reason why the large-scale auctions are booming is that lenders found themselves with a glut of properties and couldn't sell them through traditional means, said University of Minnesota associate law Prof. Prentiss Cox, a former assistant attorney general who tracks the issue.

Lenders first held onto the homes thinking they could eventually turn a profit, but with prices depressing, the "dam broke" and they finally decided to cut their losses, he said.

"To have this kind of mass public auction is really unusual," Cox said.

Friedman said he expects as many as a 1,000 bidders each day, from investors who might rent out the property or renovate and sell it -- to "end users," people who will live in the homes they buy. Many bid prices listed on the company's website start at less than half of a home's assessed value.

The company's 11-page terms-and-conditions document and Friedman strongly urge bidders to inspect properties that they're interested in buying (open houses were held earlier this month) and research housing prices. Homes come with no guarantees or warranties and penalties are levied against buyers who back out of a sale.

Friedman said the bidding process is simple, but Galler cautioned first-time home buyers with little experience from jumping into the fray.

Unlike a home purchased through a real estate agent, the seller at an auction doesn't have to tell the buyer anything about the property, such as possible structural problems or upcoming nearby street construction that a seller might know about.

"This is not an auction for amateurs," Galler said. "If the deal looks too good to be true, it is."
Staff writer Lora Pabst contributed to this report. Chao Xiong • 612-673-4391

Chao Xiong • cxiong@startribune.com


House auction gives good news to North Side

Photo by Joey Mcleister, Star Tribune
Amy Anderkay of Brooklyn Park began signing papers after her bid won a house in north Minneapolis
The head of a nonprofit group bought 8 foreclosed houses in north Minneapolis as bidders vied for 300 properties in Minnesota.

By Neal St. Anthony, Star Tribune
Last update: October 20, 2007 – 9:18 PM


A savvy inner-city housing investor with $11 million in her pocket emerged as the leading buyer Saturday for north Minneapolis homes that are part of a two-day auction of 300 bank-foreclosed Minnesota houses at the Minneapolis Convention Center.

This is good for North Side neighbors, who have been disproportionately affected by vacant houses, thanks to loan scams and adjustable-rate mortgages that proved too much for former homeowners when rates rose.

Carolyn Olson, who runs a venerable organization, Greater Metropolitan Housing Corp., works with neighborhood groups and developers to educate aspiring home buyers and stabilize communities.

Since 1970, Olson's organization has constructed or renovated about 1,500 homes for working-class folks. She planned to bid on about 15 of 80 north Minneapolis houses, which were among 150 auctioned Saturday. She got eight. The auction ends today.

"I was pleased to see that Carolyn was there and there were other people who were looking for good deals on homes to live in," said Hennepin County Commissioner Gail Dorfman, who attended the auction. "We've already had one cycle of overpriced housing and people ending up with mortgage products that they couldn't sustain, and now at least we have an opportunity to get these homes rehabbed and get families back in them."

Olson's opportunistic buying was staked by an $11 million loan from the Minnesota Housing Finance Agency. The money is to be used to buy and renovate foreclosed properties and sell them to families that have household incomes of less than $85,200, slightly more than the metropolitan area's median household income.

Two tuxedo-clad auctioneers, assisted by several deputies who each worked a section of the huge room to fire up the crowd and implore bidders to go higher, barked out opening prices and raced rapid-fire through each property, concluding with a passionate "Sold!"

Olson paid:
• $62,500 on a three-bedroom house at 3519 Emerson Av. N. that last sold for $114,900
• $35,000 for a house at 3906 Colfax Av. N. that last sold for $94,900
• $60,000 for a house at 3910 Dupont Av. N. that last sold for $157,000

Others got bargains, too.
There seemed to be about seven investors, who planned to rent or rehab and sell a property, for every person who showed up to bid on a house in which to live. Several hundred people showed up.

Dave Flatum, a general contractor from Osceola, Wis., paid $97,500 for a Ham Lake house that last sold for $147,500. He said he would put in up to $20,000 and his own sweat to make repairs.

Amy Anderkay, a chemical engineer, was the winning bidder at $67,500 on a three bedroom house at 3323 Girard Av. N. that had sold for $265,500 a few years ago.

"I don't know whether I'll live in it or not," said Anderkay, who lives in Brooklyn Park and works in Savage. "It would be closer to work. If I don't live in it, I'll fix it up and rent it or sell it."

The 150 houses auctioned on Saturday ranged in price from $40,000 for a two- bedroom, 1,200-square-foot house at 3431 Emerson Av. N. to $715,000 for a four-bedroom, 4.5-bath home on six acres in Cedar, Minn.

Buyers had to bring down payments and were allowed to arrange financing.

The auction was one of several put together around the country to deal with the glut of foreclosed properties after the subprime mortgage meltdown. Thousands of Americans with checkered credit couldn't handle higher adjustable-rate payments when rates starting rising last year and walked away from their houses or were forced out by foreclosure.

Many big lenders and investors in such mortgages lost millions or went out of business.
Neal St. Anthony • 612-673-7144
Neal ST. Anthony • nstanthony@startribune.com



Fort Lauderdale-based Levitt and Sons halts all work on houses
From the Mish housing blog....
I had a brief conversation with Mike Morgan on Saturday about what might happen should Levitt declare bankruptcy.

Here is the background story...Fort Lauderdale-based Levitt and Sons halts all work on houses.

Levitt and Sons, the cash-strapped Fort Lauderdale company trying to survive the housing slump, said Thursday it has temporarily stopped building houses as it tries to restructure its debt.The action is an inconvenience for consumers who plan to move into Levitt homes and now are in limbo.

My Comment: Inconvenience?! Putting down 10%-20% on a house and having the builder walk away in bankruptcy is merely "inconvenient"?

"I'm up in the air," said Angelo Palermo, 69, who's renting an apartment in Pembroke Pines while waiting for his $380,000 house in Port St. Lucie to be finished. "This is a very bad situation."The builder's parent, Levitt Corp., said last Friday the subsidiary faces an uncertain future if it can't work out a deal with lenders.

My comment: "An uncertain future"? What's with these wimpy comments from Levitt? The future is very certain. If Levitt cannot work out a deal with lenders, the future is guaranteed. That future is called bankruptcy. Even IF lenders are willing to throw more money into this sinkhole, Levitt is still may go bankrupt. What new buyers would make a down payment on a house with Levitt with all this uncertainty over things?

"We realize that there are a number of questions from customers," said Michael Freitag, a spokesman for Levitt Corp. "But until the matter of financing is resolved, we don't have answers to those questions." Levitt home buyers can call 877-538-4889 for information about the status of their homes.

My Comment: Levitt does not have any answers so if you call them that is all you will hear. But there's the number to call in case you want an actual voice to tell you just that. By the way, I called the number and talked to "Loretta" who was very pleasant but could not answer media questions. No one answered the media phone number she gave me.

Bob Oblas of New York was scheduled to close on his two-bedroom house in Seasons at Tradition on Oct. 31, but said a company representative told him Thursday that it was not likely to happen. He wonders about a clubhouse and other amenities that have yet to be built. "I'm very concerned about the viability of the community," said Oblas, 66.

My comment: "Clubhouse"? Sheeesh That should be the least of your worries. People seem worried over the wrong things here. "Viability of the community" is certainly a more valid concern. There are a host of other pitfalls to be worried about as well which we will get to in a moment.

Joel Dramis, assistant building official for the city of Port St. Lucie, said his office has received no complaints about Levitt and Sons. But he said a contractor has filed nine liens against the builder.Last month, Levitt Corp. said it was laying off as many as 200 of its 573 employees because of the housing downturn. Most of the cuts were planned at Levitt and Sons.The builder did not pay $2.6 million of interest payments due last week to its five primary lenders. Levitt Corp. said it has loaned $84 million to Levitt and Sons through Sept. 30 but is unwilling to loan more money unless the builder can negotiate better financial terms with the lenders.Levitt Corp. said it doesn't expect to recover the money it loaned to the builder.

Q&A With Mike Morgan

Mish: What happens in Florida if a builder goes bankrupt before the buyer closes?
Morgan: It depends. Most builder contracts request that deposits go into a general fund. You can opt out of the general fund, and your deposit will go into an escrow account, but this usually means you give up builder incentives. I've never had a single buyer opt out of the general fund for the escrow fund. It simply means giving up too much in incentives. So if the builder goes bankrupt, and your money is in the general fund, you are nothing more than an unsecured creditor. Even if your money goes into an escrow account, it depends how viable that escrow account actually is.

Mish: Who has first rights to the houses or partial houses?
Morgan: In each case I advise buyers to take their contracts to an attorney licensed in the state they purchased the home in as well as an attorney in the state they are in, if that is where they signed the contract and it is different than the state where the home is being built. Each state has different laws for contracts.

Mish: Should someone actually get to closing in these situations, what is the likelihood they will immediately be upside down on the loan.
Morgan: It's nearly guaranteed.Mish: If someone decides to go ahead with a purchase shortly before or after a builder goes bankrupt are there any other potential pitfalls?Morgan: Yes. It is quite possible that subcontractors who were not paid by the developer or only partially paid by the developer decide to slap mechanics liens on the house after closing. Another possibility is builder defects caused by rushed completions or builders cutting corners to save money. Both of these can be very expensive problems for the buyer sometime down the road.

Mish: Could a bankruptcy by Levitt be a blessing in disguise for those who have not yet closed on their homes?Morgan: Absolutely. The smaller the original down payment, the bigger the potential blessing might be. This is true for any potential bankruptcy, not just Levitt. Depending on how contracts were written and whether any "outs" are present for the buyer, many potential headaches such as being upside down on a loan, amenities promised not being delivered, and the possibility of mechanics liens placed on homes for those who do manage to close, walking away can easily be the best option. Once again, I would advise talking to a real estate attorney over this matter. Contracts can vary for different buyers even with the same developer.

Contact information for Mike Morgan about this article or for Ground Zero Consulting Services to Wall Street and Retail BuyersEmail: Mike Morgan

Mike Shedlock / Mishhttp://globaleconomicanalysis.blogspot.com/
Mike Shedlock / Mish is a registered investment advisor representative for SitkaPacific Capital Management. Visit http://www.sitkapacific.com to learn more about wealth management for investors seeking strong performance with low volatility.


Fort Lauderdale-based Levitt and Sons halts all work on houses
Besieged Levitt and Sons scrambles to restructure debt
By Paul Owers South Florida Sun-Sentinel
October 19, 2007

Levitt and Sons, the cash-strapped Fort Lauderdale company trying to survive the housing slump, said Thursday it has temporarily stopped building houses as it tries to restructure its debt.The action is an inconvenience for consumers who plan to move into Levitt homes and now are in limbo."I'm up in the air," said Angelo Palermo, 69, who's renting an apartment in Pembroke Pines while waiting for his $380,000 house in Port St. Lucie to be finished. "This is a very bad situation."

The builder's parent, Levitt Corp., said last Friday the subsidiary faces an uncertain future if it can't work out a deal with lenders.Levitt Corp. plans to take pretax charges of $160 million to $170 million as a result of losses on Levitt and Sons' home-building inventory. That's in addition to $99 million of charges and write-offs in prior periods. The historic builder is roughly $430 million in debt, according to a Securities and Exchange Commission filing by Levitt Corp.Builders in Florida and across the nation are struggling as the once-vibrant housing market keeps deteriorating.Levitt and Sons does not have any developments in Palm Beach or Broward counties. The closest under construction is Seasons at Tradition in Port St. Lucie. Elsewhere in Florida, it has projects on the west coast, in Orlando and in Jacksonville. It also builds in Georgia, South Carolina and Tennessee."We realize that there are a number of questions from customers," said Michael Freitag, a spokesman for Levitt Corp. "But until the matter of financing is resolved, we don't have answers to those questions." Levitt home buyers can call 877-538-4889 for information about the status of their homes.Bob Oblas of New York was scheduled to close on his two-bedroom house in Seasons at Tradition on Oct. 31, but said a company representative told him Thursday that it was not likely to happen. He wonders about a clubhouse and other amenities that have yet to be built."I'm very concerned about the viability of the community," said Oblas, 66.The Port St. Lucie housing development is part of a massive residential and retail project called Tradition.Joel Dramis, assistant building official for the city of Port St. Lucie, said his office has received no complaints about Levitt and Sons. But he said a contractor has filed nine liens against the builder.Last month, Levitt Corp. said it was laying off as many as 200 of its 573 employees because of the housing downturn. Most of the cuts were planned at Levitt and Sons.The builder did not pay $2.6 million of interest payments due last week to its five primary lenders. Levitt Corp. said it has loaned $84 million to Levitt and Sons through Sept. 30 but is unwilling to loan more money unless the builder can negotiate better financial terms with the lenders.Levitt Corp. said it doesn't expect to recover the money it loaned to the builder.Levitt Corp. also is the parent of master-planned developer Core Communities and owns a stake in Bluegreen Corp., a developer of vacation resorts. Alan Levan, head of Levitt Corp., also is the chairman of a big regional bank, BankAtlantic Bancorp.Levitt and Sons has built about 200,000 homes over the past 78 years. Its signature project came in 1947 when it built New York's Levittown on Long Island, mostly for World War II soldiers returning home.The builder began to lose momentum starting in the 1970s, said Wayne Archer, director of the Bergstrom Center for Real Estate Studies at the University of Florida."In the last two or three years, they've been trying to come back to being one of the major players [in the industry]," Archer said. "But it's not a good time to be a big builder."

Thursday October 18 Housing and Economic stories

October 18 financial and housing news

Lending pullback threatens to create a new credit crunch - TheStreet.com (10/19/2007 08:21 AM)
Vital Signs: Housing Drag Won't Let Up - Business Week (10/19/2007 06:13 AM)..>
Bank of America Earnings Drop on Loan Writedowns - Bloomberg (10/18/2007 06:41 AM)
Countrywide's CEO Probed By SEC - N.Y. Post (10/18/2007 08:35 AM)
HSBC Is Sued Over Valuation Of Fund's Bonds - WSJ ($) (10/19/2007 05:49 AM)
Bay Area home sales down 40% - LA Times (10/19/2007 05:32 AM)
Subprime cowboys - Boston Globe (10/19/2007 05:41 AM) ..>
Burned by Real Estate, Some Just Walk Away - WSJ ($) (10/18/2007 05:19 AM)
PMI Group Sees Quarterly Loss on U.S Defaults, FGIC - Bloomberg (10/18/2007 06:30 AM)
Countrywide Chief Is Said to Face S.E.C. Inquiry: Morgenson - NY Times (10/18/2007 05:10 AM) ..>
Pink Slips Go To 300 At Morgan Stanley - N.Y. Post (10/18/2007 08:35 AM)
Triple-Whammy at WaMu - TheStreet.com (10/18/2007 08:37 AM)
Citigroup won't have asset fire sale: report - Reuters (10/18/2007 09:03 PM)
A stiff price for loans gone bad - LA Times (10/18/2007 04:58 AM) ..>..>

Thu Oct 18 2007 (from Patrick.net http://patrick.net/housing/crash.html)

Jumbo loan problems, jumbo price drops (themessthatgreenspanmade.blogspot.com)
Before You Talk to a Real Estate Agent (consumermaven.wordpress.com)
Money woes halt construction (newmedia.gainesvilletimes.com)
For Every $100,000 Appreciated... (financialsense.com)
More Housing Hanky-Panky (fool.com)
Stockton agent offering foreclosure bus tours (recordnet.com)
Paulson and Bush Comment on Housing Market Risk (efinancedirectory.com)
Super Conduit to the rescue! (salon.com)
Orange County Sees Record Decline in House Prices (ocbj.com)
Bottom-Fishing Fallacies (Charles Hugh Smith)
The Title Insurance Racket (forbes.com)
Economist predicts more gloom for housing market (biztimes.com)
Congress - Repair Our Financial System! (financialpetition.org)
Wholesale lending is quietly being eliminated by the largest banks (blownmortgage.com)
No more $250k/$500k exclusion for investors in second homes (fatwallet.com)
Japan and China lead flight from the dollar (telegraph.co.uk)
Treasuries Rally Most in Five Weeks on Housing, Credit Weakness (bloomberg.com)
Morbo on the Housing Bubble (youtube.com)

Wednesday October 17 Housing and Economic stories

October 17 housing and investment news

Homebuilder outlook falls to record low - Chicago Tribune (10/17/2007 04:58 AM)
ResCap to Slash Work Force - WSJ ($) (10/17/2007 05:15 AM)
Behind Subprime Woes, A Cascade of Bad Bets - WSJ ($) (10/17/2007 05:16 AM)
Southland home sales and prices plummet - LA Times (10/17/2007 04:54 AM)
2008 mortgage originations to hit 8-year low: MBA - Bloomberg (10/17/2007 05:05 AM)
U.S. Housing Starts Plunged to Lowest Since 1993 in September - Bloomberg (10/17/2007 07:45 AM)


Wed Oct 17 2007 (from http://patrick.net/housing/crash.html)

Optimists: House prices expected to fall until 2009 (articles.moneycentral.msn.com)
Paulson Credit Push Earns Jeers From Free-Marketers (bloomberg.com)
Disaster capitalism, the new Manifest Destiny (eyeonmiami.blogspot.com)
SIV Bailout Plan: Don't Ask, Don't Sell (seekingalpha.com)
Text of Paulson's Remarks on Housing (blogs.wsj.com)
As Defaults Rise, Washington Worries (nytimes.com)
Mortgage Securities Bailout Fund: A Bribe? (seekingalpha.com)
Banks May Pool Billions to Avert Securities Sell-Off (nytimes.com)
Boom Boom Tuesday (market-ticker.denninger.net)
Wells Fargo, Regions Financial, KeyCorp Profits Miss (bloomberg.com)
Wells Fargo Hit by Mortgage Woes (thestreet.com)
Foreigners Sold Record $69.3 Billion in U.S. Assets (bloomberg.com)
German bank hit by subprime crisis slashes results, directors leave (afp.google.com)
Builder D.R. Horton Orders Fall (cnbc.com)
D.R. Horton Orders Fall to Lowest in Almost Six Years (bloomberg.com)
Housebuilder Outlook Falls to Record Low (biz.yahoo.com)
8 Areas in the U.S. Most Unaffordable in World (efinancedirectory.com)
Blame the Downturn on Homebuilders and Banks (doctorhousingbubble.com)
Southern California house sales plunge 30 pct in Sept (reuters.com)
2005 San Diegeo Sales (sandicor.com)
2007 San Diego Sales (sandicor.com)

Tuesday October 16 Housing and Economic stories

Oil has risen 400% since 2001 yet CPI is only up 2-4% per year. Whenever the Fed tries to fight a recession, they do it in ways that take away from average citizen by creating money out of thin air. Oil, food, corn, copper, gold, and almost everything is at 20 year or all time highs. Eventually the average person will learn that the Fed is fleecing them.

SF Neighborhoods Crumble in Wave of Foreclosures
Long Island Foreclosures Rise - And No One Wants the Houses
Oil New Record $85Gold 28-Year High

Delinquencies at condos can cost neighbors - Boston Globe (10/16/2007 04:56 AM)
Beazer offers creditors cash to stay afloat - AJC.com (10/16/2007 08:41 AM)
Horton Orders Plunge Anew - TheStreet.com (10/16/2007 08:36 AM)
Homeowners pass on remodeling projects in down market - Chicago Tribune (10/16/2007 04:46 AM)
3 Major Banks Offer Plan to Calm Debts in Housing: Norris - NY Times (10/16/2007 05:20 AM)
As Defaults Rise, Washington Worries - NY Times (10/16/2007 05:21 AM)
Foreclosures hit record high in metro Atlanta - AJC.com (10/16/2007 08:40 AM)


Housing Crash News (from http://patrick.net/housing/crash.html)

Real Estate Blogger Bursts Bubbles (abcnews.go.com)
Why the Housing Slump Isn't Over Yet (safehaven.com)
The Next Mortgage Bomb? (seekingalpha.com)
Premature Enthusiam Among Manteca Auction "Winners" (mercurynews.com)
House Prices Dropping Fast in Santa Clarita, CA (patrick.net)
How Housing Turmoil Could Hurt Republicans in '08 (online.wsj.com)
House sellers try sweetening the pot for agent who brings buyer (marketwatch.com)
Citigroup Net Falls 57 Percent On Bad Mortgage Bets (bloomberg.com)
Foreclosures good news for patient savers (orlandosentinel.com)
Cash-strapped Americans raiding their 401ks (chicagotribune.com)
Canada not immune to housing bubble (canada.com)
Bernanke: Housing Woes to Slow Growth (biz.yahoo.com)
How the U.S. Media Failed Housebuyers (Charles Hugh Smith)

Monday October 15 Housing and Economic stories

Housing and Economic Stories for the day:

Big banks prepping $100B bailout fund - CNN/Money (10/14/2007 07:49 PM)
As foreclosures soar, dreams die - Orlando Sentinel (10/14/2007 08:14 PM)
Housing recovery expected in 2 to 3 years - Orange County (10/15/2007 04:56 AM)
Mortgage Meltdown - SF Gate (10/14/2007 08:14 PM)
San Francisco Bay Area foreclosures triple in September (sfgate.com)
Bay Area counties trim taxes as house prices fall (sfgate.com)
Subprime Mortgages Crossing Income and Credit Strata (seekingalpha.com)
Construction halted on half-finished condos in Oakland, CA (pittsburgh.bizjournals.com)
Reader-submitted picture of unfinished Oakland condos (patrick.net)
Central CA housing projects unfinished (youtube.com)
Record 10,000 Short Sales in Southern California (doctorhousingbubble.com)
Reston Builder's Cancellations Reflect Industry (washingtonpost.com)
"Mortgage Forgiveness Debt Relief Act" Creates Tax-Free Gift To Speculators (patrick.net)
Morgenson Sheds Light on Subprime Mortgage Crisis (npr.org)
Banks May Pool Billions to Avert Mortgage Sell-Off (nytimes.com)
Desperate Builders Cutting Prices (thetrumpet.com)
Major Builder Broke Federal Loan Rules (efinancedirectory.com)
Loan defaults in Palm Beach area topped $1 billion over six months. (palmbeachpost.com)
Sydney's Housing Disaster by David Van Der Klauw (financialsense.com)
Foreclosures double again, another wave is coming (bloggingstocks.com)
The Gloves Come Off! (paper-money.blogspot.com)
I.R.S. Looks at Mortgage Securities (nytimes.com)
Insider sales at Countrywide (insidercow.com)

Porker of the week: Countrywide Financial and Angelo Mozillo

Porker of the week: Countrywide Reaps what it Sowed

Well, hopefully all those crooked Countrywide executives making $300K + will be on the job market shortly.

MSNMoney is reporting Countrywide to reduce workforce by 10,000 to 12,000.

Countrywide Financial Corporation CFC today announced a plan of action to address changing market conditions that positions the Company for continued growth and success.The Company presently estimates a total workforce reduction of 10,000 to 12,000 over the next three months representing up to 20 percent of its current workforce. Based on current interest rate levels, Countrywide presently expects that total market origination volumes will decline approximately 25 percent in 2008 compared to 2007 levels.Product guideline revisions have been made to ensure that all loans which the Company produces can be sold into the secondary market or are high quality prime loans to be held in Countrywide Bank's investment portfolio. This includes the Company's recent decision to no longer originate any subprime loans other than those eligible for sale or securitization under programs supported by Fannie Mae, Freddie Mac or the FHA.[Mish comment: So with no Alt-A, no jumbos, no subprime, no nonconforming loans of any sort, and with increased competition for prime loans, Countrywide is only expecting loan volumes to drop by 25%!?]Growth plans will continue in areas of opportunity. Countrywide's retail and wholesale lending divisions plan to continue aggressively pursuing the increased opportunities presenting themselves in the current environment for profitable market share growth.[Mish comment: Growth plans? Yeah right. Let's talk growth while firing 20% of the workforce and reducing the types of loans you are willing to do?]"Each employee at Countrywide is considered an important member of the Countrywide family," said David Sambol, President and Chief Operating Officer. "While workforce reductions are therefore always very difficult, these decisions are being made with the utmost attention and sensitivity to the impact they will have on our Company and our people."

Inside the Countrywide Lending SpreeBut how and why did countrywide get so bloated in the first place? In case you missed it, the New York Times recently published a stunning look Inside the Countrywide Lending Spree.
On its way to becoming the nation's largest mortgage lender, the Countrywide Financial Corporation encouraged its sales force to court customers over the telephone with a seductive pitch that seldom varied. "I want to be sure you are getting the best loan possible," the sales representatives would say.Instead, potential borrowers were often led to high-cost and sometimes unfavorable loans that resulted in richer commissions for Countrywide's smooth-talking sales force, outsize fees to company affiliates providing services on the loans, and a roaring stock price that made Countrywide executives among the highest paid in America.

Countrywide's entire operation, from its computer system to its incentive pay structure and financing arrangements, is intended to wring maximum profits out of the mortgage lending boom no matter what it costs borrowers, according to interviews with former employees and brokers who worked in different units of the company and internal documents they provided. One document, for instance, shows that until last September the computer system in the company's subprime unit excluded borrowers' cash reserves, which had the effect of steering them away from lower-cost loans to those that were more expensive to homeowners and more profitable to Countrywide.

Homeowners, meanwhile, drawn in by Countrywide sales scripts assuring "the best loan possible," are behind on their mortgages in record numbers. As of June 30, almost one in four subprime loans that Countrywide services was delinquent, up from 15 percent in the same period last year, according to company filings. Almost 10 percent were delinquent by 90 days or more, compared with last year's rate of 5.35 percent.Many of these loans had interest rates that recently reset from low teaser levels to double digits; others carry prohibitive prepayment penalties that have made refinancing impossibly expensive, even before this month's upheaval in the mortgage markets."

In terms of being unresponsive to what was happening, to sticking it out the longest, and continuing to justify the garbage they were selling, Countrywide was the worst lender," said Ira Rheingold, executive director of the National Association of Consumer Advocates.In a mid-March interview on CNBC, Mr. Mozilo said Countrywide was poised to benefit from the spreading crisis in the mortgage lending industry. "This will be great for Countrywide," he said, "because at the end of the day, all of the irrational competitors will be gone."But Countrywide documents show that it, too, was a lax lender. For example, it wasn't until March 16 that Countrywide eliminated so-called piggyback loans from its product list, loans that permitted borrowers to buy a house without putting down any of their own money. And Countrywide waited until Feb. 23 to stop peddling another risky product, loans that were worth more than 95 percent of a home's appraised value and required no documentation of a borrower's income.

As recently as July 27, Countrywide's product list showed that it would lend $500,000 to a borrower rated C-minus, the second-riskiest grade.The company would lend even if the borrower had been 90 days late on a current mortgage payment twice in the last 12 months, if the borrower had filed for personal bankruptcy protection, or if the borrower had faced foreclosure or default notices on his or her property.Such loans were made, former employees say, because they were so lucrative — to Countrywide. The company harvested a steady stream of fees or payments on such loans and busily repackaged them as securities to sell to investors.

As long as housing prices kept rising, everyone — borrowers, lenders and investors — appeared to be winners.One former employee provided documents indicating Countrywide's minimum profit margins on subprime loans of different sizes. These ranged from 5 percent on small loans of $100,000 to $200,000 to 3 percent on loans of $350,000 to $500,000.

But on subprime loans that imposed heavy burdens on borrowers, like high prepayment penalties that persisted for three years, Countrywide's margins could reach 15 percent of the loan, the former employee said.One reason these loans were so lucrative for Countrywide is that investors who bought securities backed by the mortgages were willing to pay more for loans with prepayment penalties and those whose interest rates were going to reset at higher levels. Investors ponied up because pools of subprime loans were likely to generate a larger cash flow than prime loans that carried lower fixed rates.As a result, former employees said, the company's commission structure rewarded sales representatives for making risky, high-cost loans.

For example, according to another mortgage sales representative affiliated with Countrywide, adding a three-year prepayment penalty to a loan would generate an extra 1 percent of the loan's value in a commission. While mortgage brokers' commissions would vary on loans that reset after a short period with a low teaser rate, the higher the rate at reset, the greater the commission earned, these people said.

Persuading someone to add a home equity line of credit to a loan carried extra commissions of 0.25 percent, according to a former sales representative."The whole commission structure in both prime and subprime was designed to reward salespeople for pushing whatever programs Countrywide made the most money on in the secondary market," the former sales representative said.When borrowers tried to reduce their mortgage debt, Countrywide cashed in: prepayment penalties generated significant revenue for the company — $268 million last year, up from $212 million in 2005. When borrowers had difficulty making payments, Countrywide cashed in again: late charges produced even more in 2006 — some $285 million.

The company's incentive system also encouraged brokers and sales representatives to move borrowers into the subprime category, even if their financial position meant that they belonged higher up the loan spectrum. Brokers who peddled subprime loans received commissions of 0.50 percent of the loan's value, versus 0.20 percent on loans one step up the quality ladder, known as Alternate-A, former brokers said.

For years, a software system in Countrywide's subprime unit that sales representatives used to calculate the loan type that a borrower qualified for did not allow the input of a borrower's cash reserves, a former employee said.

A few weeks ago, the former sales representative priced a $275,000 loan with a 30-year term and a fixed rate for a borrower putting down 10 percent, with fully documented income, and a credit score of 620.

While a F.H.A. loan on the same terms would have carried a 7 percent rate and 0.125 percentage points, Countrywide's subprime loan for the same borrower carried a rate of 9.875 percent and three additional percentage points.The monthly payment on the F.H.A. loan would have been $1,829, while Countrywide's subprime loan generated a $2,387 monthly payment. That amounts to a difference of $558 a month, or $6,696 a year — no small sum for a low-income homeowner.

Independent brokers who have worked with Countrywide also say the company does not provide records of their compensation to the Internal Revenue Service on a Form 1099, as the law requires. These brokers say that all other home lenders they have worked with submitted 1099s disclosing income earned from their associations.One broker who worked with Countrywide for seven years said she never got a 1099.

"When I got ready to do my first year's taxes I had received 1099s from everybody but Countrywide," she said. "I called my rep and he said, "We're too big. There's too many. We don't do it."few borrowers of any sort, even the most creditworthy, appear to escape Countrywide's fee machine.

When borrowers close on their loans, they pay fees for flood and tax certifications, appraisals, document preparation, even charges associated with e-mailing documents or using FedEx to send or receive paperwork, according to Countrywide documents.

It's a big business: During the last 12 months, Countrywide did 3.5 million flood certifications, conducted 10.8 million credit checks and 1.3 million appraisals, its filings show.

Many of the fees go to its loan closing services subsidiary, LandSafe Inc.According to dozens of loan documents, LandSafe routinely charges tax service fees of $60, far above what other lenders charge, for information about any outstanding tax obligations of the borrowers. Credit checks can cost $36 at LandSafe, double what others levy. Some Countrywide loans even included fees of $100 to e-mail documents or $45 to ship them overnight.

LandSafe also charges borrowers $26 for flood certifications, for which other companies typically charge $12 to $14, according to sales representatives and brokers familiar with the fees.A different broker supplied an e-mail message from a Countrywide official stating that it was not company practice to submit 1099s. It is unclear why Countrywide apparently chooses not to provide the documents.A former sales representative and several brokers interviewed for this article were granted anonymity because they feared retribution from Countrywide.

Closing Thoughts
It's really hard to know where to begin with this but for starters I hope the IRS cracks down good and hard on Countrywide over the 1099's.

I have been wanting to comment on the sleaze at Countrywide for a week but tonight it finally seems appropriate.
Certainly there are allegations of what can be construed as fraud and I would love to see Mozilo have a day of reckoning in court over this but I doubt that ever happens.

And while I have a hard time cheering for the demise of others, at a minimum it's certainly hard to feel sorry for anyone losing their job who was involved in such sleaze.

But what sums it up best is this: As Ye Sow, So Shall Ye Reap.Addendum:Here is Countrywide's Letter To Employees, addressing both the layoffs as well as taking exception to the New York Times article. You can choose to believe Countrywide's innocence if you choose. I don't.

Mike Shedlock / Mishhttp://globaleconomicanalysis.blogspot.com/
Mike Shedlock / Mish is a registered investment advisor representative for SitkaPacific Capital Management. Visit http://www.sitkapacific.com to learn more about wealth management for investors seeking strong performance with low volatility.