NEW YORK (CNNMoney.com) -- Mortgage rates continued to decline this week, plunging to the lowest level in decades, according to surveys from Freddie Mac and Bankrate.
Freddie Mac's weekly report said the 30-year fixed rate slipped to 4.44% for the week ended Thursday, the lowest since the government-backed lender began tracking the rate in 1971. Last week's rates stood at 4.49%, and a year ago it was at 5.29%.
The 15-year fixed rate fell to 3.92% this week, the lowest since Freddie Mac began tracking it 1991, down from 3.95% last week and from 4.68% a year ago.
Adjustable-rate mortgages also declined, with the 5-year rate falling to 3.56% this week, the lowest since 2005 when the lender began tracking it.
Mortgage tracker Bankrate.com, which surveys large lenders across the country, said the average 30-year fixed loan sank to a record low for the fourth consecutive week, falling to 4.57% from 4.66% the previous week.
The 15-year fixed rate, which is a popular option for refinancing, also fell to the lowest level in the history of Bankrate's 25-year old survey, dipping to 4.06%, from 4.11% the week before.
While the 1-year adjustable-rate mortgage held steady at 4.8% for a fourth week, the 5-year adjustable rate mortgage dropped to a record low of 3.92% from 3.95% the previous week.
"Low rates are helping to heal many battered local housing markets by increasing home-purchase activity, said Frank Nothaft, chief economist at Freddie Mac.
Mortgage rate applications inched up a modest 0.6% during the week, according to the Mortgage Bankers Association. Applications for purchase rose 0.3% while refinance applications increased 0.6%
Monday, August 16, 2010
Foreclosures rise in July
NEW YORK (CNNMoney.com) -- The latest foreclosure numbers carried a mixed message: They're up 3.6% from the month before but down 9.7% from 12 months earlier.
In July there were more than 325,000 foreclosure filings -- including notices of default, auctions notices and bank repossessions. That is the 17th month in a row total filings exceeded 300,000, said RealtyTrac's CEO, James Saccacio.
Declines in new default notices, which were down on a year-over-year basis for the sixth straight month in July," he said, "have been offset by near-record levels of bank repossessions, which increased on a year-over-year basis for the eighth straight month."
A near record number of people lost their homes to mortgage payment problems in July. Lender repossessions amounted to 92,858 homes, the second highest monthly total ever behind the 93,777 recorded this May.
Repossession is the final stage in the foreclosure process. People can stay in thier homes until the point that the bank takes posession of the home or sells it at auction.
In July there were more than 325,000 foreclosure filings -- including notices of default, auctions notices and bank repossessions. That is the 17th month in a row total filings exceeded 300,000, said RealtyTrac's CEO, James Saccacio.
Declines in new default notices, which were down on a year-over-year basis for the sixth straight month in July," he said, "have been offset by near-record levels of bank repossessions, which increased on a year-over-year basis for the eighth straight month."
A near record number of people lost their homes to mortgage payment problems in July. Lender repossessions amounted to 92,858 homes, the second highest monthly total ever behind the 93,777 recorded this May.
Repossession is the final stage in the foreclosure process. People can stay in thier homes until the point that the bank takes posession of the home or sells it at auction.
Monday, May 3, 2010
More Washington state borrowers get trapped in foreclosure
Three years after the housing crisis struck Washington state, the economy is showing signs of emerging from recession. But when it comes to foreclosures, things are only getting worse.
Today, more local homeowners face losing their houses. And now the process of getting out of foreclosure is getting harder, trapping borrowers and lenders alike.
To provide a snapshot of the problem, the Puget Sound Business Journal updated its tracking of a week’s worth of King County homeowners who received foreclosure notices in December 2008.
More than a year later, two-thirds of those 172 households remain in limbo. These 116 homes either have been taken back by the bank and not sold, had their sales canceled or have repeatedly been scheduled for auctions at which they failed to sell.
Too often loan modifications also fail, leaving banks and borrowers with few options for resolving these cases.
The rise in foreclosures and the blocked exit means a staggering number of properties are building up in the system. Currently, about 400 homes are scheduled for auction each week in King County, even though only a fraction of those actually sell. By June the number is expected to rise to 800, according to a forecast by Vestus LLC, a Kirkland firm that specializes in buying foreclosed homes at auction. That is many times more than before the crisis. During the first week of June 2007, for example, just 43 properties came to auction in the county.
As they hang in the system, these unresolved cases weigh on banks, homeowners and the economy. They push down home prices, slow the recovery in home sales and limit the availability of new loans for home buyers and local businesses. Trapped properties also undermine the stability of some banks by eroding their capital ratios. They also give rise to rescue scams and other frauds. Only three people staff the state-sanctioned hotline to counsel those in foreclosure.
The Puget Sound region is one of only three areas in the country where the number of foreclosure-related “distressed sales” is still rising, according to CoreLogic, a research firm. Even foreclosure hot spots such as California, Nevada and Arizona are seeing the rate of foreclosure sales decline, compared with a year ago, while in Seattle, Houston and Orlando, Fla., those rates are still inching higher.
“Over the course of the last year, Washington has moved from one of the states with the lowest rates of foreclosures and serious delinquency rates to very much in the middle of the pack,” said Glenn Crellin, director of the Washington Center for Real Estate Research at Washington State University in Pullman.
“We’re not among the worst, but we’ve deteriorated markedly over the course of a year.”
Distressed sales also have a powerful impact on prices. In the Seattle-Bellevue-Everett area, home prices fell nearly 8 percent in February, compared with a year ago, CoreLogic said.
That was a bigger price drop than in January. And more than 1.5 percentage points of the drop was due to the effect of distressed sales, according to CoreLogic. The trapped properties are concentrated in the cities of Maple Valley, Federal Way, Tukwila and Kirkland.
What’s more, Seattle is the only top-15 metropolitan market where price-cutting on homes — listing a home at one price, then reducing it when it fails to sell — is on the rise, according to Trulia, a research firm. Not only are there more price cuts happening (up 15 percent compared with last year) but the cuts are deeper, an average 10 percent cut so far in 2010, up from 8 percent last year.
Trulia warned that the end of the federal home buyer credit, coupled with the rise in interest rates and foreclosures, will stress the national housing market even more.
“The next few months will be very telling for whether the U.S. housing market can be self-sustaining over the longer-term,” Trulia CEO Peter Flint said in a statement.
And still the foreclosures keep coming. In some cases, the homeowners become squatters in their own houses.
Cheryl Harden hasn’t made a mortgage payment in two years. But she continues to live in her three-bedroom house on a cul-de-sac in the small city of Milton, which is east of Tacoma and partly in King County.
She bought the house in 2007 and moved in with her kids. She financed the $318,000 property with a subprime, adjustable-rate mortgage from an Idaho-based company called Subprime Lenders, property records show. The mortgage carried an interest rate of 10.5 percent, which adjusted to 12 percent in 2009.
By April 2008, Harden, 34, had fallen behind on her monthly mortgage payments of $2,800. Her roommate had moved out, leaving her without a second source of income. Then she lost her job.
By now, Harden has racked up more than $70,000 in back payments, interest and late charges, according to property records.
In the spring of 2009, after receiving a notice of trustee’s sale — the first step toward a foreclosure auction — Harden said she began to negotiate a loan modification with Chase Home Finance, a division of JPMorgan Chase.
She said she faxed the bank nearly 80 pages of documents explaining her situation.
Several months later, she said, the bank got back to her with an answer: No modification.
“I was basically told that it wasn’t a sound business decision,” Harden said.
A spokeswoman for Chase said Harden stopped paying in April 2008 and never filed paperwork for a loan modification.
Harden, like many homeowners nationwide, appears to have been caught in a behind-the-scenes struggle between the company that handled her mortgage and the group of investors who actually own it. Unbeknownst to Harden, her mortgage had been turned into a security administered by U.S. Bancorp of Minnesota.
She wasn’t alone. One in three homeowners tracked by the Business Journal, or a total of 55, have home loans that were packaged into mortgage-backed securities.
That makes receiving a loan modification all the more difficult, because many security contracts either prohibit loan modifications or require the servicer to contact the investor who purchased the security before they can make a loan modification, said Mike Gamsky, an attorney with Seattle-based law firm Foster Pepper PLLC.
“It’s a real mess,” Gamsky said. “The number of loans being successfully modified given the number of loans in foreclosure is just a fraction.”
Loans that have been bundled into securities can put the bank into a Catch-22 situation. On the one hand, it can’t legally break a contract with a mortgage-backed security investor. On the other hand, mounting federal pressure on banks to modify loans turns such decisions into a political question.
“The servicers don’t want the picket lines and the bad publicity and the reputation risk of being this evil foreclosing entity,” Gamsky said. “At the same time, they’re faced with all kinds of contractual restrictions.”
Harden was a subprime borrower, one of the millions who’ve captured headlines for the past two years.
But today, foreclosure is affecting even solid, creditworthy borrowers who made substantial down payments and hold prime loans. This new class of borrowers, who never thought they would have trouble making payments, has been hit by stubbornly high unemployment that has cost them their jobs and their ability to keep current on their mortgages.
“Most of the problems in the early days of the crisis were focused on the lower half of the market,” said Crellin, of the Washington Center for Real Estate Research.“Now we’re facing problems that are spreading up the price spectrum.”
This influx of prime borrowers to the foreclosure world has added to the backlog of houses waiting to be sold.
Even though the 172 homeowners tracked by the Business Journal received foreclosure notices more than a year ago, only about one-third have managed to sell their houses, either through an auction or a private “short sale,” where the property is sold for less than the amount owed.
Short sales are difficult in situations where buyers took out two loans — a so-called “80/20,” in which a main mortgage loan covered 80 percent of home cost and a second loan covered the remainder.
“These were fairly popular in Washington,” said Fred Corbit, senior attorney for the Northwest Justice Project, in Seattle, who represents financially distressed homeowners. “I think it will be a big deal — a substantial number of these loans were 80/20 loans.”
With the drop in housing prices, a distressed sale likely won’t pay back both loans. The second lender may agree to a sale only if the borrower is saddled with repaying the second loan after losing the home.
More than half of the 172 homes the Journal tracked — 52 percent — are caught in the foreclosure spin cycle.
The government has focused on loan modifications as a way to resolve these cases. The Home Affordable Modification Program (HAMP) is designed to help spur banks to modify loans. But the long-term track record for these modifications is poor. More than half of all modified loans redefault within six months, despite measures such as income verification and trial modifications. That puts them right back into foreclosure.
And few of those who apply get lasting help. Of the 20,000 Washington residents who have participated in the federal program, only one out of four have obtained permanent modifications. The rest are still in the initial trial phase to determine whether they can make their mortgage payments at the lower rate. The median savings for participants is $512 a month.
The best candidates for loan modification are homeowners with a history of making their payments who are struggling with temporary financial difficulties, said Ed Hedlund, executive vice president and group manager for consumer and mortgage lending at Washington Federal, the state’s largest bank.
“We will modify loans when it’s a short-term issue and we think people can recover and get back to affording their homes, such as medical issues or a job loss,” Hedlund said. “It’s the people who really want to stay in their home and will address their spending habits.”
The bank will agree to a short sale in certain circumstances where the house is worth substantially less than the mortgage debt, he said. The bank may also forgive a portion of the loan, depending on the circumstances.
“It definitely comes out of profits,” Hedlund said. And that means the bank has less money to lend to other borrowers, such as small businesses that may need money to begin expanding their operations again, he said.
In the summer of 2009, Harden filed suit against Chase and the other financial institutions involved with her mortgage, trying to block their efforts to sell the house. But the suit was dismissed, according to court records.
“I thought I had a house,” Harden said. “I was happy, my children were happy and then the bank tells me, ‘I’m sorry, we can’t work with you.’ It’s ludicrous.”
Chase said it has made 110,175 permanent loan modifications across the country since the beginning of 2009. Another 731,349 have been offered to homeowners, Chase said.
Without a loan modification, Harden’s house remains caught in the system.
Recently, she received a letter saying the house would be put up for auction at 10 a.m. on July 2.
Read more: More Washington state borrowers get trapped in foreclosure - Puget Sound Business Journal (Seattle):
Today, more local homeowners face losing their houses. And now the process of getting out of foreclosure is getting harder, trapping borrowers and lenders alike.
To provide a snapshot of the problem, the Puget Sound Business Journal updated its tracking of a week’s worth of King County homeowners who received foreclosure notices in December 2008.
More than a year later, two-thirds of those 172 households remain in limbo. These 116 homes either have been taken back by the bank and not sold, had their sales canceled or have repeatedly been scheduled for auctions at which they failed to sell.
Too often loan modifications also fail, leaving banks and borrowers with few options for resolving these cases.
The rise in foreclosures and the blocked exit means a staggering number of properties are building up in the system. Currently, about 400 homes are scheduled for auction each week in King County, even though only a fraction of those actually sell. By June the number is expected to rise to 800, according to a forecast by Vestus LLC, a Kirkland firm that specializes in buying foreclosed homes at auction. That is many times more than before the crisis. During the first week of June 2007, for example, just 43 properties came to auction in the county.
As they hang in the system, these unresolved cases weigh on banks, homeowners and the economy. They push down home prices, slow the recovery in home sales and limit the availability of new loans for home buyers and local businesses. Trapped properties also undermine the stability of some banks by eroding their capital ratios. They also give rise to rescue scams and other frauds. Only three people staff the state-sanctioned hotline to counsel those in foreclosure.
The Puget Sound region is one of only three areas in the country where the number of foreclosure-related “distressed sales” is still rising, according to CoreLogic, a research firm. Even foreclosure hot spots such as California, Nevada and Arizona are seeing the rate of foreclosure sales decline, compared with a year ago, while in Seattle, Houston and Orlando, Fla., those rates are still inching higher.
“Over the course of the last year, Washington has moved from one of the states with the lowest rates of foreclosures and serious delinquency rates to very much in the middle of the pack,” said Glenn Crellin, director of the Washington Center for Real Estate Research at Washington State University in Pullman.
“We’re not among the worst, but we’ve deteriorated markedly over the course of a year.”
Distressed sales also have a powerful impact on prices. In the Seattle-Bellevue-Everett area, home prices fell nearly 8 percent in February, compared with a year ago, CoreLogic said.
That was a bigger price drop than in January. And more than 1.5 percentage points of the drop was due to the effect of distressed sales, according to CoreLogic. The trapped properties are concentrated in the cities of Maple Valley, Federal Way, Tukwila and Kirkland.
What’s more, Seattle is the only top-15 metropolitan market where price-cutting on homes — listing a home at one price, then reducing it when it fails to sell — is on the rise, according to Trulia, a research firm. Not only are there more price cuts happening (up 15 percent compared with last year) but the cuts are deeper, an average 10 percent cut so far in 2010, up from 8 percent last year.
Trulia warned that the end of the federal home buyer credit, coupled with the rise in interest rates and foreclosures, will stress the national housing market even more.
“The next few months will be very telling for whether the U.S. housing market can be self-sustaining over the longer-term,” Trulia CEO Peter Flint said in a statement.
And still the foreclosures keep coming. In some cases, the homeowners become squatters in their own houses.
Cheryl Harden hasn’t made a mortgage payment in two years. But she continues to live in her three-bedroom house on a cul-de-sac in the small city of Milton, which is east of Tacoma and partly in King County.
She bought the house in 2007 and moved in with her kids. She financed the $318,000 property with a subprime, adjustable-rate mortgage from an Idaho-based company called Subprime Lenders, property records show. The mortgage carried an interest rate of 10.5 percent, which adjusted to 12 percent in 2009.
By April 2008, Harden, 34, had fallen behind on her monthly mortgage payments of $2,800. Her roommate had moved out, leaving her without a second source of income. Then she lost her job.
By now, Harden has racked up more than $70,000 in back payments, interest and late charges, according to property records.
In the spring of 2009, after receiving a notice of trustee’s sale — the first step toward a foreclosure auction — Harden said she began to negotiate a loan modification with Chase Home Finance, a division of JPMorgan Chase.
She said she faxed the bank nearly 80 pages of documents explaining her situation.
Several months later, she said, the bank got back to her with an answer: No modification.
“I was basically told that it wasn’t a sound business decision,” Harden said.
A spokeswoman for Chase said Harden stopped paying in April 2008 and never filed paperwork for a loan modification.
Harden, like many homeowners nationwide, appears to have been caught in a behind-the-scenes struggle between the company that handled her mortgage and the group of investors who actually own it. Unbeknownst to Harden, her mortgage had been turned into a security administered by U.S. Bancorp of Minnesota.
She wasn’t alone. One in three homeowners tracked by the Business Journal, or a total of 55, have home loans that were packaged into mortgage-backed securities.
That makes receiving a loan modification all the more difficult, because many security contracts either prohibit loan modifications or require the servicer to contact the investor who purchased the security before they can make a loan modification, said Mike Gamsky, an attorney with Seattle-based law firm Foster Pepper PLLC.
“It’s a real mess,” Gamsky said. “The number of loans being successfully modified given the number of loans in foreclosure is just a fraction.”
Loans that have been bundled into securities can put the bank into a Catch-22 situation. On the one hand, it can’t legally break a contract with a mortgage-backed security investor. On the other hand, mounting federal pressure on banks to modify loans turns such decisions into a political question.
“The servicers don’t want the picket lines and the bad publicity and the reputation risk of being this evil foreclosing entity,” Gamsky said. “At the same time, they’re faced with all kinds of contractual restrictions.”
Harden was a subprime borrower, one of the millions who’ve captured headlines for the past two years.
But today, foreclosure is affecting even solid, creditworthy borrowers who made substantial down payments and hold prime loans. This new class of borrowers, who never thought they would have trouble making payments, has been hit by stubbornly high unemployment that has cost them their jobs and their ability to keep current on their mortgages.
“Most of the problems in the early days of the crisis were focused on the lower half of the market,” said Crellin, of the Washington Center for Real Estate Research.“Now we’re facing problems that are spreading up the price spectrum.”
This influx of prime borrowers to the foreclosure world has added to the backlog of houses waiting to be sold.
Even though the 172 homeowners tracked by the Business Journal received foreclosure notices more than a year ago, only about one-third have managed to sell their houses, either through an auction or a private “short sale,” where the property is sold for less than the amount owed.
Short sales are difficult in situations where buyers took out two loans — a so-called “80/20,” in which a main mortgage loan covered 80 percent of home cost and a second loan covered the remainder.
“These were fairly popular in Washington,” said Fred Corbit, senior attorney for the Northwest Justice Project, in Seattle, who represents financially distressed homeowners. “I think it will be a big deal — a substantial number of these loans were 80/20 loans.”
With the drop in housing prices, a distressed sale likely won’t pay back both loans. The second lender may agree to a sale only if the borrower is saddled with repaying the second loan after losing the home.
More than half of the 172 homes the Journal tracked — 52 percent — are caught in the foreclosure spin cycle.
The government has focused on loan modifications as a way to resolve these cases. The Home Affordable Modification Program (HAMP) is designed to help spur banks to modify loans. But the long-term track record for these modifications is poor. More than half of all modified loans redefault within six months, despite measures such as income verification and trial modifications. That puts them right back into foreclosure.
And few of those who apply get lasting help. Of the 20,000 Washington residents who have participated in the federal program, only one out of four have obtained permanent modifications. The rest are still in the initial trial phase to determine whether they can make their mortgage payments at the lower rate. The median savings for participants is $512 a month.
The best candidates for loan modification are homeowners with a history of making their payments who are struggling with temporary financial difficulties, said Ed Hedlund, executive vice president and group manager for consumer and mortgage lending at Washington Federal, the state’s largest bank.
“We will modify loans when it’s a short-term issue and we think people can recover and get back to affording their homes, such as medical issues or a job loss,” Hedlund said. “It’s the people who really want to stay in their home and will address their spending habits.”
The bank will agree to a short sale in certain circumstances where the house is worth substantially less than the mortgage debt, he said. The bank may also forgive a portion of the loan, depending on the circumstances.
“It definitely comes out of profits,” Hedlund said. And that means the bank has less money to lend to other borrowers, such as small businesses that may need money to begin expanding their operations again, he said.
In the summer of 2009, Harden filed suit against Chase and the other financial institutions involved with her mortgage, trying to block their efforts to sell the house. But the suit was dismissed, according to court records.
“I thought I had a house,” Harden said. “I was happy, my children were happy and then the bank tells me, ‘I’m sorry, we can’t work with you.’ It’s ludicrous.”
Chase said it has made 110,175 permanent loan modifications across the country since the beginning of 2009. Another 731,349 have been offered to homeowners, Chase said.
Without a loan modification, Harden’s house remains caught in the system.
Recently, she received a letter saying the house would be put up for auction at 10 a.m. on July 2.
Read more: More Washington state borrowers get trapped in foreclosure - Puget Sound Business Journal (Seattle):
Thursday, April 15, 2010
Hard times in Paradise
The foreclosure crisis catches up with a wealthy, exclusive community in Arizona that once considered itself immune.
By Melinda Fulmer of MSN Real Estate
In 2008, it looked as if Paradise Valley, the wealthiest, most exclusive community in Arizona, had neatly side-stepped the foreclosure crisis.
Only 38 foreclosures were recorded in this 16-square-mile town that year. Indeed, the median home price for resale detached homes reached an all-time high of $2 million in mid-2008, according to MDA DataQuick, even as values plummeted elsewhere.
"People were buying up million-dollar homes, tearing them down and rebuilding them," says Jay Butler, director of the Arizona Real Estate Center at Arizona State University's W.P. Carey School of Business.
The fall
Last year, the bottom dropped out. Like many other luxury-home markets, Paradise Valley joined the foreclosure crisis late: As the economy worsened, companies lost clients and executives lost bonuses or jobs. Affluent residents ran through their savings and credit. And banks, once reluctant to foreclose on major depositors, started taking estates back.
By the end of 2009, the number of foreclosures had tripled to 114, with an additional 315 notices of trustee sale filed, according to the Information Market, a data provider. In most cities, this paltry number wouldn’t even cause a ripple in the real-estate market. But in this tiny town of about 7,700 homes — owned by celebrities, politicians and businessmen such as Muhammad Ali, Alice Cooper, Dan Quayle, Mike Tyson and Peter Sperling — these foreclosures landed with a thud.
Broker sale signs, once considered too gauche for this tony enclave, with its 12 high-end resorts, began sprouting like weeds, as overstretched borrowers began seeking short sales or letting their underwater custom homes go.
Video: Saving American homes key to economic recovery
The excess
Forget Beverly Hills. Some of the priciest foreclosures in RealtyTrac’s database were in tiny Paradise Valley, and all were recorded last year — such as this palatial property with private theater, walk-in wine cellar, indoor sport court and separate guest house with two-car garage, which was taken back by the bank when its owner defaulted on a $6.5 million note. It’s now listed at $3.5 million.
Spec homes, with up to 10,000 square feet of space and as many as eight bathrooms, continued to be built as late as last year.
MSN Money: Why short sales are the new foreclosure
The attitude of most people — even those in the real-estate business — was that economic hardship "doesn’t happen here," says Jon Wall of JM Wall Development, a Phoenix custom homebuilder that was also building in less expensive parts of town.
He says he knew the market was in serious trouble when the list of 12 build-to-suit projects he had been contracted for in Paradise Valley all went up in smoke, as buyers couldn’t find financing. Suddenly, nothing was moving.
He sold his last spec home there in late 2008, taking a major price reduction and barely squeaking out a profit. Others weren’t so lucky.
"We were crying the blues," he says. "But a lot of (spec home builders) shut their doors and went under."
What was left
The remnants of this go-go building activity still litter the landscape — and the multiple listing service.
Many of the projects were left unfinished, such as this 8,000-square-foot Tuscan estate, which boasts a "guest casita," a master bedroom with separate sitting room and a "full Irish pub-style bar," but no flooring, landscaping or kitchen countertops.
"We’ve seen examples of where something that was listed for $10 million sold for $2 million," says luxury real-estate agent Walt Danley, who has sold homes in the area for nearly three decades. "The run-up did get a little out of control. It needed a correction, but this is an overcorrection."
Indeed, with a median per-square-foot price of around $289, according to real-estate Web site Trulia, these homes with their deluxe finishes are a relative bargain for those who can scrape together the financing.
A new nouveau riche?
For those with a steady income, it has meant a chance to finally move into the area that says, "You’ve arrived," Butler says.
Dick and Laurie Wheelock, who own a sprinkler-systems company, traded up from their house in nearby Squaw Peak to a larger 8,500-square-foot spec home built in the Preserve at Lincoln, a new gated community in Paradise Valley near the Arizona Biltmore Resort.
The home, with its wine storage, theater room and three fireplaces, had been originally priced close to $8 million, he said. The Wheelocks picked it up in February for $2.2 million.
"The market just fell apart, and (the builder) was trying to get whatever he could out of it," Dick Wheelock said. "We are enjoying it very much."
On our blog, 'Listed': Families wading through tough times together
A continued correction
Bargains like these should be around for a while, agents and economists say.
Even as local economists are predicting that the Phoenix market will bottom out this spring and that prices will start ticking back up, no one knows exactly when the price reductions will stop in Paradise Valley.
By Melinda Fulmer of MSN Real Estate
In 2008, it looked as if Paradise Valley, the wealthiest, most exclusive community in Arizona, had neatly side-stepped the foreclosure crisis.
Only 38 foreclosures were recorded in this 16-square-mile town that year. Indeed, the median home price for resale detached homes reached an all-time high of $2 million in mid-2008, according to MDA DataQuick, even as values plummeted elsewhere.
"People were buying up million-dollar homes, tearing them down and rebuilding them," says Jay Butler, director of the Arizona Real Estate Center at Arizona State University's W.P. Carey School of Business.
The fall
Last year, the bottom dropped out. Like many other luxury-home markets, Paradise Valley joined the foreclosure crisis late: As the economy worsened, companies lost clients and executives lost bonuses or jobs. Affluent residents ran through their savings and credit. And banks, once reluctant to foreclose on major depositors, started taking estates back.
By the end of 2009, the number of foreclosures had tripled to 114, with an additional 315 notices of trustee sale filed, according to the Information Market, a data provider. In most cities, this paltry number wouldn’t even cause a ripple in the real-estate market. But in this tiny town of about 7,700 homes — owned by celebrities, politicians and businessmen such as Muhammad Ali, Alice Cooper, Dan Quayle, Mike Tyson and Peter Sperling — these foreclosures landed with a thud.
Broker sale signs, once considered too gauche for this tony enclave, with its 12 high-end resorts, began sprouting like weeds, as overstretched borrowers began seeking short sales or letting their underwater custom homes go.
Video: Saving American homes key to economic recovery
The excess
Forget Beverly Hills. Some of the priciest foreclosures in RealtyTrac’s database were in tiny Paradise Valley, and all were recorded last year — such as this palatial property with private theater, walk-in wine cellar, indoor sport court and separate guest house with two-car garage, which was taken back by the bank when its owner defaulted on a $6.5 million note. It’s now listed at $3.5 million.
Spec homes, with up to 10,000 square feet of space and as many as eight bathrooms, continued to be built as late as last year.
MSN Money: Why short sales are the new foreclosure
The attitude of most people — even those in the real-estate business — was that economic hardship "doesn’t happen here," says Jon Wall of JM Wall Development, a Phoenix custom homebuilder that was also building in less expensive parts of town.
He says he knew the market was in serious trouble when the list of 12 build-to-suit projects he had been contracted for in Paradise Valley all went up in smoke, as buyers couldn’t find financing. Suddenly, nothing was moving.
He sold his last spec home there in late 2008, taking a major price reduction and barely squeaking out a profit. Others weren’t so lucky.
"We were crying the blues," he says. "But a lot of (spec home builders) shut their doors and went under."
What was left
The remnants of this go-go building activity still litter the landscape — and the multiple listing service.
Many of the projects were left unfinished, such as this 8,000-square-foot Tuscan estate, which boasts a "guest casita," a master bedroom with separate sitting room and a "full Irish pub-style bar," but no flooring, landscaping or kitchen countertops.
"We’ve seen examples of where something that was listed for $10 million sold for $2 million," says luxury real-estate agent Walt Danley, who has sold homes in the area for nearly three decades. "The run-up did get a little out of control. It needed a correction, but this is an overcorrection."
Indeed, with a median per-square-foot price of around $289, according to real-estate Web site Trulia, these homes with their deluxe finishes are a relative bargain for those who can scrape together the financing.
A new nouveau riche?
For those with a steady income, it has meant a chance to finally move into the area that says, "You’ve arrived," Butler says.
Dick and Laurie Wheelock, who own a sprinkler-systems company, traded up from their house in nearby Squaw Peak to a larger 8,500-square-foot spec home built in the Preserve at Lincoln, a new gated community in Paradise Valley near the Arizona Biltmore Resort.
The home, with its wine storage, theater room and three fireplaces, had been originally priced close to $8 million, he said. The Wheelocks picked it up in February for $2.2 million.
"The market just fell apart, and (the builder) was trying to get whatever he could out of it," Dick Wheelock said. "We are enjoying it very much."
On our blog, 'Listed': Families wading through tough times together
A continued correction
Bargains like these should be around for a while, agents and economists say.
Even as local economists are predicting that the Phoenix market will bottom out this spring and that prices will start ticking back up, no one knows exactly when the price reductions will stop in Paradise Valley.
Friday, April 9, 2010
Foreclosures Hit Rich and Famous
The rich and famous now have something in common with hundreds of thousands of middle and lower-class Americans: The bank is about to take their homes.
Houses with loans of $5 million or more will likely see a sharp rise in foreclosures this year, according to a RealtyTrac study for The Wall Street Journal.
Banks had scheduled a foreclosure auction of Richard Fuscone's Westchester County, N.Y., mansion this week. But the former top Wall Street executive declared personal bankruptcy, delaying the auction.
Just this week, a Tudor mansion in Bel-Air belonging to film star Nicolas Cage was in foreclosure auction and reverted to the lender. On Wednesday, Richard Fuscone, a former top Wall Street executive, declared personal bankruptcy, forestalling a foreclosure auction that had been scheduled this week on his 14-acre Westchester mansion. Last month a Manhattan condominium owned by Italian film producer Vittorio Cecchi Gori was sold in a foreclosure auction for $33.2 million.
In February alone, 352 homes nationwide in this category were scheduled for foreclosure auction, the final step before a bank acquisition. That is the largest monthly number of these so-called notices of sale since the financial crisis began. By comparison, in all of 2009, there were 1,312 such notices.
Economists say the super-wealthy are among the last to lose their homes in a mortgage crisis because they usually have high savings, better access to credit and other means for staving off foreclosure. But many of them work in financial services and other industries hit especially hard by the crisis, and have seen their wealth shrink in the market crash.
Developments Blog
The Rich Are Different: They Default More Often
While the numbers are modest compared with foreclosures at other income levels, they suggest the possibility of a sudden spike in bank takeovers of the wealthiest Americans' property. Typically half the notices of sale result in homes being turned over to creditors, though the figure could be slightly lower for the richest Americans who have more financial options, according to Daren Blomquist at RealtyTrac.
Big borrowers are more likely to default than ordinary people, according to data from First American CoreLogic. Its loan database, reflecting more than 80% of the overall home-loan market, includes 1,700 loans with balances of $4 million or more. About 14.8% of those loans were 90 days or more overdue at the end of January, compared with 8.7% for all home loans tracked by First American. Sam Khater, a senior economist at First American, said the bigger borrowers may be more prone to stop making payments when they have lost all their home equity.
Mr. Fuscone, Merrill Lynch's one-time head of Latin America, put his mansion up for sale in November, asking $13.9 million. But he couldn't find a buyer.
The court had scheduled a foreclosure auction for Thursday for the 18,471-square-foot mansion—with two swimming pools, two elevators, six fireplaces, 11 bathrooms and a seven-car garage. The personal bankruptcy filed in U.S. Bankruptcy Court Wednesday temporarily freezes the foreclosure process.
Reached by phone, Mr. Fuscone declined to comment. Brokers and real estate tracking companies say that his home is one of the most expensive properties to face foreclosure proceedings yet.
The phenomenon is not limited to the New York area. Banks have taken over homes with loans of $5 million or more in Georgia, North Carolina and Colorado, RealtyTrac says.
Mr. Cage had tried to sell his 11,817-square-foot Bel-Air property for $35 million but failed to get any offers, said James Chalke, a real-estate agent who had the listing. At a foreclosure sale Wednesday, the property attracted no bids from investors and so was acquired by the foreclosing lender. Annett Wolf, a spokeswoman for Mr. Cage, said he had no comment.
A representative of Mr. Cecchi Gori, producer of more than 200 films including "Il Postino" and "Life is Beautiful," said his financial situation is improving.
In Florida's Miami-Dade County, the three largest foreclosure filings initiated against homes in the past six months involved a 4,655-square-foot home in Sunset Islands; a 8,443-square-foot house in Coral Gables; and a condo in Miami Beach, according to Peter Zalewski, a principal of Condo Vultures. All three had mortgages of $3.5 million to $4 million.
Mortgage defaults began to surge in late 2006, mostly among borrowers with subprime mortgages, those for people with weak credit records or high ratios of debt to income.
Over the next few years defaults spread rapidly to better-heeled borrowers, especially those who got loans without documenting their income. At the end of 2009, nearly eight million households, or 15% of those with mortgages, were behind on mortgage payments or in the foreclosure process.
Wealthy people have the means to stretch out the distress process, sometimes for years.
"It's very, very difficult for these people to believe they've had such a severe reversal of fortune," says Maggie Navarro, a real-estate agent in Pasadena, Calif.
Marc Carpenter, a San Diego-based foreclosure specialist, adds that while it's much harder for potential buyers to get loans, there are also fewer buyers who can pay for top-dollar properties. "The upper end is definitely a lagging indicator," he says.
In his bankruptcy filing, Mr. Fuscone provided a list of his debts, including ones to the Greenwich Country Day School, American Express, Mercedes-Benz, a local hardware store, a pet store, and Richards of Greenwich, a fine-clothing store.
"My background is in the financial-services industry and I have been personally devastated by the financial crisis which came to a head in March 2008," Mr. Fuscone said in his bankruptcy declaration. "I have been sued by Patriot National Bank" as part of a foreclosure action. "I currently have no income for the 30-day period" following his bankruptcy petition.
C.W. Kelsey, owner of Greenwich Hardware, was among the local merchants owed money by Mr. Fuscone, though he wouldn't say how much.
"Traditionally, the majority of our credit problems were contractors," he said. "Now there are people you'd never expect two or three years ago to have problems, who live in multimillion dollar homes."—Nick Timiraos and Josh Barbanel contributed to this article.
Write to Craig Karmin at craig.karmin@wsj.com and James R. Hagerty at bob.hagerty@wsj.com
Houses with loans of $5 million or more will likely see a sharp rise in foreclosures this year, according to a RealtyTrac study for The Wall Street Journal.
Banks had scheduled a foreclosure auction of Richard Fuscone's Westchester County, N.Y., mansion this week. But the former top Wall Street executive declared personal bankruptcy, delaying the auction.
Just this week, a Tudor mansion in Bel-Air belonging to film star Nicolas Cage was in foreclosure auction and reverted to the lender. On Wednesday, Richard Fuscone, a former top Wall Street executive, declared personal bankruptcy, forestalling a foreclosure auction that had been scheduled this week on his 14-acre Westchester mansion. Last month a Manhattan condominium owned by Italian film producer Vittorio Cecchi Gori was sold in a foreclosure auction for $33.2 million.
In February alone, 352 homes nationwide in this category were scheduled for foreclosure auction, the final step before a bank acquisition. That is the largest monthly number of these so-called notices of sale since the financial crisis began. By comparison, in all of 2009, there were 1,312 such notices.
Economists say the super-wealthy are among the last to lose their homes in a mortgage crisis because they usually have high savings, better access to credit and other means for staving off foreclosure. But many of them work in financial services and other industries hit especially hard by the crisis, and have seen their wealth shrink in the market crash.
Developments Blog
The Rich Are Different: They Default More Often
While the numbers are modest compared with foreclosures at other income levels, they suggest the possibility of a sudden spike in bank takeovers of the wealthiest Americans' property. Typically half the notices of sale result in homes being turned over to creditors, though the figure could be slightly lower for the richest Americans who have more financial options, according to Daren Blomquist at RealtyTrac.
Big borrowers are more likely to default than ordinary people, according to data from First American CoreLogic. Its loan database, reflecting more than 80% of the overall home-loan market, includes 1,700 loans with balances of $4 million or more. About 14.8% of those loans were 90 days or more overdue at the end of January, compared with 8.7% for all home loans tracked by First American. Sam Khater, a senior economist at First American, said the bigger borrowers may be more prone to stop making payments when they have lost all their home equity.
Mr. Fuscone, Merrill Lynch's one-time head of Latin America, put his mansion up for sale in November, asking $13.9 million. But he couldn't find a buyer.
The court had scheduled a foreclosure auction for Thursday for the 18,471-square-foot mansion—with two swimming pools, two elevators, six fireplaces, 11 bathrooms and a seven-car garage. The personal bankruptcy filed in U.S. Bankruptcy Court Wednesday temporarily freezes the foreclosure process.
Reached by phone, Mr. Fuscone declined to comment. Brokers and real estate tracking companies say that his home is one of the most expensive properties to face foreclosure proceedings yet.
The phenomenon is not limited to the New York area. Banks have taken over homes with loans of $5 million or more in Georgia, North Carolina and Colorado, RealtyTrac says.
Mr. Cage had tried to sell his 11,817-square-foot Bel-Air property for $35 million but failed to get any offers, said James Chalke, a real-estate agent who had the listing. At a foreclosure sale Wednesday, the property attracted no bids from investors and so was acquired by the foreclosing lender. Annett Wolf, a spokeswoman for Mr. Cage, said he had no comment.
A representative of Mr. Cecchi Gori, producer of more than 200 films including "Il Postino" and "Life is Beautiful," said his financial situation is improving.
In Florida's Miami-Dade County, the three largest foreclosure filings initiated against homes in the past six months involved a 4,655-square-foot home in Sunset Islands; a 8,443-square-foot house in Coral Gables; and a condo in Miami Beach, according to Peter Zalewski, a principal of Condo Vultures. All three had mortgages of $3.5 million to $4 million.
Mortgage defaults began to surge in late 2006, mostly among borrowers with subprime mortgages, those for people with weak credit records or high ratios of debt to income.
Over the next few years defaults spread rapidly to better-heeled borrowers, especially those who got loans without documenting their income. At the end of 2009, nearly eight million households, or 15% of those with mortgages, were behind on mortgage payments or in the foreclosure process.
Wealthy people have the means to stretch out the distress process, sometimes for years.
"It's very, very difficult for these people to believe they've had such a severe reversal of fortune," says Maggie Navarro, a real-estate agent in Pasadena, Calif.
Marc Carpenter, a San Diego-based foreclosure specialist, adds that while it's much harder for potential buyers to get loans, there are also fewer buyers who can pay for top-dollar properties. "The upper end is definitely a lagging indicator," he says.
In his bankruptcy filing, Mr. Fuscone provided a list of his debts, including ones to the Greenwich Country Day School, American Express, Mercedes-Benz, a local hardware store, a pet store, and Richards of Greenwich, a fine-clothing store.
"My background is in the financial-services industry and I have been personally devastated by the financial crisis which came to a head in March 2008," Mr. Fuscone said in his bankruptcy declaration. "I have been sued by Patriot National Bank" as part of a foreclosure action. "I currently have no income for the 30-day period" following his bankruptcy petition.
C.W. Kelsey, owner of Greenwich Hardware, was among the local merchants owed money by Mr. Fuscone, though he wouldn't say how much.
"Traditionally, the majority of our credit problems were contractors," he said. "Now there are people you'd never expect two or three years ago to have problems, who live in multimillion dollar homes."—Nick Timiraos and Josh Barbanel contributed to this article.
Write to Craig Karmin at craig.karmin@wsj.com and James R. Hagerty at bob.hagerty@wsj.com
Monday, March 29, 2010
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