Seattle Bubble

News & discussion about real estate & the housing bubble in the Seattle area.

Seattle Bubble - News & discussion about real estate & the housing bubble in the Seattle area.

Entries Tagged as 'Financing'

Sagging Market Delays Another Condo Project

By The Tim on May 22nd, 2008 at 7:53 AM · 7 Comments

Is this the first sign that downtown Bellevue has reached its condo saturation point? Seattle Times: Bellevue condo project, European Tower, put on hold

The housing slowdown has claimed another local high-rise, high-end condo project.

The developer of 16-story European Tower, a downtown Bellevue project whose design features just one unit on each floor, said Wednesday that it won’t start construction until the market turns around.

Eugene Gershman, chief operating officer of Bellevue-based GIS International Group, attributed the delay to reticence among prospective buyers whose current homes are taking longer to sell.

He said buyers indicated that if construction started now, the tower might be finished sooner than they could close on their units.
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Buyers have reserved six of the project’s 16 units, he said.

The article also mentions some of the other projects around the Seattle area that have recently been “postponed.”

European Tower’s delay is the latest in a string of postponements. The Insignia Towers project in Seattle’s Belltown neighborhood recently announced a delay, citing the market slowdown.

And earlier this year, work on the luxury 1 Hotel & Residences in downtown Seattle was postponed until at least late summer while developers redesign the project to make it more appealing to lenders.

Gershman said availability of financing was not a major reason for European Tower’s delay. But Dean Jones, of the Seattle marketing firm Realogics, said tight credit is taking its toll on a number of downtown Seattle and Bellevue condo projects.

“If they’re not under construction now, with a few exceptions, I would doubt we’ll see any break ground this year,” Jones said.

The question is, are enough projects holding off to keep the market from experiencing a severe oversupply in the next few years?

(Eric Pryne, Seattle Times, 05.22.2008)

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WaMu Cuts Home Equity Credit + More Financing News

By The Tim on May 19th, 2008 at 1:30 PM · 15 Comments

The Puget Sound Business Journal reported Friday on some more news from WaMu that is likely to affect local homeowners.

Washington Mutual Inc. has slashed or suspended $6 billion in available home equity credit to its customers in an effort to reduce its risk in a flailing housing market.

If they haven’t already been notified, WaMu’s customers across the country will learn of the change to their credit availability in a letter mailed to them in the next several days. The bank declined to disclose how many customers will be affected.

If a borrower’s home has depreciated — regardless of credit history — the line of credit will likely be reduced because the equity has fallen.
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The Seattle-based thrift reported $1.1 billion in bad home equity loans and lines of credit in the first quarter, up 35 percent from the same time the previous year, according to a recent regulatory filing. The company saw a total of $9.2 billion in nonperforming assets for the quarter, or about 2.9 percent of its total assets. Nonperforming assets are a measure of bad loans.

Good. Making it super-easy to borrow from one’s home equity essentially eliminates one of the primary advantages of buying a home. A home “owner” that is simply building debt instead of building equity is actually worse off than the so-called bitter renters in my opinion.

Elsewhere on the home financing front, the P-I ran a syndicated column this weekend that contends that although rates on the new conforming-jumbo loans have dropped down close to conforming loans, they’re still pretty hard to get.

Higher loan limits, set early this year by the federal government as part of an economic stimulus package, were supposed to make jumbo loans more affordable in expensive housing markets. Rates finally have come down on these so-called jumbo conforming mortgages, though these loans likely will remain hard for most borrowers to get.

Unfortunately the article doesn’t really go into detail about why the loans are still hard to get, but I suspect it’s for all the reasons I laid out back in March.

(Journal Staff, Puget Sound Business Journal, 05.16.2008)
(Holden Lewis, Bankrate.com, 05.16.2008)

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The Nature of the Mortgage Crisis

By The Tim on May 15th, 2008 at 9:47 AM · 41 Comments

My favorite personal finance blog Get Rich Slowly gave me a heads up earlier this week about an excellent radio piece that you should make the time to listen to.

It’s titled The Giant Pool of Money, and you can download the mp3 for free through the 18th of this month. They interview a handful of people from up and down the chain of mortgage lending over the last few years, and lay out the nature and source of today’s mess in plain language.

You’ll hear from a borrower that took on far more mortgage than they could afford, a lender that wrote and immediately sold the loans (while making obscene amounts of money), and a CDO manager that owns pieces of millions of loans that he literally looks at as lines in a spreadsheet.

It’s an excellent piece, and although many of you may have already seen mention of it elsewhere, I felt I should link to it here as well.

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More Bad News for WaMu

By The Tim on April 16th, 2008 at 6:00 PM · 65 Comments

How about a few more WaMu updates. The (bad) news seems to keep coming for the Seattle-based bank.

First up, a look back at how WaMu got itself into this mess, courtesy of the Seattle Times: Where WaMu went wrong. This article has its own thread in the forums, so be sure to check that out as well.

Next, take a gander at today’s WaMu headline: Washington Mutual Posts Huge Loss; Director Quits

Washington Mutual, the nation’s largest savings and loan, said Tuesday that it lost $1.14 billion in the first quarter as the struggling economy and flagging real estate values pummeled the bank’s borrowers.

The Seattle-based thrift lost $1.40 per share, compared with a profit of $784 million, or 86 cents per share, in the first quarter a year earlier. It was the bank’s second consecutive quarterly loss.

Washington Mutual also said it needed to set aside $3.5 billion to cover bad loans in its $250 billion portfolio during the first quarter. The bank set aside less than half as much to cover bad loans in the year-ago period.
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Chairman and chief executive Kerry Killinger promised shareholders that Washington Mutual will turn around within a year.

“We will get through this,” Killinger told more than 2,000 shareholders at Seattle’s symphony hall for the bank’s annual meeting Tuesday. “I want people to calm down and have a little faith.”

Killinger outlined the company’s strategy for working through the mortgage crises: aggressive marketing of credit cards, continued growth in services to small businesses, and ongoing improvement in deposits at its retail branches.

Hmm, aggressive marketing of credit cards? Is that really the best way to work your way out of a mess like this? I guess the thinking is that it’s harder for people to “walk away” from credit card debt than from a home loan. Anyway, best of luck to you, WaMu. I have a feeling you’re gonna need it.

(Drew DeSilver, Seattle Times, 04.14.2008)
(Donna Gordon Blankinship, Associated Press, 04.16.2008)

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Bill Virgin: Homeownership has been oversold

By The Tim on March 27th, 2008 at 12:00 PM · 44 Comments

Over at the P-I earlier this week, Bill Virgin chimed in on the housing mess again with yet another well-reasoned column: Homes are good investments, not slot machines or ATMs.

In the great American sport of finger pointing and blame shifting, a new villain has emerged to explain the mortgage-finance crisis.

The fault, it turns out, lies not with incompetent, deceptive lenders, naïve, speculating borrowers, greedy, reckless Wall Streeters, slumbering regulators, bubble-creator Alan Greenspan or all of the above.

Instead, the root cause is something far more fundamental: the American belief in the value of homeownership.

Or so says an emerging theory that argues that the attributes of owning a home have been, pardon the phrase, oversold, and had the U.S. not been so hellbent on getting people to buy, much of the current debacle could have been avoided.

So now is probably a useful time to review some basics about American attitudes toward homeownership, and whether they did, in fact, contribute to the economy-shaking mess we’re now in:

  1. Homeownership is good. Homeownership — for the individual and for society — works.
  2. What’s not so good, and what consequently hasn’t worked, are the methods for encouraging homeownership and the expectations of what ownership would accomplish financially for the buyers.

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Homeownership was also considered a financial virtue, being one of the few ways average Americans could achieve long-term financial solvency. Once they saved up for a down payment on that starter home, they could use the equity they slowly built up, from their own payments, price appreciation and improvements to the property, to move up to larger or nicer homes, to maybe even — and here’s a novel concept today — to enjoy the income freed up by paying off the mortgage.

Which is about the point in our story where the trouble begins.
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Eventually the markets will correct, although the price of that correction is likely to be steep in lost jobs, houses, savings and economic health. If our present calamity strips away the excesses and false assumptions, and returns an appreciation of the merits of home ownership, that might be one of the few good things to come out of this.

Bill continues to be one of the few in the local mainstream press that actually seems to get what’s really been going on, and where we’re headed as a result of this mess we’ve gotten ourselves into. As usual, you should read the whole article. Kudos to Bill.

(Bill Virgin, Seattle P-I, 03.24.2008)

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Snohomish Co. update & thoughts

By S-Crow on March 26th, 2008 at 10:04 PM · 19 Comments

Sorry no stats or graphs from me, just in the trenches reporting.

Snohomish Co. Update:

My wife is off providing sterling service tonight in Issaquah for clients who are buying/selling a home, (yes, we do business all over) so I’ve got some free time to do a bit of blogging and research.

There are a quite a few homes both listed and FSBO that are short sale candidates. That means that if the existing homeowner were to get an offer, the lender would have to agree to take an amount less than the sum of their encumbrances.

After researching about 15 properties that were short sale candidates, I stopped. What’s the point. The story kind of repeated itself. Basically, the gist of it is that I see home prices “softening” further. Many short sales are in neighborhoods that were recently built in 2004, 2005, 2006, early 2007. 100% financing was the primary type of mortgage on just about all of these short sale candidates. Lots of sub-prime lenders financed these homes, some of which are no longer around. This really is the story that we are going to have to get used to.

If interest rates continue to stay low and prices continue to have downward pressure, those who can buy will be receiving much more house for their hard earned money. So that is the silver lining if you are on the buyers side of the HUD-1 Settlement Statement.

I would love to report that the market in Snohomish Co. is earnestly in the Spring groove for buying but the truth is that the first quarter of the year is coming to a close with sales volumes down YOY , so unless we have quite a change in the credit markets to get things moving along as we enter the prime selling/buying season of April, May and June, it may not be any better than the existing pace we are on.

As it stands, lending requirements have become stringent enough that it is exposing quite nicely how much of the buying in months past really was a function of consumers obtaining mortgages that were setting many up for financial distress. In other words, eliminating the loose lending (I know everyone has read this ad nauseum) has exposed the frenzied market for what it really was—a foundation of quicksand via toxic financing that could only be rescued by ever escalating housing prices. The unraveling of the credit markets, billions in losses and subsequent bail out of Wall Street superfortresses such as Bear Stearns and others (more to come?) shows that on every dollar lost there was an address somewhere in America tied to it.

In January, refinancing did take a very big jump when rates dropped dramatically to about 5% and many people took advantage (those that could anyway).

My belief is that inventory will continue to increase (outpace sales) as some of those listings that were taken off the market in Fall and Winter of 2007 try again this Spring.

In conclusion, the fallout from the mortgage binge and foolish lending is really disrupting markets across the country. It is not different here in the Puget Sound region and I hope the seriousness and disappointment in my tone comes across. Is this really what was intended when we think of the American Dream? I know, I know, it’s just a natural market cycle and I need to get over it.

S-Crow

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