Housing Roundup

Man uses pigs to trash own house after foreclosure:
"Lovett bought a home on SE Wildcat Mountain Drive in Eagle Creek a few years ago. In January the house went into foreclosure. Neighbors told police that Lovett was extremely distraught over the the situation. He apparently told several that he had put the animals inside the house over a week ago and even joked about the fact that they did not have any water.
When deputies responded to complaints about the pigs, the inside and outside of the home were trashed."

The indictment says defendants fraudulently financed 16 properties, including homes in Goodyear and Buckeye, as well as 11 luxury cars mostly purchased at Arizona dealerships:
"Twelve people, suspected of being part of a sophisticated white-collar crime ring led by an ex-convict, have been indicted involving a mortgage-loan scam stretching from Arizona to Nevada to California.
The defendants, including a real estate agent, college students and family members living in the three states are accused of defrauding lenders out of $8 million."

Houses 50% off in Sacramento (News 10 Report)

More Bad News for Amrep (AXR)

AMREP Corp. (AXR) is the $400M company in Rio Rancho, NM that owns approximately 18,000 acres of the town.

What's bad for Rio Rancho is bad for Amrep, and there's a lot of bad news:

1. Starting in August 2007, Intel is laying off 1,000 workers at its chip fab plant in Rio Rancho. There are only about 40,000 people of working age in Rio Rancho.

2. Rio Rancho building permits were down 66% from March 2006 to March 2007.

3. The city of Rio Rancho is increasing by 29-40% the impact fees charged to homebuilders. (An “impact fee” is assessed by the city against new construction, and due at the time of the issuance of the building permit.)

All the fees in the tables below are per unit. Remember, an increase of $3000/unit means an extra $9000/acre in cost assuming 3u/ac.

The fees differ based on whether the lot is in a master planned community and connected to city services, or else in an area with domestic wells, septic systems, and limited roads and drainage.

This is the change in fees for lots in master planned communities:


This is the change in fees that would apply to lots not connected to city services (e.g. the famous "scattered lots"):


Sources: 1,2,3.

Incentive Incompatibility at Mortgage Brokers

From a recent Washington Post:

"Maggie Hardiman cringed as she heard the salesmen knocking the sides of desks with a baseball bat as they walked through her office. Bang! Bang!

'You cut my [expletive] deal!' she recalls one man yelling at her. 'You can't do that.' Bang! The bat whacked the top of her desk. As an appraiser for a company called New Century Financial, Hardiman was supposed to weed out bad mortgage applications. Most of the mortgage applications Hardiman reviewed had problems, she said.

But 'you didn't want to turn away a loan because all hell would break loose,' she recounted in interviews. When she did, her bosses often overruled her and found another appraiser to sign off on it.

'There was instant notification to everyone as soon as you rejected a loan. And you dreaded doing it because you paid for it. Two guys would come with a bat, and they were all [ticked] off because you cut their deals.'

This sounds like something out of The Sopranos, except it was happening at the nation's third largest subprime lender, which wrote tens of billions in loans.

It's really not that surprising. This story could have come from a book about S&L Crisis I.

Foreclosure Epidemic in Minneapolis, of All Places

This weekend's Star Tribune had a fascinating article, Foreclosures take a toll on North Minneapolis (5/4/07).

"In north Minneapolis, the epicenter of foreclosures in the Twin Cities, 1,400 houses have been sold at foreclosure auctions in the past 16 months alone. On the block of Logan Avenue N. where Cranford lives, 12 of the 27 houses have been in various stages of foreclosure since mid-2005.

For many of those homes, it was a story not of poor homeowners unable to afford their houses, but of shoestring landlords whose investments turned bad."

According to the article, there have been 1,400 foreclosure sales in North Minneapolis since January 2006. This is an area of less than 9 square miles that contains 12,810 single family residences.

Meaning: 10.9% of the houses in North Minneapolis have already gone through a foreclosure sale since the real estate collapse began.

This astonishing chart shows Hennepin County, Minnesota with a red dot for every foreclosure sale that has taken place since January 2006.

As you can see, there is an extremely heavy concentration of foreclosure sales in North Minneapolis (inset map). This is an undesirable part of town; the Governor has sent the State Patrol there to supplement the Minneapolis police department several times in recent years.

The Hennepin County Sheriff's Office Civil Unit holds the foreclosure sales. They publish a list of foreclosure sales that have already happened online.

As you read this, remember that foreclosure sales are a lagging indicator, because they occur after the borrower's default and after the notice of default is filed.

I took a random sample of 194 of these foreclosure sales by examining all of the foreclosure sales that had occurred since January 1, 2007 on eight different streets in North Minneapolis. (That is a lot of sales for just eight streets during a four month period.)

As you can see, Mortgage Electronic Registration System, Inc. (MERS) is the most common listing for the mortgagee. However, MERS is just the nominal mortgagee. They are a clearinghouse for loans, allowing mortgage bankers to trade loans electronically without having to record the trade in the county land records.

Rounding out the list are our usual suspects and old friends: Fremont, HSBC, WaMu, Option One, and New Century. (The New Century borrower stayed in their house longer than NEW stayed in business.)

Surprisingly, Deutsche, US Bank, and Wells Fargo made quite a few bad loans in North Minneapolis.

I would be very interested to know who originated the loans that are now being serviced by MERS.

Anyone in the Twin Cities could help me do this by going down to the Hennepin County Recorder's Office and pulling the original loan documents. My email address is up top.

Best of Credit Bubble Stocks

We are getting a tremendous number of hits right now, so I thought I would put together a list of the best of Credit Bubble Stocks for our new readers.

• Crucial piece of evidence: the inverse correlation between default rates and recovery rates.
• Why I don't listen to Cramer or watch CNBC.
  
• Moral Hazard and the first S&L Crisis.
• The bearish case on Downey Financial, a California S&L with a concentrated Option ARM portfolio. Good anecdote about Downey and Option ARM usage. DSL, NEW Comparison.
• Negative amortization during the Tech Bubble
• Standard Pacific (CA Homebuilder): Value of their land positions. They should be impairing their built inventory.

In new news, from tomorrow's WSJ, As Market Cools, Home Buyers Seek a Way Out:

"In the latest fallout from the housing market's decline, disputes are breaking out between builders and buyers who signed contracts for new homes and condos when the market was hot -- and now want to get out of them.

Even as many of the new buildings are completed, buyers are filing lawsuits claiming they were duped into purchases they couldn't afford, or victimized through fraudulent investment schemes. Some are scrutinizing their contracts looking for loopholes, or searching out tiny flaws in finished homes that might allow them to back out without losing their deposits.

This is something that CORS needs to be thinking about. More on them later.

Marijuana Grow-Ops, Gutted Houses are Banks' Collateral

Here's a trend developing:

"California is in the midst of a major boom in large-scale marijuana cultivation operations run from inside homes... in middle-class and upscale suburbs, where the pot growers took advantage of cheap home financing — and minimal credit checks — to purchase homes and remodel them into sophisticated farms, authorities said.

Local authorities have discovered at least six indoor suburban pot farms in just the last month — including two this week in Rowland Heights.

Since last August, officials in Northern California have arrested 16 people and seized 50 suburban pot homes... linked to an Asian organized crime syndicate..."

It's left unstated, but when these houses get found the operators stop making the Option ARM payments and they end up being foreclosed. Typically they are severely damaged.

A related trend on the rise is foreclosed-upon homeowners who destroy "their" houses (either out of malice or in the process of stealing the appurtenances) on the way out the door:

"VIRGINIA BEACH - When Branson Barry saw the gated house off the Chesapeake Bay, he figured he could splash on a new coat of paint, lay new carpets and resell it for a profit.

So he bought the foreclosed house in July for $592,000 - as is. But the house at 2301 Beech St. is not what it was.

After the previous owner moved out last week, Barry found the house had been gutted of everything, including the bathroom sink.

Upstairs, the floor of the master bathroom resembled a quarry pit - crumbled, cracked and bare. Scraped chunks of marble left exposed white tile around the tub."

In this particular case, the bank was able to pawn the house off on an unsuspecting fixer-upper type. That will become more difficult if it turns out that a substantial number of foreclosures are gutted or former grow-ops.

Those are trends that increases the upside on the mortgage lender short plays. I mean, talk about increased loss severity.

Here's a suspicious fire that occurred in a CA house last week - the owner was about to be foreclosed. Lenders probably stand to benefit from suspicious fires assuming that the houses are probably insured for the principal balance on the first mortgage.