Home : Blogs : Carole Cohen Realtor®, ePRO : Carole's Cleveland Blog

What Part Do Individual Markets Need to Play In Our National Mortgage Crisis?

There are two thought provoking posts on the board today getting my brain in a swirl. The first one was on the issue of California Sub Prime Relief by Lenn Harley. This post is replete with the relief issue as proposed by the California Governor, and the general question of how involved should The Government be in these relief efforts (Gena Reide). Lenn asks important questions and some of them said, is the California Market pertinent to her Maryland market?

I say, how intertwined are all of our markets based on the severity of the issues involved? And I ask that question hoping that mortgage and financial 'peeps' and economists from around the Country will weigh in.

The second post was written by Bryant Tutas on the Subprime Market. Who should bear the responsibility of correcting the situation? Should the foreclosure and ARM resets just play out, and if not, what kind of intervention is appropriate?

As a believer in the 'we all need to think and act for ourselves' philosophy, I have some serious questions.

First, my brain siezed on an issue based on something said in Lenn's post. There are areas in the Country where speculative investors/buyers and housing bubbles in general had reached a level of (in my opinion) insanity. Lenn makes a point in a comment on her post:

"I see foreclosures as the only way to bring prices down so that home buyers can buy homes with reasonable mortgages. As long as the "designer loans" are available, home buyers, many of them, will buy to the limit of what they can qualify for, not what is affordable or wise."

Our NE Ohio experience was different. We had over 30 years of stable housing growth (not without cycles mind you, but stability). Our average return on investment per year for those 30 years was 3%. And this includes years averaged in when our unemployment rates were 22% (I know because I was in Maryland at the time reading about it and wondering if the entire area was going to collapse....it did not).

We saw 2004, 2005, 2006 'teeny spikes' in that 3% number. Some communities had 5%. A few (like Westpark and Lakewood) had 11% or 14% for ONE year. That does not a housing bubble make. So my question is:

Since we have not had bubbles and huge amounts of speculation, but we do have foreclosures, what is in our best interest? Should we be for relief? Should we hope that many lenders follow suit with other lenders and freeze the ARM reset dates? Do we want more foreclosures to get it over with? Do we want a policy that is good for the whole Country when our own market is different? Or is a National Policy possible that provides the best course of action for Cleveland too? And if so, what is that policy?

I think we all need to be proactive in learning all we can about these issues so if you have an expert opinion with facts that make sense to back them up, please talk to us! lol

And even though we did not have bubbles, or high percentages of speculative buying, we do have some corrections going on. Here are some statistics:

These figures cover all of Cuyahoga County for 2006 through 11/06 and 2007 through 11/07

Pending or 'waiting to close' sales: 1,126 in 2007 and 1,084 in 2006

The Average Ask Price in 2007 was $170,638 and higher, $221,186 in 2006

The Average Sale Price was $166,777 in 2007 and $171,350 in 2006 for same eleven month time frame.

Percentage of Sale to List Price was 95% in 2007 and 93% in 2006.

Average Days on the Market: 93 in 2007 and 82 in 2006.

And Lenn, volume difference is ten properties: 725 sold in eleven months in 2007 and 735 in 2006

And we won't even list the number of foreclosures but we know, especially by looking at Callahan's Cleveland Diary, that a good number of them occur every week.

We are the professionals in the field, be we mortgage lenders or agents or brokers. But we are not economists, at least not most of us. Again I ask, should there be a National policy that we all participate in to provide a solution? Is there a solution? If you think so, why? If not, give us facts as to why not. And will NE Ohio and Maryland and Florida and California and Maine all benefit from some policy already discussed or not, or should we let 'nature take it's sad course?'

Peace Out - 3C

Adding Good Reading Links on the Subject as I go along:

The Economist - Good insight into Cleveland and the rest of the Nation

Global Economic Monitors - Different perspectives on what should be done or not, and links to their opinions

I had to do a post on my other blog, because I had some truly insightful comments from Lou Tisler of the NHSGC who is in the trenches and working on these issues here in the Cleveland area.

Gabriel Silverstein's No I'm Not Going to Bail You Out

Ed Rybczynski's A Coin Only Has Two Sides

Brian Brady's Lose a Limb or Slowly Bleed to Death

Posted by Carole Cohen Realtor®, ePRO on 11/23/2007 04:15 PM

Comments (19)

cleveland economic news, foreclosures, sub prime mortgage fraud, cleveland real estate news

This post has been included in Ohio Information Cuyahoga County, OH Information
Post is included in group: brainstormsolutions

19 Comments on What Part Do Individual Markets Need to Play In Our National Mortgage Crisis?

NOV

2007

I have to say that my configuring of the market results was done differently than normal. Our MLS system offers market reports that are apparently hidden at the moment due to a a change in MLS web site systems etc. So, this was the best I could do - will update it, especially with closed sales results, when the system is working again.

I'm going to be watching this post Carole. NH has had an increase in foreclosures as well so it effects us all. A National Policy...that would be interesting but I can't see it happening. Real estate is so local.

I'm having trouble with a National Policy Moni. Will a National Policy help your NH foreclosures or the foreclosure issue here in Cleveland? We have suffered through loss of industry and population here; we have been fiscally responsible, on the whole, for over 30 yrs. should we be bailing out the markets that got greedy? If we don't, does that still have a negative impact on us? Inquiring minds want to know!

I believe you made some excellent points. Your market sales volume has held up a lot better than ours. I believe that the difference could be the average prices. When you start talking about 100% increases in price over 3 years, you get steep declines in sales volume. That's the state of our market in much of Maryland and Northern Virginia.

I'll add a link to this post to my article.

Thanks.

Interesting post Carol. I do believe that the Government should be involved in a National relief Policy, of course Real Estate markets are different everywhere but there should be a norm or a standard. Perhaps if certain areas have more then a certain percentage of foreclosures the Government should get involved.We are intertwined and the question asked by Leen :"Is the California Market pertinent to her Maryland market?" is crucial.i do know that it is pertinent to the Florida market.

Lenn, I'm heading back to your post now because there is some great discussion happening. And I think you hit it right on the head, we stayed at average prices.

Lloyd, I think I need to know the policy is sound first no? And you are saying that Florida experienced the same kind of market over the last few years as California? I think I am also saying, even if our markets are different, what is our responsibility to each other to keep the economy sound? Or the system sound. I have no answers only questions lol

I am not convinced the government can fix the problem and or should.

Carole, I don't think that there is anyone way to correct the situation that we are in and that it needs to happen in a number of ways which include a nation policy as well as local initiatives. But this national policy and local initiatives will not prevent all of the foreclosures out there. Some people should have never purchased a house and as still not financially ready to own a house and those foreclosures need to happen. The help that takes place should be for those that can prove that they will be able to make the mortgage payments if they are assisted in bring their payments current. But these efforts should not provide assistance to those that it is obvious that we are just delaying that inevitable and are just providing a short term band aid. That would just be a waste of money, and take away money from those that it could truly make a difference to.

Randy, there can be a place, but it has to be a good solution

George I like your idea, and truthfully think local govts can handle local issues better than nat'l intervention; as everyone keeps pointing out, we all have different issues in the end. It's not an easy issue

A national policy won't do it. In fact, a national approach to a business comprised of local markets contributed to the problem. The answer is for each REALTOR and loan originator to get better educated about how to pre-qualify borrowers (it takes 20 minutes)and to take proactive measures to position themselves for a bloodbath.

NOV

2007

I love this thread and thank you for continuing it forward Carole. While I wish I had the ripe and ready answer, I do not....in so many words. I have learned that the Real Estate Market, for the most part, is a local thing and not a national thing. While in some areas, homes have decreased in value & foreclosures are becoming the status quo, others are stable and dare I say........Healthy. The inherent problem, in my view, is one of economic proportions. Though, I will say I believe that our economy lives and dies on Real Estate......after-all, they are our homes, our businesses, the very roofs over our heads. While the problem is economic, the solution resides in the Real Estate Industry. As far as the correction, heck, I believe it's already begun.

Brian while I agree with you that we all have to get more involved, more knowledgeable, there has been a lack of effort to do the right thing up to now - or to ignore the issues and make money, I'll be blunt. Of course this is not directed at people like you or for that matter anyone in particular - I would use your mortgage services in a heartbeat. But the lack of oversight existing on our parts up to this point does beg the issue of national intervention of some sort.

Jason, I am glad for your comments and yes parts of my market are healthy too. I have one question: If it's not a good idea for a national intervention policy, then can you (and Brian) and anyone else with the facts put forth what steps are being taken WITHIN the mortgage industry to fix this issue.

Lenn and I started a group called Brainstorming Solutions for these topics. I'd love to have you let us know what the correct solutions are. This is for FUTURE loans, not stuff already in crisis. I know I would like to see all the information in one spot.

And I think there will be a contest coming soon (have to hear back from the AR gods first) for posts in that group. So for now you two may want to wait and draft posts till we get the terms done for the contest.

The discussions on this stuff is blowing me away with how good they are.

Carol- I think the government needs to stay out of this for the time being and let the situation run it's course. Most of the people who are in trouble never should have bought in the first place and short term fixes will not solve their problem. If they really want to do something constructive they need to have strong guidelines in place for all loans funded by State and Federal Banks.

Real estate is local but the problems facing California are more then just a housing bubble. It's hard for those who don't live here to understand the pent up demand for housing. Rentals are very expensive even in some not so hot areas. We aren't building enough new affordable housing in most mainstream areas to meet demand. Sure there will be a glut of homes inland but unless jobs move to those areas not many will be buying there even at bargain basement prices. We are the epitome of suburbs gone wild. Other areas would do well to try and figure out why we have a housing crisis and do well to avoid the same issues.

Here's my Bloodhound response reprised for AR viewers - which I also put on Brian Brady's AR post:

The actions of the California Governor-brokered payment freeze as it relates to these four lenders might have been a logical forthcoming event anyway for those companies, but let's not forget that they are servicers on these loans at this point, not the actual owners, so it's more significant than them just deciding this - it's a collateralized pool of owners that is taking the hit. They aren't doing it just out of the goodness of their hearts, of course, they are doing it because if lenders hate ending up owning real estate, wall street syndicates REALLY hate it - they don't have the first idea what to do, so they will do anything to avoid having to foreclose. This is the next logical step.

That said, I have to say this: it doesn't matter how underwater a borrower is on their appraised value vs. market value if they make their payments. Caveat emptor - buyer beware - and be prepared to take responsibility for your actions. If you unexpectedly lose your job, well, that's a bit hard to plan for, but if you just overextend yourself and want me as an investor in lending conduits or instituations, or worse as a fellow taxpayer, to bail you out, guess what, you're not getting my sympathy.

We all make bad decisions, but just expecting continual get out of jail free cards is not right. Sure, it might take another 5 years for the market to more moderately move itself back to where those buyers can sell their home and get out from under their "oppresive" mortgage, but that's hardly horrific - my grandparents owned the same house for 50 years and probably never knew what it was worth in between buying it and the time they left this world. It doesn't matter if you buy high, unless you're a flipper. If you buy a home to live in it and you take out a responsible mortgage, who cares if it goes down 20% in value one year, and conversely, what does it matter if it goes up 30% in over the next two years?

This is why the bankruptcy laws were overhauled in recent years - people would just rack up big credit charges and then get them written off without having to face up to their own actions. Welcome to reality Mr. Subprime Borrower.

As I noted on Lenn Harley's post, her market might need a 20% to 25% correction, but our doesn't. Here's the most locally astonishing number you'll see in the midst of this: in Utah foreclosures in the month of September (maybe it was August) were DOWN 26% vs. last year! There were something like 8 states with this phenomenon actually, though that was far and away the most staggering drop. Most were single digits. So no, I'm not bailing out somebody in CA that doesn't want to own up to the fact that their home isn't worth what they paid for it, wants the lender or me (taxpayers) to pay for that error, yet wasn't sharing any of the prolific gains with me as they were selling their last three homes for double what they paid for them.

NOV

2007

Carole, great post. Got lots of us thinking. Though Arizona isn't quite in the same place as California since we are much more affordable and only six hours from Los Angeles, we still had the 50% appreciation going on as investors hit our market after leaving Las Vegas after leaving California.

I agree with Gabriel's sentiment, right on. I don't think there's a fix-it pill for everyone. I also think that people need to work out a plan to pay for their homes they purchased with 100% no money down, stated income, etc. They said they could do it, now they need to take another job and figure it out.

We are still correcting, but not as dramatically. I have good feelings about our market, though it'll take awhile to completely pick up the pace. It'll happen, it always does.

Hi Carole, Excellent post. I beleive real estate is local and cyclical. I don't think the federal government should be involved. Their only involvement should be to prevent fraud and fair housing. I agree with Gabriel about different markets needing corrections. We don't have a foreclosure problem in New York County/ Manhattan but there are problems in other NYC boroughs. If government should be involved at all it should be the local municipalities. Any policy should be local and come from local real estate taxes. We have several local and state programs for affordable housing. Limited equity, subsidized mortgage help for a number of years, rent control and rent stabilization.

I was watching Maria Bartoloma earlier on Wall Street Week interviewing Ben Stein an economist (he's also on TV and movies Ferris Bueler's teacher lol) earlier. He was saying the tech crash in 2000 was much worse than this current housing situation. 7 trillion dollars came out of the economy from the tech wreck and only 1% of the country is going to foreclosure.

I agree with Gabriel. When I bought in 1989 the value went down 40% in the early 90's. Ten years later it tripled in value. Real estate is a long term investment for qualified and financially responsible people.

George, Randy and Brian - TY so much for stopping to comment. After reading all the posts so far about this and studying the issue in other places, I've come to agree with you....I think a local government policy can be put into effect, but the reasons for the issues are so different depending on where you are, that I am not convinced getting the National Govt. involved is the answer.

George: I agree, I cannot imagine that Connecticut is in any way shape or form like Ohio right now; or California; or Hawaii, as Randy says. The only thing I still have in my head as an issue is the lack of oversight by the mortgage industry on the wall street issue and cowboy lenders.....there either needs to be a dreastic over haul -- voluntarily -- when the industry steps up and puts regs in place, or the government is going to be getting into it whether anyone wants it to or not.

Kaye: your market issues are price driven as well, I get that; young people can't afford to buy a home, transfers into the area as well. That gets back to needing a correction....although Calif has always been at a higher price point than many other places. Supply and demand? Tough issues

Gabriel I don't always get to read Bloodhound lately its been so busy and that is my loss, it's a great blog. I thank you for including your response here. The number one point I keep trying to drive home is buy a home to live in it not to flip it. I mean, here in Cleveland you can buy a home for 12k and rehab it and then make money. Okay. I'm not talking about those homes. I'm talkling about people buying homes in our median price range, adding some stainless steel appliances or refinishing the floors and expecting to sell it in a year for more money. I also agree wtih you about the get out of jail card - we do still have people who were genuinely snookered however. And I am coming to believe that there were lenders who did know their clients were going to get in peril.

Teri, the one thing I am liking is the idea of freezing the ARMs. At first I didn't but a few weeks ago I started lookng at the programs....The key is education; and making sure there is some written responsibility, almost like you have to prove you are looking for a job when you are on unemployment? I say prove you are checking out counselling programs and other lenders for re fi. Not wait till the three yr freeze is over. I think that program could help; but again, thats for Cleveland, I'm not saying it has to be a national fix.

Mitchell you make really good points and ARMS do have their place. Are you saying that there is more of a chicken little thing going on? That the sky isn't really falling as much as they say? I think again, on a national level you are correct. Unfortunately it's a much deeper problem here. Some of what happned to thousands of people in a few communities in Cleveland was sheer mortgage fraud, plain and simple. I was interested in the stats you provided about the tech crisis. Perspective is good.

NOV

2007

Carole, Thanks for another great post. I will have to do some reading of the links you provided. Thanks

Over the weekend, I saw the movie American Gangster. During the movie I thought about our society and industry. For me I saw the fact that many people knew what was going on, but choose to not get involved or take advantage of the money that was available.

DEC

2007

Carole~

Brava! I have bookmarked this post. Now I am going to read it again...then I will check out the links...and then I am going to share it with my team at our Firm.

Leave a response…

Name:

Email:
(optional)

Comment:

What does the graphic say?