Losses on mortgage, debt securities could top $265 billion

Thursday, January 31, 2008 - Inman News

Losses on complex securities backed by mortgages will eventually exceed $265 billion, with losses spreading from Wall Street investment firms to regional banks, credit unions and Fannie Mae and Freddie Mac, Standard & Poor's Ratings Services said in a report.

The rating agency announced Wednesday it was downgrading or placing on a list for possible downgrades $534 billion in mortgage-backed securities (MBS) and $264 billion in collateralized debt obligations (CDOs),

Not all of the investments subject to downgrades may end up losing money, but Standard & Poor's is taking a more cautious stance, with economist David Wyss forecasting home-price declines of 13 percent by the end of the year, bottoming out no sooner than the first quarter of 2009, the Wall Street Journal reported.

Real Estate Auction Pretenders exposed...read the fine print

DATELINE: Justme @ norcalfsbo.blogspot.com

Recently I have been overwhelmed. Bank Managers, Guru's and Real Estate Investors all want to know …"WHAT HAPPENED?"

Some people (serious investors) ask when Banks are actually going to start selling the inventory. Others want to know how they can buy the property before an Auction....

It hurts me to say this, but… wait.

Yup… Wait.

Banks really aren't selling at Auction yet. Yes they pretend to sell properties at a (county-wide) auction, but read the fine print.... It says "the starting bid is not the reserve price" and the owner (bank) can refuse all bids.

As a Result 90% of the properties in the ballroom auctions are not actually being sold, buyers sign a contract, they make a deposit and once the crowd clears a cell phone rings telling them that the bank did not accept their offer... then the bank asks if they could pay more.... it's a sham. Once the buyer tells the bank that they will not pay more the bank gives the money back... what a waste of a Saturday.... I'd rather go see my Sons soccer game.

Sometime later in 2008 or probably in 2009, banks will actually start selling the properties.

In the meantime, make super low offers on REO Properties and gravitate towards Single Home Auctions like those provided by Pacific Auction Exchange… Pacific Auction Exchange actually sells “the property”, unlike Banks who pretend to sell…. Pacific Auction Exchange represents sellers who are dedicated to selling their property now… they just want to find the person who will pay the most.

1309 Fairview St. - Nice Orland Deal!

169k, - Make Offer

*** Solid home for an incredible price. Located near the school and fairgrounds this property is waiting for you. It features a large kitchen, fresh paint, newer carpets, wood floors and a big backyard. You will appreciate the inside laundry and the bonus room in the converted garage which is not included in the sq ft.

For More details and pictures on this property -click here-

This is FSBO, the seller is related to a Realtor so she put it on the MLS as well.

FBI probes 14 companies in subprime mess

WASHINGTON - The FBI on Tuesday said it is investigating 14 companies for possible accounting fraud, insider trading or other violations in connection with home loans made to risky borrowers.

Agency officials did not identify the companies under investigation but said the wide-ranging probe, which began in spring 2007, involves companies across the financial services industry, from mortgage lenders to investment banks that bundle home loans into securities sold to investors.

The Federal Bureau of Investigation is working in conjunction with the Securities and Exchange Commission on the corporate-fraud probe, said Neil Power, chief of the FBI’s economic crimes unit in Washington.

As the nation’s housing crisis worsens, there has been a dramatic spike in the number of mortgage fraud cases under investigation. An agency spokesman said 1,210 such cases are open, up from roughly 800 a year ago.

The announcement comes weeks after authorities in New York and Connecticut said they are investigating whether Wall Street banks hid crucial information about high-risk loans bundled into securities sold to investors.

Power said the FBI is looking into the practices of so-called subprime lenders, as well as potential accounting fraud committed by financial firms that hold these loans on their books or securitize them and sell them to other investors.

Referring to certain unnamed bankrupt subprime lenders, Power said there are “some irregularities there that we’re looking into,” including the timing of stock sales by executives. Dozens of subprime lenders have filed for bankruptcy in the past year, most prominently New Century Financial Corp.

“We’re looking at the executives to see if they were committing insider trading,” Power said.

Power also said law enforcement officials are looking at whether homebuilders manipulated financial statements to inflate revenues.

An SEC spokesman declined to comment. The agency has said about three dozen investigations related to the mortgage market meltdown are ongoing.Defaults on subprime loans have risen over the past 12 months and are primarily responsible for the credit crunch that has disrupted global financial markets.

Morgan Stanley, Goldman Sachs Group Inc. and Bear Stearns Cos. all disclosed in regulatory filings Tuesday that they are cooperating with requests for information from various, but unspecified, regulatory and government agencies. Officials at the companies either declined to comment, or could not immediately be reached.

FBI officials also highlighted what they called a growing pattern of suspected mortgage loan fraud potentially committed when loans were made to shaky borrowers. They cited a surge in “suspicious activity reports” that banks are required to file with the government.

The number of those reports is projected to rise to 60,000 this year after hitting 48,000 last year, up from about 7,000 in 2003. “We’re going to have to take a hard look at these things,” said Assistant FBI Director Ken Kaiser.

Earlier this month, Connecticut Attorney General Richard Blumenthal said he and New York Attorney General Andrew Cuomo were looking whether banks properly disclosed the high risk of default on so-called “exception” loans — considered even risker than subprime loans — when selling those securities to investors.

In November, Cuomo said he issued subpoenas to government-sponsored mortgage companies Fannie Mae and Freddie Mac in his investigation into what he claims are conflicts of interest in the mortgage industry. He said he wanted to know about billions of dollars of home loans they bought from banks, including the largest U.S. savings and loan, Washington Mutual Inc., and how appraisals were handled.

Home ownership in record plunge

Fourth quarter saw biggest one-year drop in since tracking began in 1965 - as mortgage problems and rising foreclosures take their toll.

NEW YORK (CNNMoney.com) -- The housing and mortgage meltdown caused the biggest one-year drop in the rate of homeownership on record, according to government figures released Tuesday.

The Census Bureau report showed that home owners accounted for 67.8% of occupied homes in the fourth quarter, down 1.1 points from a year earlier. It's the largest year-over-year drop recorded in the report. The ownership rate was also well below the 68.2% ownership rate in the third quarter of 2007.

Homeownership rates, which have been tracked since 1965, hit a record high of 69.2% at the end of 2004.

The report also also showed a record 2.18 million homes vacant and available for sale in the fourth quarter, up from the 2.07 million in the third quarter and the 2.1 million a year earlier. The fourth-quarter reading on vacant homes for sale matched the previous record set in the first three months of 2007.

The report comes the same day that RealtyTrac, an online seller of foreclosure properties, reported that total foreclosure filings grew 75% in 2007 and S&P Case/Shiller, which tracks home values in the nation's largest markets, posted the biggest price decline on record its November reading.

The glut of vacant homes is a sign the evaporation of demand for home sales, which has hammered housing values. It also signals bad news for homebuilders, who were stuck with a record inventory of 195,000 completed homes at the end of December. A separate Census Bureau report Monday showed the biggest drop in new home sales on record in 2007.

FHA Cap limits may be raised to 625,000, good news for higher priced markets

The measures would make mortgages easier to get and reduce borrowing costs -- especially in hard-hit, high-cost housing markets.

NEW YORK (CNNMoney.com) -- The economic stimulus plan announced Thursday by Congress and the Bush administration includes provisions that specifically address the mortgage crisis. It aims to make getting a mortgage easier and cheaper in high-cost markets, to facilitate refinancing and to prevent foreclosures.

The package proposes lifting the dollar amount of loans that are eligible for purchase by Freddie Mac (FRE, Fortune 500) and Fannie Mae (FNM) and that can be insured by the Federal Housing Administration (FHA). The cap limits for FHA loans, which offer protection to lenders against losses that result from defaults by borrowers, would be raised to $725,000 and would be permanent.

These government sponsored enterprises currently guarantee a secondary market for loans of less than $417,000, which makes lenders more willing to issue them. The stimulus package proposes raising that cap to $625,000 for twelve months in order to make it easier for buyers to get or refinance mortgages - especially in high-cost regions like California.

"It's about time," said Richard DeKaser, chief economist for banking giant National City Corp. "The idea has rattled around Congress for a year. Most analysts agree the market for "jumbo" loans [which exceed the cap limits] has been hurt by lender flight."

The increased cap should give a boost to some of the most sluggish markets in the nation, like Florida, where high home prices typically mean that mortgages exceed the $417,000 loan limits. When credit markets contracted last summer, jumbo loans over that amount became much harder to get and, as a result, home sales in pricey markets took a hit.

"This will have a big, immediate impact, especially in California where sales have been down most significantly," said Lawrence Yun, chief economist for the National Association of Realtors.

Homeowners with jumbo mortgages also pay higher interest rates because, with no guaranteed secondary market for the loans, lenders take on more risk, and charge borrowers more for doing so.

For instance, the interest rate difference between loans that fall within the cap limit and jumbo loans was more than 1 percent on Thursday -- 6.39 percent compared with 5.30 percent, according to Bankrate.com. On a $500,000 mortgage, the difference is about $350 a month.

Pain relief for mortgage fare-ups

"The 1 percent drop is a huge factor," said Yun. "In California, it could create a mini-boom."

Before the stimulus package was announced, analysts including Merrill Lynch had come out with dire forecasts for housing markets over the next couple of years.

But, said Mike Larson, a real estate analyst with Weiss Research. "[the raise in loan limits] could remove some of the inventory overhang and alter the buyer psychology a bit. Right now they're still waiting for prices to fall."

Yun added, "There's a lot of pent-up demand in the market. This will boost confidence among these potential buyers, and some of the people on the fence will start buying."

The National Association of Realtors recently projected that a higher loan limit, which the organization and other industry trade groups have been lobbying for, would boost home sales by nearly 350,000 a year.

It would also reduce the average period of time a home sits on the market by a month and a half, and lift prices by two or three percentage points.

Home price increases could help keep foreclosures in check by increasing a distressed owner's home equity, making it easier for them to refinance.

Housing prices to free fall in 2008

According to a Merrill Lynch report, home prices will drop 15 percent this year, and declines will continue in 2009.

NEW YORK (CNNMoney.com) -- The worst housing financial crisis in decades is only going toget worse, a Merrill Lynch report said Wednesday.

The investment bank forecasted a 15 percent drop in housing prices in 2008 and a further 10 percent drop in 2009, with even more depreciation likely in 2010.

By contrast, the National Association of Realtors (NAR) expects housing prices to remain flat in 2008. NAR did cut its home price estimate for the current quarter, however, to a 5.3 percent year-over-year decline, which represents the steepest drop in that price measure on record. But NAR sees an uptick in home prices in the last two quarters of 2008.

"Merrill Lynch's figures are way too pessimistic, and they are unprecedented," Lawrence Yun, the National Association of Realtors chief economist told CNNMoney.com. "There is so much variation in local housing markets, and we see stable price conditions for 2008."

The current housing crisis and the depreciation in home prices have pummeled the economy, with businesses and consumers cutting back on spending, raising the specter of a recession. "Lower sales and higher inventory for sales are lowering the velocity of transactions," said Fritz Siebel, Director of US Property Derivatives for Tradition Financial Services. "That cannot be a sign of good health for the economy."

But for those who think that the worst is over, Merrill Lynch said that housing prices still remain comparatively high. The brokerage believes that home prices are still far above historical norms when compared to other measures such as rent or GDP. "By our calculations, it will take about a 20 to 30 percent decline in home prices to correct this imbalance," said the report.

Merrill Lynch believes that housing starts will most likely slide another 30 percent by the end of 2008 - a historic low.

The report says that the inventory situation only continues to worsen, as homebuilders are now looking at more than a nine months' supply. "The current supply/demand environment does not favor a swift recovery in the housing market, in our view," according to the report.

Yun agrees that the reduction in housing starts will not bode well for the economy, especially in the homebuilding industry, but he believes that the reduction will soothe the housing market by slowing the glut in inventory. "The reduction in housing starts is not stabilizing the economy, but it will stabilize the market," said Yun.

Housing challenges not seen since the Great Depression.

Economists said the current housing slump has already surpassed the 1990 downturn and will likely rival, if not surpass, the prolonged housing downturn in the late 1970s and early 1980s, a period when the Federal Reserve was pushing interest rates to the highest levels since the Civil War in a successful effort to halt a decade-long bout of high inflation.

Mark Zandi, chief economist at Moody’s Economy.com, is forecasting that median sales prices for existing homes will fall by 2.5 percent for all of 2007, which would be the first annual price decline on records that go back four decades.

“I think this housing downturn will be unprecedented in terms of its breadth across the country and in its severity,” Zandi said. “I don’t think we have seen anything like this, certainly since the Great Depression, and back then housing was much less of a factor in terms of the overall economy because fewer people owned their own homes.”

Sell a House - Get Sued... Angry Home Buyers Sue Everyone.....

Disgruntled home buyers suing their agent

Couple claims agent should not have let them pay high price

By DAVID STREITFELD
NEW YORK TIMES

Marty Ummel feels she paid too much for her house. So do millions of other people who bought at the peak of the housing boom.

What makes Ummel different is that she is suing her agent, saying it was all his fault.

Ummel claims that the agent hid the information that similar homes in the neighborhood were selling for less because he feared she would back out and he would lose his $30,000 commission.

Real estate lawyers and brokers say the case, which goes to trial in North County Superior Court on Monday, is likely to be the first of many in which regretful or resentful buyers seek redress from the agents who found them a home and arranged its purchase.

"When your house appreciates $100,000 in the first six months, you're not quite as concerned that maybe the valuation was $25,000 or $50,000 off," said Clifford Horner of the law firm Horner & Singer. "But when your house goes down, you ask: 'Who might have led me astray here?' "

Agents representing buyers rarely had the opportunity to make mistakes during the last real estate boom, in the late 1980s, because the job hardly existed then. For decades, residential transactions almost always involved brokers who, whatever assistance they gave the buyer, legally represented only the seller.

The long boom that began in the late 1990s put an end to that one-sided world. As prices spiked, buyer's agents and brokers became popular as sounding boards, advisers and negotiators. The National Association of Realtors estimates they are now involved in two-thirds of all residential purchases.

That makes this the first housing collapse in which large numbers of buyers had a real estate professional explicitly looking after their interests. The Ummel case poses the question: In a relationship built on trust, where promises are rarely written down and where -- as in this case -- there is no signed contract, what are the exact obligations of these representatives in guiding their clients through a sizzling market?

The defendant in the Ummel case is Mike Little, a veteran agent with ReMax Associates. He will argue that Marty Ummel, who brought the case with her husband, Vernon, is trying to shift the blame for the couple's own failures of research and due diligence.

"They simply didn't do what is expected of a knowledgeable, sophisticated buyer, and are now looking for someone other than themselves to take responsibility," Roger Holtsclaw, an agent who was hired by Little as an expert witness, said in a court deposition.

It is clear the Ummels did not rush into a decision: They dismissed one agent and canceled deals on two houses before Little found them a prospect on a cul-de-sac in a five-year-old luxury development. A deal was struck with the owner, herself a real estate agent, for $1.2 million.

Little also worked as a mortgage broker. The Ummels say he encouraged them to get their loan through him. Little ordered an appraisal of the house but did not respond to the couple's requests to see it, the suit charges.

A few days after the couple moved in, in August 2005, they got a flier on their door from another realty agent. It showed a house up the street had just sold for $105,000 less than theirs, even though it was the same size. Then they finally got their appraisal, which told them the house up the street was not only cheaper but had a pool.

When buyers have sued their agents in the past, the cases focused on problems with the property itself. After reviewing litigation records for the past five years, the National Association of Realtors could find no cases that revolved solely around the question of valuation.

The Ummels may be on the leading edge of the law, but they are unlikely to be alone for long.

"If you put someone into a property at the top of the market, you look really bad if it goes down," said K.P. Dean Harper, a real estate lawyer in Walnut Creek. "There are a lot of letters going out from lawyers to real estate agents saying, 'My client would never have purchased if you had properly evaluated the market conditions and the value of the property.' "

---Big WOW--- Do you need to mail a letter?

Michael Jackson on the verge of losing Neverland Ranch

Michael Jackson is on the verge of losing his Neverland Ranch, according to U.S reports.

The singer has reportedly still not responded to a default notice served to him by Fortress Investments 90 days ago - and it could cost him his California home.

Once Fortress Investments forecloses on Neverland, Jackson will have four weeks to pay off his debt to the firm, Roger Friedman reports on FoxNews.com.

And Friedman reports the foreclosure could come by today.

If Jacko fails to come up with the cash by the end of the month-long period, Fortress can hold an auction and sell off the ranch.

“Once Fortress announces foreclosure, Jackson will still have four weeks to cure the debt and pay off the amount due,” Friedman writes.

“At the end of that month, if nothing has happened, Fortress can conduct an auction and sell the ranch.

“Of course, it would have to find a bidder with $23 million.

“Since none has come forward so far, it’s unlikely one will at the auction.

“At that point, Fortress would take possession of Neverland.

“That seems to be the most plausible scenario.

“They would then hire a real estate broker who would fix up the property and market it to potential buyers.”

Fed cuts rates 75 basis points in emergency move

By Rex Nutting, MarketWatch

Last update: 12:12 p.m. EST Jan. 22, 2008

WASHINGTON (MarketWatch) -- Hoping to halt a market meltdown and prevent a recession, the Federal Reserve lowered its overnight lending rate by three quarters of a percentage point to 3.50% on Tuesday in a rare move between formal meetings.

The 75 basis-point surprise cut came after global financial markets sold off in dramatic fashion on Monday on fears that bad bets in credit markets could spread further and drive the U.S. economy into recession. See full story on London markets.

"The committee took this action in view of a weakening economic outlook and increasing downside risks to growth," the Federal Open Market Committee said in a statement. Read the text of the statement.

The Fed also lowered its discount rate by 75 basis points to 4%.

It was the largest cut in the federal funds rate since 1982, after the FOMC had driven rates to 20% to kill inflation.

U.S. stocks opened with huge losses. At mid-day, the Dow Jones Industrial Average was down about 150 points, or more than 1%. Treasurys rallied. See Market Snapshot.

"This move is not an instant fix," wrote Ian Shepherdson, chief U.S. economist for High Frequency Economics. "The economy is still staring recession in the face, but at least the Fed now gets it."

With the move coming just eight days before the next scheduled meeting, "there can be no doubt that the timing of this morning's move is aimed at supporting global financial markets after yesterday's global equity meltdown," wrote Joshua Shapiro, economist for MFR Inc.

Some traders said the Fed's move sniffed of panic. "I think that there's an element of thinking that, if the Fed is so worried that it is cutting rates, then that is feeding into fears that the U.S. economy is in really bad shape," said David Page, a strategist at Investec Securities in London.

"I had no idea that back-stopping speculators and hedge funds was part of their mandate," wrote Barry Ritholtz, CEO of Fusion IQ. "All the Fed did was prevent a healthy capitulation" in the stock markets.

After a conference call Monday evening among the 10 voting members of the Federal Open Market Committee, the FOMC released a statement early Tuesday saying downside risks to growth remain. One member of the committee, William Poole, president of the St. Louis Fed, voted against the move. One other, Fed Gov. Frederic Mishkin, was absent.

"While strains in short-term funding markets have eased somewhat, broader financial market conditions have continued to deteriorate and credit has tightened further for some businesses and households," the FOMC said. "Moreover, incoming information indicates a deepening of the housing contraction as well as some softening in labor markets."

"Appreciable downside risks to growth remain," the statement said. "The committee will continue to assess the effects of financial and other developments on economic prospects and will act in a timely manner as needed to address those risks."

The statement barely mentioned inflation, only saying that the FOMC expects inflation to moderate and will monitor inflation carefully.

As expected, the Bank of Canada cut its key overnight rate by quarter percentage point to 4% at its regularly scheduled meeting.

By cutting rates now instead of waiting a week, the FOMC showed that it's much more concerned about the financial markets and the economy slipping into recession than it was just a month ago, when the committee cuts its target for the federal funds rate by a quarter percentage point to 4.25%.

Over time, rate cuts should stimulate economic growth by making it cheaper to borrow money for consumption or investment. Banks typically lower their prime lending rate for their best customers in lockstep with the Fed. Many consumer and business loans, however, are based on interest rates set in competitive markets, which may or may not follow the Fed's lead.

The Fed has now lowered interest rates by 1.75 percentage points since Sept. 18.

The rate cut wasn't a complete surprise to markets that have been anticipating aggressive rate cuts from the U.S. central bank, though the timing of any inter-meeting rate cut was uncertain.

On Jan. 10, Fed Chairman Ben Bernanke had signaled the Fed's willingness to act boldly when he said it would "remain exceptionally alert and flexible" and was prepared "to take substantive additional action as needed to support growth."

"The rationale for this move today was in Mishkin's speech a week-and-half ago, which argued that at times of severe financial turmoil, policy had to be '"timely,' 'decisive,' and 'flexible,'" wrote John Ryding, chief U.S. economist for Bear Stearns.

It was the first time since Sept. 17, 2001, that the Federal Open Market Committee had changed the federal funds target rate outside of a regular meeting.

The next meeting is scheduled for Jan. 29 and 30. Markets anticipate another rate cut, possibly a half-point cut, at that time.

"The next move or moves depends on the financial markets more than the economic data," wrote Roger Kubarych, an economist for UniCredit Markets

Rex Nutting is Washington bureau chief of MarketWatch.

WaMu accused of appraisal fraud

Lawsuit claims the lender told an appraiser to offer a rosier housing outlook so risky mortgages could get approved. From Money Magazine's Stephen Gandel

By Stephen Gandel, Money Magazine senior writer

January 17 2008: 12:36 PM EST

NEW YORK (Money) -- A former real estate appraiser for Washington Mutual is suing the bank, claiming she was blacklisted last year for providing a housing market forecast that was too gloomy.

Jeniffer Wertz, who is seeking unspecified damages, says WaMu stopped accepting her appraisals in mid-2007 a month after she reported that her local housing market in California was "declining."

A pessimistic outlook makes it harder to extend outsized, risky mortgages to borrowers whose homes can't support them. But Wertz's assessment shouldn't have been controversial at the time. According to the National Association of Realtors, home prices in her hometown of Sacramento fell $9,000, or 2.5 percent, to $356,500 in the second quarter of 2007. And most economists were already characterizing the housing market as a bubble that was ready to burst.

In the lawsuit, which was filed a week ago, Wertz says she completed appraisals on two houses in May and then quickly got a call from a WaMu (WM, Fortune 500) sales manager demanding she change her outlook to "stable" so a loan could be approved.

The WaMu sales manager also demanded Wertz change her appraisal process to produce higher prices for the properties she was evaluating, according to Wertz's lawyer Stephen Danz. The higher an appraisal comes out, the more likely it is a home loan will get approved.

When Wertz refused to comply, she claims the sales manager threatened to block her from doing future appraisal work for the bank. A month later, Wertz's suit says, a third-party appraisal request assigner told her WaMu would no longer accept her work.

Wertz has her own company. She says she appraised properties for WaMu for over six years, regularly getting three orders from the bank a day. In 2006, WaMu told her she held the status of "preferred real estate vendor," because the bank had used her in the past, and her work was "proven," according to the lawsuit.

Wertz declined to directly comment for this story, referring questions to her lawyer. A WaMu spokesperson says, "We have not had the opportunity to review firsthand the allegations in Ms. Wertz's lawsuit, and in any event, we do not comment on ongoing litigation."

The suit is only the most recent claim that Washington Mutual used its status as one of the nation's largest mortgage lenders to pressure appraisers in an effort to boost its lending business.

In November, New York state Attorney General Andrew Cuomo filed a lawsuit against title company First American and its appraisal unit, eAppraiseIT. WaMu wasn't named as a defendant, but Cuomo alleged it had pressured eAppraiseIT to inflate property values.

That same month, government-sponsored mortgage companies Freddie Mac and Fannie Mae said they would name independent investigators to find out if borrowers were properly protected against the risks of inflated home appraisals, particularly on WaMu loans.

The Securities and Exchange Commission and the Office of Thrift Supervision, which is WaMu's federal regulator, also have open inquiries into whether the bank hid from investors that some of the loans it sold as mortgage-backed securities were based on inflated appraisals.

Asked about those investigations, a WaMu spokesperson says, "With regards to our appraisal practices, we have nothing new to add to our recent public statements." In the past, WaMu has said it is cooperating with the investigations and that there was no systematic effort by the bank to inflate home appraisals.

Other lenders have come under fire for the way they deal with appraisers. In 2006, Ameriquest agreed to pay $325 million to settle charges brought by several state attorneys general that it had among other things pressured appraisers into boosting home values. And last year, Ohio's attorney general sued 10 local mortgage and brokerage firms alleging they regularly asked appraisers to guarantee certain values before they would be hired.

The WaMu lawsuit and other inquiries are shedding light on how many big-bank loan officers during the housing boom got around a long-standing check on making ill-advised or fraudulent loans.

Mortgage investors generally require that banks get an appraisal before they make a loan. Appraisals are supposed to insure that banks don't lend more than a house is worth. A borrower who defaults because of inflated numbers could mean losses for the lender and mortgage investors who buy the loans in mortgage-backed securities.

But appraisers are often hired by mortgage-loan officers whose pay is based on the number and size of loans they get approved. When housing prices decline, lenders may resort to pressure in order to get the highest property appraisals possible.

"It's not just Washington Mutual. Appraisal pressure is an industry-wide epidemic," says John Taylor, president of the National Community Reinvestment Coalition, which has studied the problem. "And it is one of the major contributors to the current foreclosure crisis."

"This case is just another good example of one of the biggest dirty little secrets of the whole mortgage industry," says Pamela Crowley, who runs industry watchdog, mortgagefraudwatchlist.org. "The housing market is falling apart, and foreclosures are soaring because the properties that these banks made mortgages on are not worth what they said they were worth," she says.

Crowley, an appraiser herself, says she is unable to get work from banks because she is unwilling to push values. "There is no doubt in my mind that the lenders knew exactly what there were doing."

In the past year, a number of states, including California, where Wertz is based, have passed laws to prevent appraisal pressure.

California home prices drop nearly 15 percent

Plummeting median cost in December during a 20-year record sales falloff

From the Associated Press
The median price of a home in California tumbled nearly 15 percent amid a steep drop in sales in December, a real estate research firm said Thursday.

The median home price hit $402,000 last month, down 14.8 percent from $472,000 in the year-ago period, according to DataQuick Information Systems.

The state’s median home price peaked last spring at $484,000.

Meanwhile, home sales in the state, one of the hardest hit in the nation by the mortgage crisis, plummeted 41.4 percent to 25,585 compared to December 2006.

It was the lowest sales total for any December in more than 20 years, the firm said.

December home sales were essentially flat from November.

The state has seen sales decline year-over-year for 27 straight months as the once-booming housing market tanked and a credit crisis forced mortgage lenders to scale back so-called jumbo mortgages that exceed $417,000.

That’s helped skew the median home price downward because fewer jumbo loans have translated into fewer high-end homes being sold.

The percentage of homes purchased with jumbo loans last month fell nearly 70 percent from December 2006, DataQuick said.

Sales and price declines were seen throughout the state’s most-populous counties.

In a nine-county region around San Francisco Bay, sales fell to 5,065, down 39.5 percent from December 2006 and off 1.2 percent from November, the firm said.

Sales in the region that includes Alameda, Contra Costa, Marin, Napa, Santa Clara, San Francisco, San Mateo, Solano and Sonoma counties have dropped year-over-year for the past 35 months.

Prior to last month, the slowest December on record was 1990, when 5,458 homes were sold. DataQuick has been tracking sales since 1988.

Meanwhile, the median price of a home in the region slipped to $587,500, a 4.9 percent drop from December 2006 and a 6.6 percent decline from November’s median, DataQuick said.

Sonoma County posted the sharpest decline, plummeting 21.9 percent to $410,000 from December 2006.

The median price in Solano County fell 15.8 percent to $370,000, while Contra Costa County saw a drop of 11.3 percent to $505,000.

The median price for a home in San Francisco County declined 1.9 percent to $731,000.

Prices in other counties dipped by single-digit percentages or stayed flat.

Earlier this week, DataQuick said the average median price in Los Angeles, Orange, San Diego, Ventura, Riverside and San Bernardino counties hit $425,000 last month, the lowest level since February 2005, when the figure was $420,000.

Home sales throughout those six counties plunged 45.3 percent to 13,240 from a year ago.

Soft-Market Secrets To Selling A High-End Home

Matt Woolsey, 01.03.08, 6:00 AM ET

Even Martha Stewart might have a hard time selling a mansion in this market.

Sales of new homes dropped last month to their lowest level in more than 12 years. Mortgage applications have fallen to their lowest level in a year. Bidding wars are pretty much done. Homes in great neighborhoods boasting stellar architecture and well-landscaped gardens are languishing. During the boom, such properties practically sold themselves. Now, homeowners are figuring out what strategies will help unload a quality piece of real estate.

The top tip? Proper pricing, say economists, brokers, Auctioneers and home sellers.

A mispriced home sits on the market longer, and eventually sells for less than a similar, correctly priced home. So found John R. Knight, a professor at University of the Pacific. In his 2002 study, "Listing Price, Time on Market, and Ultimate Selling Price," he examined 3,490 Calif., homes and found that sellers who didn't reduce their prices sold for 97% of the initial list price. Homes with a price reduction sold for 88% of initial list price.

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Though Northern California isn't rife with multimillion-dollar homes, the same theory holds for blue collar properties. Slightly lowballing a starting price upfront often results in a higher sales price, because it generates greater interest and more offers. It is also less likely to languish; when this happens, buyers wait, hoping its price will go further south.

"In a down market, that's a good way to go for houses that, in an up market, would have multiple offers," says Courtney Charney, a broker with Alain Pinel Realtors in Atherton, Calif. "But I would not advise that on houses that you know will sit, whether because of location, or something odd about the floor plan or some other set of issues."

Alluring Add-Ons
Generating interest through luxurious throw-ins is another effective strategy in the high-end market, especially if you're selling a prime property, as opposed to a McMansion or median-range home. Increasingly, sellers are including cars, stereo systems, gym memberships and other high-end perks as signing bonuses.

While these incentives might not be enough to seal a deal, they can serve to lure buyers who might have otherwise passed by a property.

"The price of a stereo is almost irrelevant--and so is a car, when the apartment price is several million dollars," says Harrio DiOrio, a broker with Prudential Douglas Elliman in New York City. "I don't think anyone would buy an expensive piece of property just to get a free stereo system, but the lure of the price may be the catalyst for the sale."

Online Option
Using an Internet Brokerage, or going the "for sale by owner" route are two tactics that can ease the pain of a low listing price by cutting out the broker's commission. The National Association of Realtors (NAR) estimates that three-quarters of home buyers start their searches online, and internet brokerages like Redfin take commissions that are 50% to 75% less than traditional brick-and-mortar outfits. In addition, selling a home online comes with the benefit of Web analytics. For example, Redfin notes that homes debuting on a Friday get 7.7% more viewers their first week than those homes that debut on a Thursday. Online services can also track which Web sites, like Craigslist.org, are diving web traffic to your listing.

The problem? It remains to be seen whether or not Internet brokerages can hold their own when prices are falling, especially in the high end of the market.

Internet brokerages also don't provide traditional marketing services. This might be one of the best reasons to hire a broker; he or she can help combat the present negative psychology in real estate in a way Internet brokers can't. There isn't a "national" real estate market, especially when it comes to high-end properties, but the national trends have made potential buyers wary, often requiring more aggressive marketing on behalf of the seller.

Charney says negative perceptions keep buyers on the sidelines, especially in places where the cost of entry into the marketplace is high.

"We're up this year," she says, "but people are always surprised to see what homes in their neighborhoods are selling and for what price." She adds that in the high-end market, "it's like Chicken Little thinking the sky is falling."

There are scores of strategies to sell a million-dollar-plus home in a down market. The one that works best for you depends on the quality of the home, the particular market and neighborhood you're selling in and the condition of your home.

The most important thing, however, is that any strategy you choose must be implemented quickly--before you list your home.

That's because, "if prices are headed lower," says Knight, "the importance of selling quickly is amplified."

Foreclosures jump in California - Again

DISCOVERY BAY

January 15, 2008 11:39am

• December sees 45.4 percent jump in notices of default over November

• ‘We have yet to see the real impact from the ARM resets’

The pace of home foreclosures in the Central Valley and across most of California is quickening, a foreclosure information company says Tuesday.

There was a “gargantuan jump” in Notice of Default filings in December and “we’re already observing a record pace of auction sales in January,” says ForeclosureRadar of Discovery Bay.

“We are just now starting to see the impact of the credit crunch, and have yet to see the real impact of ARM resets,” the company says.

(Sean O'Toole, founder of ForeclosureRadar, talks about the new figures in a CVBT Audio Interview. Please click on the link below to listen or to download the MP3 audio file.)

December 2007 saw a 45.4 percent jump in the notices of default (NOD), the initial notice that a homeowner receives once they fail to pay their mortgage, over November, ForeclosureRadar says.

The number of NODs in December was 32,948 compared to 22,665 in November, it says.

December auction sales increased by 4.1 percent from November, to a total of 12,783 properties with a loan value of $5.18 billion.

Additionally, a total of 9,001 properties were sold at auction in just the first eight business days of January, with daily average sales 76 percent higher than in December.

For the Central Valley, ForeclosureRadar’s figures for December’s NODs and sales are:

• Kern County: 1,039 NOD; 396 sales

• Tulare County: 319 NODs; 92 sales

• Kings County: 47 NODs; 19 sales

• Fresno County: 758 NODs; 299 sales

• Madera County: 168 NODs; 56 sales

• Merced County: 373 NODs; 215 sales

• Stanislaus County: 1,033 NODs; 381 sales

• San Joaquin County: 1,402 NODs; 542 sales

• Sacramento County: 2,145 NODs; 972 sales

• Yolo County: 130 NODs; 59 sales

• Butte County: 68 NODs; 31 sales

“The impact of the credit crisis that began in August is now clearly starting to show its impact,” says ForeclosureRadar founder Sean O'Toole. “Many analysts fail to understand the delays inherent in the foreclosure process, and I believe we have yet to see the real impact from the ARM resets that began in earnest last October.”

The majority of loans going to auction continue to have been originally made in 2006 (52 percent), 2005 (34 percent), 2007 (8 percent) and 2004 (5.4 percent), the company says.

ForeclosureRadar says it is the only website that tracks every California foreclosure with daily updates on foreclosure auctions.

Record California Foreclosure Activity

CA.--Lenders started formal foreclosure proceedings on a record number of California homeowners last quarter, the result of declining home prices, sluggish sales and subprime mortgage distress, a real estate information service reported.

A total of 72,571 Notices of Default (NoDs) were filed during the July-to-September period, up 34.5 percent from 53,943 during the previous quarter, and up 166.6 percent from 27,218 in third-quarter 2006, according to DataQuick Information Systems of La Jolla.

Last quarter's default level passed the previous peak of 61,541 reached in first-quarter 1996. A low of 12,417 was reached in third-quarter 2004. An average of 34,781 NoDs have been filed quarterly since 1992, when DataQuick's NoD statistics begin.

"We know now, in emerging detail, that a lot of these loans shouldn't have been made. The issue is whether the real estate market and the economy will digest these over the next year or two, or if housing market distress will bring the economy to its knees. Right now, most California neighborhoods do not have much of a foreclosure problem. But where there is a problem, it's getting nasty," said Marshall Prentice, DataQuick's president.

Half the state's default activity is concentrated in 293 zip codes, almost all of which are in the Inland Empire and Central Valley. Grouped together, those zip codes saw year-over-year home price increases that reached 34.0 percent in first quarter 2005. Prices peaked in third-quarter 2006 at $399,000. Last quarter's median of $352,250 is 11.7 percent off that peak.

In the 1,172 other zip codes, appreciation peaked in second-quarter 2004 at 25.0 percent. Last quarter's median of $575,000 was 2.5 percent below the prior quarter's peak of $590,000.

Most of the loans that went into default last quarter were originated between July 2005 and September 2006. The median age was 18 months. Loan originations peaked in August 2005. The use of adjustable-rate mortgages for primary purchase home loans peaked at 77.8% in May 2005 and has since fallen.

Because a residence may be financed with multiple loans, last quarter's 72,751 default notices were recorded on 68,746 different residences.

On primary mortgages statewide, homeowners were a median five months behind on their payments when the lender started the default process. The borrowers owed a median $10,914 on a median $344,000 mortgage.

On lines of credit, homeowners were a median eight months behind on their payments. Borrowers owed a median $3,355 on a median $66,351 credit line. However the amount of the credit line that was actually in use cannot be determined from public records.

DataQuick, a subsidiary of Vancouver-based MacDonald Dettwiler and Associates, monitors real estate activity nationwide and provides information to consumers, educational institutions, public agencies, lending institutions, title companies and industry analysts. DataQuick provides online access to property information, including default notices. Notices of Default are recorded at county recorders offices and mark the first step of the formal foreclosure process.

The default numbers were a record in 39 of the state's 58 counties. In Los Angeles County it was 63.3 percent of the first-quarter 1996 peak.

On a loan-by-loan basis, mortgages were least likely to go into default in San Francisco, Marin and San Mateo counties. The likelihood was highest in Merced, San Joaquin and Riverside counties.

While numbers at the zip code level can fluctuate severely, among the zips with the biggest foreclosure problem are 95330 Lathrop in San Joaquin County, 92571 Perris in Riverside County and 95832 Sacramento.

Of the homeowners in default, just under half, 45.9 percent, emerge from the foreclosure process by bringing their payments current, refinancing, or selling the home and paying off what they owe. A year ago it was 80.9 percent. The increased portion of homes lost to foreclosure reflects the slow real estate market, as well as the number of homes bought during the height of the market with multiple-loan financing, which makes 'work-outs' difficult.

Trustees Deeds recorded, or the actual loss of a home to foreclosure, totaled 24,209 during the third quarter. That is the highest number in DataQuick's statistics, which go back to 1988. Last quarter was up 38.7 percent from 17,458 for the previous quarter, and up 604.8 percent from 3,435 for last year's third quarter. The peak of the prior foreclosure cycle was 15,418 in third-quarter 1996, while the low was 637 in the second quarter of 2005.

There are 8.4 million houses and condos in the state.

Grouped together, foreclosure properties in 293 hardest-hit zip codes resold for 11 percent less than non-foreclosure homes. In the rest of the state foreclosure resales were near or at the price levels of other sold properties, DataQuick reported.

Notices of Default
houses and condos

County/Region	2006Q3	2007Q3	%Chg
Los Angeles	5,565	13,583	144.1%
Orange	1,500	3,882	158.8%
San Diego	2,355	5,673	140.9%
Riverside	3,040	9,250	204.3%
San Bernardino	2,548	7,038	176.2%
Ventura	578	1,377	138.2%
SoCal*	15,676	41,062	161.9%
San Francisco	149	252	69.1%
Alameda	803	2,126	164.8%
Contra Costa	1,012	3,216	217.8%
Santa Clara	670	1,655	147.0%
San Mateo	290	581	100.3%
Marin	89	172	93.3%
Solano	510	1,513	196.7%
Sonoma	231	749	224.2%
Napa	43	163	279.1%
Bay Area	3,797	10,427	174.6%
Santa Cruz	103	267	159.2%
Santa Barbara	188	598	218.1%
San Luis Obispo	94	249	164.9%
Monterey	202	751	271.8%
Coast	587	1,865	217.7%
Sacramento	1,761	4,947	180.9%
San Joaquin	898	2,961	229.7%
Placer	443	728	64.3%
Kern	741	2,196	196.4%
Fresno	789	1,807	129.0%
Madera	106	320	201.9%
Merced	282	1,076	281.6%
Tulare	268	595	122.0%
Yolo	101	303	200.0%
El Dorado	120	278	131.7%
Stanislaus	631	1,909	202.5%
Kings	46	108	134.8%
San Benito	63	178	182.5%
Yuba	66	227	243.9%
Colusa	18	54	200.0%
Sutter	77	155	101.3%
Central Valley	6,410	17,842	178.3%
Mountains*	185	417	125.4%
North California*	563	958	70.2%
Statewide	27,218	72,571	166.6%
* includes additional counties

Recorded Trustees Deeds
houses and condos

County/Region	2006Q3	2007Q3	%Chg
LOS ANGELES	535	3,627	577.9%
ORANGE	179	1,280	615.1%
SAN DIEGO	453	2,157	376.2%
RIVERSIDE	478	3,462	624.3%
SAN BERNARDINO	232	2,255	872.0%
VENTURA	77	454	489.6%
SOCAL TOTAL*	1,960	13,314	579.3%
SAN FRANCISCO	22	66	200.0%
ALAMEDA	115	674	486.1%
CONTRA COSTA	119	1,159	873.9%
SANTA CLARA	51	410	703.9%
SAN MATEO	37	155	318.9%
MARIN	4	41	925.0%
SOLANO	63	495	685.7%
SONOMA	33	201	509.1%
NAPA	5	41	720.0%
BAY AREA TOTAL	449	3,242	622.0%
SANTA CRUZ	17	71	317.6%
SANTA BARBARA	29	211	627.6%
SAN LUIS OBISPO	21	75	257.1%
MONTEREY	20	266	1230.0%
COAST TOTAL	87	623	616.1%
SACRAMENTO	343	2,065	502.0%
SAN JOAQUIN	119	1,136	854.6%
PLACER	45	294	553.3%
KERN	66	729	1004.5%
FRESNO	78	483	519.2%
MADERA	9	110	1122.2%
MERCED	30	423	1310.0%
TULARE	21	167	695.2%
YOLO	12	96	700.0%
EL DORADO	13	110	746.2%
STANISLAUS	73	752	930.1%
KINGS	5	18	260.0%
SAN BENITO	5	62	1140.0%
YUBA	16	108	575.0%
SUTTER	12	58	383.3%
CENTRAL VALLEY TOTAL*	852	6,630	678.2%
MOUNTAINS*	19	113	494.7%
NORTH CALIF*	68	287	322.1%
STATEWIDE	3,435	24,209	604.8%
* includes additional counties

Source: DataQuick Information Systems

Open House: Auctions become popular spot for home sellers and buyers

Auctions are becoming an increasingly popular method of purchasing homes in today's sluggish marketplace. This immediate-sale technique is very appealing at a time when selling homes the conventional way is slow and the number of inventoried homes is at a record high level. The auctioning of real properties is the fastest growing auction specialty, according to the National Auctioneers Association. Over the past five years, residential real estate sold at auctions grew by 39 percent, while commercial and industrial real estate auctions rose 27 percent. It wasn't long ago that residential real estate auctions were only used to sell foreclosed homes, fixer-uppers and other hard-to-sell properties. Today, all types of properties are sold at auctions, from small fixer-uppers to large luxury homes. Many newly constructed homes are now being auctioned, including single-family residences, condos and townhomes.
"There are many benefits to buying a home at auction," said Realtor Val Gehringer. "Homeowners are committed to selling so there aren't long negotiation periods, and buyers can often close on their new home in fewer than 30 days. Auctions also attract qualified buyers since most auction houses require that potential buyers have financing in place and present written loan approval before the day of the auction. And they usually require nonrefundable deposits, typically 10 percent of the home's value." There are three primary types of real property auctions. The absolute auction is where the property is sold to the highest bidder regardless of the price. The minimum bid auction is where bids are accepted at or above an advertised minimum price. The reserve auction is where the seller has the right to accept or reject any offer that falls below a confidential reserve price. Prospective buyers usually have ample opportunity to inspect the property by appointment or at an open house prior to the auction. Typically, the auctioning of a home takes less than 10 minutes. How's that for speedy marketing? Most serious bidders hold off for a few minutes before bidding, waiting to see what others bid.
If you or your broker are interested in auctioning your home, take time to attend several auctions first to learn about the process and what it takes to produce a successful auction.
Q: When are home prices expected to stabilize?
A: Mortgage interest rates are rising and sales of existing homes are now showing signs of stabilizing, setting the scene for more "fence-sitting" consumers to take action with their plans to purchase and finance a home, or refinance an existing mortgage before the rates rise to higher levels.
"Stronger consumer spending and an increase in the core price deflater is causing long-term bond yields to inch up, with mortgage rates following," said Frank Northaft, chief economist for Freddie Mac, a major government-sponsored buyer of mortgages. "However, recent data releases suggest there might be further weakness in the housing market and that could allow interest rates to drift back down from time to time."
Existing home sales rose in November, indicating a stabilization in housing in the wake of mortgage disruptions in 2007, according to a report from the National Association of Realtors. Total existing-home sales - including single-family homes, townhomes and condos - rose 0.4 percent to a seasonally adjusted annual rate of 5 million units in November.
"Existing home sales should continue to hover in a narrow range, and that's good news because it will be a further sign that the housing market is stabilizing," said Lawrence Yun, chief economist for the National Association of Realtors.
Q: What is the increasing number of home raffling programs all about?
A: In addition to the increasing number of home auctions, raffling of residential properties is also on the increase. Most home raffling programs are produced as a fundraising project for a nonprofit organization.
An example of a current project is the raffling of a luxury home in the popular Channel Islands Harbor area in seaside Oxnard, Calif. The project was launched by the Boys and Girls Clubs of Greater Oxnard and Port Hueneme.
Raffle tickets are being sold at $150 each. The home, or $1 million in cash, will go to the owner of the winning raffle ticket - scheduled to be drawn on March 31. A total of 18,000 tickets are expected to be sold.
"When people buy these tickets, they are helping a great organization and our greatest asset, children," said Tim Blaylock, chief professional officer of the Boys and Girls Club.
This is the second year the club has sponsored such a home raffling project. Proceeds support the club's goal of expanding services to more children, age 6 to 18. This year's project is named the "House of Ten Thousand Dreams Home Raffle." For more information, phone 866-720-2582.
Q: What's the deal with the new Mortgage Licensing System?
A. A new Nationwide Mortgage Licensing System (NMLS) was launched on Jan. 2. It's an Internet-based system that serves as the foundation of a coordinated mortgage regulatory framework. The new system was implemented by the Conference of State Bank Supervisors and the American Association of Residential Mortgage Regulators.
The system is one part of a multifaceted plan to improve regulation and bring about greater uniformity across state lines in mortgage supervision. These efforts include coordinated supervision, improved regulatory practices and consistent standards for testing and training for mortgage originators. Many states have recently changed or are in the process of reworking their laws and regulations.

If you would like more information about selling a home at Auction please Contact Stephen Ostrowski of Pacific Auction Exchange, 530-230-4939