Real Estate Blog

Housing bust echoes through empty homes

The Tampa Bay area's vacancy rate is No. 2 in the nation.

By James Thorner, Times Staff Writer
Published March 5, 2008

Even in a housing market accustomed to the glum, the numbers are jarring: One in 20 homes in the Tampa Bay area is vacant, ranking the region second-worst in the nation. That's 5.1 percent of single-family homes, condos, townhomes and mobile homes.

The recent U.S. Census Bureau report, which counts homes listed for sale but unoccupied, was disheartening to St. Petersburg Realtor James Tuten, but not shocking. Whether it's his four investment homes sitting empty for lack of buyers or customers who were forced out of houses by unaffordable mortgages, Tuten has seen ample evidence of the ranking.

"You've had all those boom developments over the years. Now you've got all this housing and there's nobody to take it," he said.

Underscoring Central Florida's woes: Orlando, with a 7.4 percent vacancy rate, trumped the bay area as the worst market for vacant homes among the 75 biggest metro areas in the United States. Miami and Jacksonville rounded out the bottom 10, along with Las Vegas, Cleveland and Atlanta.

At the height of the boom in 2005, Tampa's 1.8 percent vacancy rate was below the national average of 1.9 percent. By the end of 2007, our vacancies were nearly twice the national rate of 2.7 percent.

Despite the smallish sample used by the Census Bureau - only a few thousand households in the Tampa/St. Petersburg/Clearwater area were surveyed over 2007 - University of Florida economist David Denslow vouched for the region's relative ranking atop the list.

"I think we're seeing here a genuine phenomenon related to the overbuilding that occurred," Denslow said. "Typically when a housing boom ends, you see a rise in the vacancy rate. People overprice and are forced to hang on to their houses."

The foreclosure epidemic is only partly reflected in the vacancy survey. That's because many homes in default remain occupied until the bank repossesses them. And for the government to count a home as vacant, it has to be for sale. Foreclosures can tie up properties for months and keep them off the market.

For real estate insiders like Tuten, excess vacancy saps more than profits. Many unoccupied homes in St. Petersburg are older, modest dwellings needing rehabilitation. With buyers playing scarce, Tuten wonders, how long before a neighborhood starts to suffer?

"You're talking dilapidated neighborhoods and streets, illegal activities taking place," he said. "It's really degrading these neighborhoods."

Tampa's vacancy rate has averaged about 2.7 percent in surveys going back to 1986. The previous high was 4.3 percent in 1991 during the last property meltdown.

State changes tale: Jobs disappearing

By Kris Hundley, Times Staff Writer
Published March 8, 2008

In a release of revised employment figures Friday, Florida officials knocked the legs out from under the Tampa Bay area's long-standing reputation as a hotbed of job creation.

Not only did the Tampa-St. Petersburg-Clearwater area win the dubious distinction of being the biggest job loser in the state in January, with 11,700 fewer jobs than a year earlier, it also turns out that job growth stalled locally last spring and started eroding quickly in July, with the hemorrhaging continuing through the second half of the year.

While month-to-month estimates touted in news releases from Florida's Agency for Workforce Innovation in 2007 were painting a rosy picture of new jobs being created in the Tampa Bay area, data now show that the exact opposite was happening.

In September, for example, the state announced the Tampa Bay area had created 13,400 new jobs while, in fact, it had lost 15,900 - a difference of 29,300 jobs.

The abrupt turnabout in fortunes shocked Ed Peachey, executive director of WorkNet Pinellas, which handles employment services in the county.

"I was totally caught off-guard by this," said Peachey, who initially thought the state's January job loss figure released Friday for the Tampa Bay area was a typo. "But I know we were seeing a significant increase in the number of people coming in, looking for work over the past six months and that wasn't being reflected in the unemployment rate."

Jerry Shaw, senior vice president of developer Opus South Corp. in Tampa, said he had been wondering for some time where all the supposed job growth was taking place.

"We've been misled," he said of the phantom employment figures. "We kept shaking our heads over these numbers, but good business people know what's going on. They're not relying on statistics."

Rebecca Rust, economist with the state's Agency for Workforce Innovation, said month-to-month job estimates are based on a small sampling of employers from each sector. At the beginning of each year, the department retroactively adjusts those estimates based on what employers paid in unemployment compensation tax, a far more accurate accounting of the workforce size.

"Data revisions are to be expected," Rust said. "When the economy is really strong, the benchmarks are generally up. When the economy slows, the revisions are down. And areas that were high in growth, that had a lot of construction, had further to fall in a slowdown."

Despite the stark discrepancy between estimates and the actual job numbers last year, there is no indication the state intends to change its method of preparing monthly estimates.,

"Our customers want data in a timely fashion, so we do the preliminary estimates based on employer surveys," Rust said. The revised figures, calculated once a year, are available on the state's Web site but are not issued in news releases.

After five years of Florida boasting lower unemployment rates than the national average, data released Friday showed the lines are converging. The revised numbers show the state's unemployment at 4.6 percent in January, edging up toward the national figure that month of 4.9 percent. January's jobless rate was Florida's highest since October 2004.

Meanwhile, national figures released Friday showed that the economy shed 63,000 jobs in February, the fastest falloff in the labor market in five years, even as the U.S. unemployment rate fell to 4.8 percent.

"I haven't seen a job report this recessionary since the last recession," said Jared Bernstein, an economist at the Economic Policy Institute in Washington, D.C., "This is a picture of a labor market becoming clearly infected by the contagion from the rest of the economy."

Sean Snaith, economist at the University of Central Florida, called it "economic purgatory," but held out hope for recovery.

"I'll admit it's a bit of a witches' brew with high energy prices, a housing market recession and credit market turmoil, but if we can get to the second half of the year when the stimulus hits, we may be able to pull out," he said.

"Otherwise," he added, "I'm getting fitted for a Goofy costume."

Reviewing the areas of strength in Florida's economy, David Denslow, University of Florida economist, said he was pleasantly surprised to see both retail and tourism employment remain steady in January. While health care is likely to remain a reliable source of jobs, he warned that education and government, strong job generators in the past, will be constrained this year due to tighter state and local budgets.

Even construction, which accounted for 75 percent of the job losses in the state, is likely to continue to post declines, Denslow said.

"As projects now under way are completed, the job numbers will fall more," he said. "They're going to get worse before they get better."

Temple Terrace resident A. Colin Flood hopes Denslow is wrong. Last year, when the state was boasting red-hot job growth in the Tampa area, Flood was frantically searching for work as a technical writer.

"I'd never really had to hunt for a job before, but things just came to a halt," said Flood, 49, who finally landed work with a Tampa software developer. "The job came just in time to save my house. But most of the people I know who were looking for work still can't find it."

Information from the New York Times was used in this report. Kris Hundley can be reached at hundley@sptimes.com or (727) 892-2996.

Biggest job losses and gains by industry for Tampa Bay area in January:

DOWN

• Construction: -8,000
• Professional and business services: -5,700
• Manufacturing: -2,400

UP

• Education/health: +4,600
• Government: +3,700
• Other services: +800

Source: January 2008 vs. January 2007, Agency for Workforce Innovation

Home foreclosures hit record high

WASHINGTON – March 7, 2008 – Home foreclosures soared to an all-time high in the final three months of 2007 and probably will keep rising, evidence of homeowners’ suffering and the economic danger from the meltdown.

The Mortgage Bankers Association said Thursday the proportion of all mortgages that slipped into foreclosure set a record, 0.83 percent, from October through December. The previous high, 0.78 percent, came in the July-through-September period.

“Clearly it’s the worst it’s been,” the association’s chief economist, Doug Duncan, said in an interview with The Associated Press.

At the same time, more homeowners fell behind on their monthly payments.

The delinquency rate – when payments are at least 30 days past due – for all mortgages climbed to 5.82 percent, the higher since 1985. The rate was 5.59 percent in the third quarter last year.

Homeowners with tarnished credit who have subprime adjustable-rate loans took the hardest hits. Foreclosures and late payments for these borrowers swelled to all-time highs, too, in the fourth quarter.

The portion of subprime adjustable-rate mortgages that entered the foreclosure process set a record, 5.29 percent. The previous high, 4.72 percent, came only three months earlier.

Late payments skyrocketed to a record, 20.02 percent, compared with the mark of 18.81 percent from July through September.

The association’s quarterly snapshot of the mortgage market covers almost 46 million home loans.

“Mortgage credit quality is deteriorating fast,” said Mike Larson, a real-estate analyst at Weiss Research.

Already there are fears the country is teetering on the edge of a recession, if not in one now.

The wave of foreclosures threatens to depress the housing market even more. The homes people are forced from add to the glut of unsold ones on the market. That means greater cutbacks by homebuilders, affecting economic activity.

Credit is harder to get, thwarting would-be buyers and aggravating problems in the housing market.

President Bush “understands that it’s traumatizing for people who are at risk of losing their home,” press secretary Dana Perino said. “There is a concern that there’s a large amount of people who are facing foreclosure,” she said. “We do not believe that the American taxpayer should be bailing out lenders or borrowers, but what we do believe is that we can help try to bring them together.”

For many with subprime loans, initially low interest rates have adjusted much higher. With home values dragged down, many borrowers were left with mortgages that eclipsed the value of their homes.

“Declining home prices are clearly the driving factor behind foreclosures, but the reasons and magnitude of the declines differ from state to state,” Duncan said.

In a separate report, Americans’ percentage of equity in their homes has fallen below 50 percent for the first time on record since 1945, the Federal Reserve said.

Homeowners’ percentage of equity slipped to 49.6 percent in the second quarter of 2007 and reached 47.9 percent in the fourth quarter. It was the first time that homeowners’ debt on their houses exceeds their equity since the Fed started tracking the data in 1945.

Even with relief efforts under way by industry and the government, Federal Reserve Chairman Ben Bernanke said this week that foreclosures and late payments probably will rise “for a while longer.” Duncan agreed.

Bernanke’s recommendation for lenders to reduce the amount owed on troubled home loans goes beyond the position staked out by the Bush administration. The Fed chief, however, did not go as far as to endorse some proposals embraced by Democrats on Capitol Hill.

One idea promoted by the administration would allow some homeowners with certain subprime home loans to freeze their interest rate for five years.

California and Florida represent a disproportionate share of the new foreclosures. The two states accounted for 30 percent of mortgages starting the foreclosure process, the association said. “In states like California, Florida, Nevada and Arizona, overbuilding of new homes created a surplus that will take some time to work through,” Duncan said. That glut has pushed down house prices, he said.

Bernanke said neighborhoods suffer, too, when foreclosures cluster.

Low home equity, record-high foreclosures: U.S. housing market looks even weaker

NEW YORK (AP)  – March 7, 2008 – Nervous homeowners and economic analysts have been wondering how much worse the U.S. housing market could get. On Thursday they got an answer: Plenty.

Foreclosures are at a record high. Home equity is at a record low. The housing market is spiraling down with no end in sight – and taking people’s sense of economic security with it.

For the first time since the Federal Reserve started tracking the data in 1945, the amount of debt tied up in American homes now exceeds the equity homeowners have built.

The Fed reported Thursday that homeowner equity actually slipped below 50 percent in the second quarter of last year, and fell to just below 48 percent in the fourth quarter.

And that was just one example in a day of dismal housing reports.

The Mortgage Bankers Association said foreclosures hit an all-time high in the final quarter of last year. And pending U.S. home sales – those in the gap between when a buyer signs a contract and when the deal closes – came in below analyst expectations for January and remained at the second-lowest reading on record.

“There is no sign that we’re near the bottom in the housing market,” said Douglas Elmendorf, a senior fellow at the Brookings Institution and former Fed economist. “Housing prices will probably fall for a year, two or three to come.”

The trifecta of reports illustrates a housing market caught up in a “very negative, reinforcing downward spiral,” said Mark Zandi, chief economist at Moody’s Economy.com.

Home equity, the percentage of a home’s market value minus mortgage-related debt, has steadily decreased even as home prices and homeownership rates jumped earlier this decade. That was due to a surge in cash-out refinancings, home equity loans and lines of credit and an increase in no-down-payment mortgages.

Now declining home prices are eating into equity, and economists expect the figure to drop even more.

Economy.com estimates 8.8 million homeowners, or about 10 percent of homes, will have zero or negative equity by the end of the month. Even more disturbing, about 13.8 million households will be “upside down” if prices fall 20 percent from their peak. The latest Standard & Poor’s/Case-Shiller index showed U.S. home prices plunging 8.9 percent in the final quarter of 2007 compared with a year earlier.

Experts believe foreclosures will rise as more homeowners struggle with monthly payments as the interest rates on their mortgages adjust higher. Problems in the credit markets and eroding home values are making it harder for people to refinance their way out of unmanageable loans.

The threat of so-called “mortgage walkers,” or homeowners who can afford their payments but decide not to pay, also increases as home values depreciate and equity diminishes. Banks and credit-rating agencies already are seeing early evidence of it.

“If you’re struggling with payments and you have negative equity in your home, your struggling isn’t getting you very far,” Elmendorf said. “It’s very likely you want to stop and walk away.”

Even for those who retain some equity, the effect on consumer sentiment and spending will be profound.

Homeowners, who once happily tapped home equity for expenditures and home improvements, may instead save money as they watch their total net worth wither. Those who are willing to spend their home equity will find lenders reluctant to give out home equity loans or lines of credit.

“People were relying on home equity to maintain consumption. They can’t keep doing that once the equity’s gone,” said Dean Baker, co-director at the Center of Economic Policy Research. “Undoubtedly, this is one reason for the falloff in consumption in last couple of months.”

Economists worry that the prolonged housing downturn has put the economy on the brink of recession. The economy grew an anemic 0.6 percent in the fourth quarter.

A massive loss in home equity could even mean some Americans won’t have enough money to retire. On average, housing is Americans’ single largest asset, representing 39 percent of a household’s total net worth.

Melba Dumay, 44, worries that higher costs for insurance and other expenses will outpace any growth in value of the home she’s owned in Tampa, Florida, for about 10 years. She was depending on her home equity for retirement and as something she could pass on to her high-school-aged daughter.

“It’s your legacy to your children and everything else, and if that’s not worth anything then you got to start all over again,” Dumay said.

So far, the government has stepped in with a number of measures to contain the housing fallout. Last month, Congress passed a $168 billion (euro109.67 billion) economic stimulus package with provisions aimed at helping homeowners refinance into more affordable loans. The Federal Reserve has also slashed interest rates to in hopes of spurring growth.

On Tuesday, Fed Chairman Ben Bernanke suggested lenders reduce loan amounts to provide relief to beleaguered homeowners. But some experts think more help is needed.

“At the end of the day, these efforts will be insufficient,” Zandi said. “Policymakers will need to be more aggressive and put taxpayer money on the line to stem this. Ultimately, we will find a bottom, but it would be a mistake to let the market run its course.”

Regulators cite construction loan fears

WASHINGTON – March 5, 2008 – Loans to homebuilders and other developers are the latest slice of the credit market under duress, and analysts say banks could face hundreds of millions of dollars in losses as a result.

As commercial and residential real-estate prices decline, banks of all sizes face a growing number of loan defaults from builders unable to sell houses, and from developers whose malls and other properties turned out to be less desirable than anticipated.

These problems, if they worsen, are likely to rattle shaky credit markets and could cause more banks to fail in the coming years. They come after the prolonged real estate boom made such lending seem exceptionally safe, and default rates had been low.

Those seemingly safe loans are proving to be anything but secure. For example, Dallas-based Comerica Inc. set aside $108 million for loan losses in the fourth quarter of 2007, primarily because of bad real estate development loans the bank made, particularly in California and Michigan.

Construction and development loans are loans made to builders for properties such as strip malls, office buildings and residential developments. They have been a key source of profit for small and midsize banks.

The percentage of those loans that are 90 or more days past due rose to nearly 3.2 percent at the end of 2007, up from less than 1 percent a year earlier, and is now at levels not seen since the early 1990s, Sheila Bair, chairman of the Federal Deposit Insurance Corp., said in testimony to Congress on Tuesday.

Bair called those loans “one of the chief risks to the banking industry.”

Other regulators agree. Comptroller of the Currency John C. Dugan said “smaller banks that have exceptionally large concentrations in commercial real estate loans – and there are many of them – face real challenges in those parts of the country where real estate markets have slowed significantly.”

Many of those banks are smaller ones that shifted their lending toward construction and commercial real estate after facing tough competition from national players in the residential mortgage market. Bank examiners will step up their scrutiny of such lending activities, Dugan said in a speech in late January.

“The industry is overexposed to this sector of the real estate market, and it’s going to lead to hundreds of millions of dollars of losses over the next two or three years,” said Gerard Cassidy, a banking industry analyst with RBC Capital Markets in Portland, Maine. “Lending standards were unusually weak during the boom period.”

Some banks are already taking a hit. On Monday, shares of Marshall & Ilsley Corp., a Milwaukee-based bank holding company, slipped after a Goldman Sachs analyst cut his rating on the bank’s stock, citing the company’s exposure to construction loans.

Homebuilders know exactly how that hit feels. David Seiders, chief economist of the National Association of Home Builders, said Tuesday that the housing downturn is likely to be the “deepest downswing, the most rapid downswing, probably since the Great Depression.”

Seiders projects that the market – measured by home sales and housing construction – will hit bottom by the end of the summer and rebound gradually. But he emphasized that any recovery could be pushed back should predictions of recession come true.

In the commercial real estate market, investors have shied away from all but the safest loans. Credit rating agency Moody’s Investors Service said last month the performance of commercial mortgage-backed securities could be challenged this year by a weakening economy and uneasy financial markets. Tighter lending could cause commercial real estate prices to drop between 12 percent and 17 percent, Moody’s said.

Prices and demand for office buildings, malls and warehouses are falling with no signs of stopping soon, according to a report released last month by real-estate research firm Real Capital Analytics.

New home sales fall for third straight month, pushing to slowest pace in nearly 13 years
In more bad news for the beleaguered housing industry, sales of new homes fell in January for a third straight month, pushing activity down to the slowest pace in nearly 13 years. The median price of a new home dropped to the lowest level in more than three years.

The Commerce Department reported Wednesday that new home sales fell by 2.8 percent last month to a seasonally adjusted annual rate of 588,000 units, the slowest pace since February 1995.

The median price of a new home dropped to $216,000 in January, down 4.3 percent from the December median sales price, the point where half the homes sold for more and half for less. That was the lowest median price since September 2004 and underscored that the steep slide in housing is still under way.

Analysts believe that housing activity has further to fall as a tidal wave of mortgage foreclosures is dumping more unsold homes on an already glutted market. For January, the inventory of unsold homes dropped but since the pace of sales activity slowed as well, the number of months it would take to exhaust the current inventory rose to 9.9 months, the longest period in more than 26 years.

Until this inventory backlog is worked down further, economists are predicting more declines in prices in the months ahead.

The 2.8 percent drop in new home sales in January followed even bigger declines of 4 percent in December and 13.1 in November and represented weakness in every part of the country except the West, which saw sales increase by 2.2 percent.

Sales fell by 10.3 percent in the Northeast and dropped by 7.6 percent in the Midwest and 2.4 percent in the South.

Earlier this week, a real estate trade group reported that sales of existing homes had fallen by 0.4 percent in January, pushing existing home sales down to a seasonally adjusted annual rate of 4.89 million units, the weakest showing on records going back to 1999.

Median prices for existing homes dropped to $201,100, down 4.6 percent from a year ago, while the inventory of unsold existing homes rose to 10.3 months’ supply, just below the two-decade high of 10.5 months hit in October.

Analysts forecast further price declines until the inventory levels are worked down further. However, a rising tide of mortgage foreclosures is pushing even more unsold homes onto the glutted market and financial institutions have tightened lending standards since a credit crisis hit with full force last August, making it harder for prospective buyers to qualify for loans.

The weakness in housing has spread to the rest of the economy, raising the prospects the country could fall into a full-blown recession. The country is being battered by the prolonged slump in housing, a serious credit squeeze and soaring energy prices.

In another sign of trouble, the Commerce Department reported Wednesday that orders to U.S. factories for big-ticket manufactured goods plunged in January by the largest amount in five months, an indication that manufacturers are being caught in the weakness engulfing the rest of the economy.

The 5.3 percent drop in new orders last month reflected declines across a wide swath of industry from commercial aircraft and autos to heavy machinery and computers.

A growing number of analysts believe the economy will slip into a recession this quarter although they expect the downturn to be short and mild, thanks to aggressive interest rate cuts from the Federal Reserve and a $168 billion economic stimulus package passed by Congress earlier this month. Millions of households will begin seeing rebate checks in May that should give the economy a boost starting this summer.

The overall economy skidded to a barely discernible growth rate of 0.6 percent in the final three months of last year and many analysts believe that the gross domestic product may turn negative in the current quarter and the second quarter this year, meeting the classic definition of a recession as consumers, whose confidence levels have plunged to the lowest levels in five years, cut back on spending.

The 5.3 percent decline in durable goods for January was the first setback since October and was the biggest decline since a similar 5.3 percent drop last August.

The weakness was led by a 13.4 percent decrease in orders for transportation equipment, which reflected a 30.5 percent plunge in demand for commercial aircraft, a very volatile category, and a 0.8 percent fall in demand for motor vehicles and parts. It was the second straight drop in autos and underscored the problems facing domestic automakers as they struggle with weak demand in the face of surging gasoline prices and plunging consumer confidence.

The new durable goods report showed that a key indicator of business investment dropped in January by the largest amount in three months. Orders for non-defense capital goods excluding aircraft, considered a good proxy for business investment, fell by 1.4 percent last month.


Copyright © 2008 The Associated Press, Jeannine Aversa and  J. W. Elphinstone (AP Business Writer) (AP Economics Writer). All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

 

By Dawn Wotapka and Marshall Eckblad
From The Wall Street Journal Online

In the nation's worst-hit real-estate markets, home sellers are suffering a new blow: They are being blacklisted by lenders.

As property values decline and credit markets contract, home lenders nationwide are growing ever more unwilling to finance home purchases in sharply declining housing markets, driving prices down further. In some cases, lenders have ruled out entire geographic regions and property types altogether, most notably high-rise condominiums in South Florida and Las Vegas.

Lenders including BankUnited, a unit of BankUnited Financial Corp., and Vertice, a wholesale lending unit of Wachovia Corp., have elected not to lend to some areas or properties because of declining prices. Countrywide Financial Corp., the nation's largest mortgage lender, considered a similar move last week before reversing course, and other lenders have tightened underwriting guidelines for slumping markets so as to make financing nearly unattainable.

There are "lists circulating" from banks, says Peter Zalewski, a broker with Condo Vultures Realty LLC, and those lists are pushing down prices when news of the black-marked properties spreads.

Moreover, the blacklisting isn't always obvious. "We don't call it blacklisting," said an official at a large bank. "We just don't write the loan."

The banks are acting to protect themselves in a steep downturn. But the drying up of loans threatens to create a self-perpetuating cycle.

"If mortgage credit dries up, then prices are going to fall more," says Morris Davis, a professor of real estate and urban land economics at the University of Wisconsin-Madison's School of Business and a former economist at the Federal Reserve Board.

Countrywide sent shudders through the ranks of mortgage brokers when it sent brokers an email recently under the heading "Urgent Product Elimination." The message announced the company would stop approving its Fast and Easy and Alt-A mortgages for all high-rise condominiums nationwide, effective almost immediately.

Countrywide's Fast and Easy loans don't require verification of income, brokers said. Alt-A loans are generally provided to buyers with good credit who lack full documentation.

Countrywide reversed its policy a day later without explanation, but the episode demonstrated lenders' reluctance to underwrite mortgages in the country's most uncertain real-estate markets. Countrywide didn't respond to multiple requests for comment.

Florida's largest bank, BankUnited Financial Corp.'s BankUnited FSB, drew up a "nonpermissible condominium project list" that identified addresses of 191 condominium developments in Florida and Las Vegas for which the bank won't provide financing. The list was reported by the South Florida Business Journal.

For more than half the properties listed in the memo, the bank cited "declining market value" as the reason it wouldn't provide financing. Melissa Gracey, a spokeswoman for BankUnited, confirmed that the list is still in force and said the bank's "very conservative" lending guidelines rule out mortgages for such properties.

In some cases, lenders have blacklisted not specific properties, but entire geographical areas.

In December, Wachovia's Vertice unit stopped writing mortgages for all condominiums in South Florida, says Kasey Emmel, a company spokeswoman.

Wachovia's main lending operation "continues to offer condo products in all markets, including Florida markets," says spokesman Don Vecchiarello.

Blacklisting isn't redlining -- the illegal practice of restricting lending on a socioeconomic basis -- so it doesn't run afoul of fair-lending laws, says Alexander Bono, a partner at Schnader Harrison Segal & Lewis, a law firm in Philadelphia. Banks are allowed "to identify a county when it's based upon something other than socioeconomic conditions" and then change its stipulations for lending there, Mr. Bono says.

Even when banks haven't officially ruled out entire markets, the stipulations they use before lending in such areas are becoming very stringent, and can leave mortgage credit all but off-limits.

"Companies won't lend" money for purchases in developments that aren't at least 60% filled, says Paul Miller, an analyst at Friedman Billings Ramsey & Co., a unit of FBR Capital Markets Corp. When vacancy rates in a development are higher than 40%, Mr. Miller says, "your condo fees go through the roof," since a development's minimum maintenance costs remain static, regardless of the number of residents. And if condo fees remain high -- as underwriting logic follows -- then homeowners may have a harder time making mortgage payments.

"We're very cognizant of the risks involved" with "condominium developments in particular," says Terry Francisco, a spokesman for Bank of America Corp.

Other larger lenders have also tightened standards for mortgages they write in declining regions.

In December, Fannie Mae, the nation's government-sponsored mortgage-lending behemoth, issued an announcement titled "Maximum Financing in Declining Markets."

"When a property is located in an area identified as declining," the announcement says, the lender originating the loan must reduce the maximum amount it could otherwise lend to that buyer by 5%.

In healthy markets, New York's J.P. Morgan Chase & Co. will currently lend borrowers a mortgage equal to as much as 90% of a property's value. For borrowers in states that have declining markets, however, the bank reduces that maximum, says Tom Kelly, a spokesman for the bank. J.P. Morgan then reduces that level even further for borrowers in the worst declining markets, Mr. Kelly says, though he declined to provide specifics.

CitiMortgage, a wholesale lending operation of another large Wall Street bank, Citigroup Inc., maintains a list of "declining market areas" that red-flags dozens of counties in more than 10 states. Citi reduces the amount it will lend for properties in those counties "by at least 5%," the document says.

"We routinely review our credit parameters, including maximum loan-to-value ratios, in declining markets," says Mark Rogers, a CitiMortgage spokesman.

One silver lining: For "all-cash buyers," Mr. Zalewski says, the lists are "heaven sent."

Buyers who have cash "can use that to negotiate," he says: "If you don't sell to us, who are you going to sell to?"

By Ruth Simon - New sang in credit lines
From The Wall Street Journal Online

In the latest sign of how the credit crunch is hurting even borrowers with good credit, some home-equity lenders are starting to slam the door on homeowners who want to refinance their primary mortgages.

In some cases, homeowners who in the past would have been easily approved for a mortgage refinancing are finding that they can't get their home-equity lender to give the go-ahead, which is required to complete the transaction. Others are being told by their home-equity lender that they need to reduce the size of their loan or line of credit.

Approvals from home-equity lenders used to be routine, particularly if the borrower wasn't increasing the size of the mortgage as part of the transaction. But that's no longer always the case -- even in places where the housing market hasn't been hit by huge price declines.

Related Article How the Credit Mess Can Squeeze You

Such approvals, known in the industry as "subordinations," mean that the home-equity lender agrees to stand in second place behind the new mortgage and allow the existing first mortgage to be replaced by another first mortgage.

Many mortgage refinancings continue to go through without a hitch. But some homeowners who want to lower their rates or lock in a fixed-rate mortgage can't, even if refinancing would save them money and put them in a better position to repay their loans.

"For borrowers trying to improve their situation, this is a nightmare," says Richard Redmond, a mortgage broker in Larkspur, Calif. That's because getting a new home-equity loan to replace the old one in order to get a refinancing approved "may be impossible," he says, as many lenders have significantly tightened their standards as housing prices have fallen.

During the housing boom, many borrowers used home-equity loans as a way to buy a home with little or no money down without having to pay for private mortgage insurance. Others turned to these loans to pay off higher-cost debt or to finance renovations and even vacations. The dollar value of home-equity loans outstanding stood at $1.1 trillion in the third quarter of 2007, according to the Federal Reserve.

The higher hurdles for borrowers come at a time when home-equity lenders are reeling from rising losses in the face of higher delinquencies and falling home prices. More than 5% of home-equity loans were at least 30 days past due in January, according to Equifax and Moody's Economy.com, up from 4.4% in December and 3.4% a year earlier. Delinquencies on home-equity lines of credit have also risen, to 2.2% in January, from 1.9% in December and just 1.2% a year earlier.

Lenders extended an estimated $456 billion of new home-equity loans and lines of credit in 2007, down from a peak of $504 billion in 2006, according to SMR Research in Hackettstown, N.J.

In an effort to stem future losses, home-equity lenders have tightened their standards by, for example, significantly cutting back on how much of a property's value borrowers can finance. They are also going back to some borrowers and freezing their home-equity lines of credit or reducing the maximum amount they can borrow. Charlotte, N.C.-based Bank of America Corp., for instance, began notifying some of its customers last month that it was blocking access to their home-equity lines because of falling home prices.

Cleveland-based lender National City Corp. last month stopped approving refinancing requests from borrowers who received a home-equity loan from the lender through a mortgage broker. Kristen Baird Adams, a National City spokeswoman, says the move was "consistent" with the company's decision last summer to stop making loans through mortgage brokers.

A 'Strategic' Decision

"As a general rule, we are declining" requests related to such loans, says Ms. Adams. "It was a strategic business decision." She adds that "in certain scenarios, if the borrower's first mortgage is with another lender and they are willing and eligible to refinance [the existing mortgage] through National City Mortgage, we could subordinate the existing second mortgage."

Some other borrowers are getting turned down by National City because of tighter lending standards, such as a reduction in the maximum percentage of a home's value a borrower can finance, Ms. Adams says.

Dale Betterton, a financial-software developer, was among those caught short by the change in National City's policies. Mr. Betterton bought a home in Boulder, Colo., this past summer with 5% down. When interest rates dropped last month, he decided to refinance. But National City, which holds his home-equity loan, declined to approve the deal. Mr. Betterton had "superb" credit and the new mortgage would cut his mortgage rate by more than a percentage point, making him a better credit risk, says his mortgage banker, Lou Barnes of Boulder West Financial.

"My understanding was it was pretty straightforward to refinance when rates go down, and there wouldn't be any strange obstacles," says Mr. Betterton, who is now considering paying off his second mortgage so he can refinance.

David Erickson, a mortgage broker in Lynnwood, Wash., says he's had two refinancings declined by National City that "would easily have gotten approval six months ago." In the past, he says, home-equity lenders were eager to keep the loan on their books. Now, he says, "they'd sure love to get paid off and get 100 cents on the dollar."

In some cases, borrowers are getting a thumbs down from their lender because of a change in credit-worthiness or because of falling home prices. Others are getting squeezed by tighter lending standards.

"If there's a material change in the borrower's credit or the value of the home, we might be less willing" to approve a refinancing, says Richard Lieber, mortgage bank chief credit officer for IndyMac Bancorp Inc. IndyMac evaluates refinance requests "on a case-by-case basis," he says. "Due to declines in home values, we are turning down more" of these requests now than in the past.

Other lenders are also giving refinancings more scrutiny. Michael Dunne, a loan officer in Canton, Mass., says one of his clients was unable last month to complete a refinancing that would have reduced his mortgage payments by about $250 a month because local lender South Shore Savings Bank, which held the home-equity loan, refused to give its approval.

South Shore originally held the mortgage, as well as the home-equity loan, but the mortgage was recently sold to investors, Mr. Dunne says. The borrower had good credit, he adds, wasn't pulling out cash and had never missed a payment, but his total mortgage debt exceeded 90% of the home's value at the time the loan was originated. The rejection "really kind of shocked me," Mr. Dunne says, adding that the lender's "situation was not being hurt in the least bit."

Christopher Dunn, an executive vice president with the South Weymouth, Mass., lender, says he can't comment on the specific situation. "I think we are all being more careful," he says. "On the other hand, if our position isn't being worsened and the customer is able to do something to improve their situation," the bank is likely to give its approval.

Reducing Credit Lines

In other cases, home-equity lenders are vetting applications more closely and reducing the size of their line of credit before approving a refinancing. On one recent refinancing, Wells Fargo & Co. asked for copies of bank statements and other documentation to get a better picture of the borrower's assets, even though it had approved the borrower for a home-equity line of credit four months earlier, says David Soleymani, a mortgage broker in Los Angeles.

Wells Fargo ultimately approved the deal, but reduced the size of the credit line to $220,000 from $250,000. The move didn't create a hardship for the borrower because he hadn't tapped the credit line, Mr. Soleymani says. "Historically, they would accept [the borrower's information] at face value" and not ask for the documents, he says. "There's a higher level of scrutiny, and there's no longer the automatic assumption that the holder of the home-equity loan will subordinate."

Wells Fargo evaluates refinancing requests "on a case-by-case basis," says Kevin Moss, head of home-equity for the San Francisco-based lender, "and we consider a variety of factors such as credit experience, the combined loan-to-property value, and the ability to repay the outstanding loans." We want to do everything we can to try to work with our customers," he adds, "and keep their business while following responsible lending practices."

Homeowners with home-equity loans or lines of credit may be able to refinance more easily by simply paying off their loans. With home values falling in his market, Steve Walsh, a mortgage broker in Scottsdale, Ariz., says he's encouraging some borrowers who haven't tapped their credit lines or owe only a small amount to close down those lines, even if they have to pay an early-termination fee, which can run about $300.

Foreclosures hit all-time high

Over 900,000 borrowers are losing their homes, up 71% from a year ago, and a record number of home owners are behind on payments.

By Les Christie, CNNMoney.com staff writer

Last Updated: March 6, 2008: 2:25 PM EST

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NEW YORK (CNNMoney.com) -- More home owners than ever are losing the battle to make their monthly mortgage payments.

Over 900,000 households are in the foreclosure process, up 71% from a year ago, according to a survey by the Mortgage Bankers Association. That figure represents 2.04% of all mortgages, the highest rate in the report's quarterly, 36-year history.

Another 381,000 households, or 0.83% of borrowers, saw the foreclosure process started during the quarter, which was also a record.

Additionally, the number of mortgage borrowers who were over 30 days late on a payment in the last three months of 2007 is at its highest rate since 1985.

"Boy, that was ugly," said Jared Bernstein, an Economic Policy Institute economist of the data.

"It's another reminder that anyone who thought we had hit bottom was wrong. This was a huge bubble, and when a bubble of this magnitude breaks, it creates a huge mess," he said." It could take a lot longer for the correction to work through the system."

Housing rescue: What you need to know

One reason it may take so long is that there seems to be no end in sight for falling home prices.

"Declining prices are clearly the driving factor behind foreclosures, but the reasons and magnitude of the declines differ from state to state," said Doug Duncan, MBA's Chief Economist said in a prepared statement.

The foreclosure rates for prime and subprime adjustable rate mortgages both more than doubled compared with a year ago, from 0.41% for prime ARMs to 1.06% and from 2.70% for subprime ARMs to 5.29%.

But it was subprime ARMs that contributed most heavily to the nation's soaring foreclosure rates. Many of these loans come with low introductory rates that reset higher, often to unaffordable levels, in two or three years. Although they represent only 7% of all outstanding mortgage loans, they accounted for 42% of foreclosure starts during the quarter.

Delinquencies stood at 5.82% of outstanding mortgages, up from 5.59% during the three months ended September 30, 2007, according to the MBA. In the last quarter of 2006, the rate was 4.95%.

Home price plunge accelerates

"In states like Ohio and Michigan, declines in the demand for homes due to job losses and out-migration have left those looking to sell their homes with fewer potential buyers, particularly with the much tighter credit restrictions borrowers now face," said Duncan.

"In states like California, Florida, Nevada and Arizona, overbuilding of new homes created a surplus that will take some time to work through."

California and Florida are the states hardest hit by foreclosures. They accounted for 30% of all foreclosure starts in the United States last quarter, despite representing only 21% of the mortgage market.

Florida's foreclosure start rate more than tripled during the last three months of the year compared with a year ago, and they more than doubled in California.

Both states still have a sizable over-supply of inventory, according to Duncan, due to over-building during the speculative boom that lasted through mid-2006. That will continue to depress home prices and add to mortgage delinquencies in those states.

"We expect to see home price declines to last there through the end of 2008," he said, "after the rest of the country is in recovery."

As prices plummet -- already some California and Florida areas have seen price drops of 25% or more, according to Duncan -- defaults will soar.

And falling prices and growing foreclosures create a vicious cycle; the more prices fall the less likely it is that borrowers can use home equity to refinance into more affordable loans, which leads to more defaults. And as foreclosures rise housing inventory increases, further depressing prices.

At the same time, these trends have lead to a contraction the construction industry, hurting overall U.S. economic activity and increasing the chances that the economy will fall into recession.  

First Published: March 6, 2008: 10:13 AM EST