WSJ walk away

Wall Street Journal

As home prices plummet, growing numbers of borrowers are winding up owing more on their homes than the homes are worth, raising concerns that a new group of homeowners -- those who can afford to pay their mortgages but have decided not to -- are starting to walk away from their homes.
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Typically borrowers who turn in their keys are those who have run into financial trouble or need to relocate but can't sell their homes. But mortgage-industry executives and consumer counselors say they are starting to see people who aren't in dire financial straits defaulting on their mortgages because they don't want to pay for properties that have negative equity.

Many are speculators who had planned to quickly flip the home, but others appear to be homeowners who had second thoughts about their purchase.

"It may not be a big thing yet, and hopefully it won't be," says David Berson, chief economist for mortgage insurer PMI Mortgage Group Inc., of Walnut Creek, Calif. But if it turns out to be a significant trend, he says, it means that "delinquencies and defaults could be higher than the industry is estimating."

Some borrowers feel they have no good alternative. A tight credit market has made it tough for would-be sellers to find buyers or for borrowers looking to lower their mortgage costs to refinance.

Other borrowers are walking away in frustration because they can't arrange a workout with their lenders, says D.J. Enga, director of outreach services for Auriton Solutions, which counsels homeowners nationwide. Mr. Enga expects that 10% to 15% of the roughly 4,000 callers counseled this month by Auriton, of St. Paul, Minn., will walk away from their mortgages.

Sgt. First Class Nicklaus Skaggs is among those looking to walk way. Mr. Skaggs bought his home in April 2005 shortly after returning to California from a one-year tour of duty in Baghdad.

The $455,000 three-bedroom home he and his wife purchased in Vacaville, about one hour northeast of San Francisco, is worth an estimated $285,000 today, well below the $453,000 he owes on his mortgage. The monthly mortgage payment, which jumped after its interest rate increased, is now $4,000, up from $2,980 when he bought the house.

Mr. Skaggs expects to be redeployed to Iraq again later this year. But he can't sell his home, since there are few buyers, and he can't refinance because lenders require a large down payment he doesn't have. Now, the 18-year Army veteran has decided to walk away from his mortgage. He hopes in a few years lenders see his decision as a unique situation created by the housing meltdown. "I don't think that house is going to recover in value any time soon," said the 40-year-old. "I'd just be throwing the money away."

A rise in the number of people choosing to default on their mortgages would represent a significant departure from past behavior of American homeowners, who during past housing downturns tended to walk away only as a last resort, often because they couldn't afford to pay because of unemployment, illness, divorce or other life-altering changes that reduce income. And even then, the number of people who walked away was relatively small. During the oil bust in the Houston area during the 1980s and in California during the early 1990s, for instance, there was a brief spate of people sending in their keys to their lenders.

What's different now, analysts and economists say, is that home prices have fallen so far so quickly that some homeowners in weak markets are concluding that house prices won't recover anytime soon, and therefore they are throwing good money after bad. Also, many borrowers who bought in recent years have put down little if any equity. "If they haven't lived in [the home] very long and haven't put any cash in it, it's a lot easier to walk away," says Chris Mayer, director of the Milstein Center for Real Estate at Columbia Business School. He also notes that new homeowners may not have strong ties to the community.

Some borrowers, says Mary Kelsch, senior director at Fitch Inc., are less willing to make the sacrifices needed to stay in their homes, given the current environment. "It's a change of mind-set" she says. They are "looking more at their home as an investment that has lost its appreciation potential and don't really want to continue to pay."

Some in the industry want to toughen the consequences for borrowers who walk away. Executives at Fannie Mae say they are working to create harsher penalties for people who walk away from mortgages, and they plan to pursue some borrowers in court. They also want to extend the amount of time between when borrowers default and when they become eligible again for a Fannie Mae-backed loan.

"Of course, we will make exceptions for extenuating circumstances, like divorce or death," says Mike Quinn, a Fannie Mae executive. "But who we are trying to get are the people who can afford to make payments but have decided not to."

Goldman Sachs economists estimate that as much as $3 trillion in mortgages could be underwater by the end of the year, leaving 30% of the country's outstanding mortgages in negative equity. Since there is roughly $1 trillion in subprime mortgages outstanding, that means a large amount of better-quality mortgages, such as prime and Alt-A -- a category between prime and subprime -- will be attached to negative equity.

"The focus has been on the [interest rate] resets," said Goldman Sachs economist Andrew Tilton. "But if you're in a deep enough negative-equity position, defaulting has its own kind of logic."

In the Phoenix area, where home prices were off 15% in the fourth-quarter when compared with a year ago, accountant Steven Ulrich says several of his clients have recently said they plan to walk away. One client's home is now worth $100,000 less than the mortgage and the other is $60,000 underwater.

"It surprised me," said Mr. Ulrich, who works at The Focus Group in Scottsdale. "I'd never had people doing that before, if they had to it was something they were forced into. But these people are choosing it as a strategy, and I think it's going to be happening a lot more."

Some financial advisers are even encouraging homeowners who are upside down to consider foreclosure, which they see as a purely financial decision with limited negative consequences. YouWalkAway.com, a Web site started in January that offers foreclosure counseling to homeowners, advises that borrowers who default on one mortgage can typically get another mortgage between two and four years after a foreclosure. Then, "before you know it, you will have this behind you and a fresh start!" the site says.

A foreclosure will stay as a "strong negative" on your credit report for as long as seven years, though the impact on a borrower's credit score declines over time, says Mike Campbell, chief operating officer of Fair Isaac Corp., maker of the popular FICO credit score.

"Every single person we talk to either owes 100% [of their equity] or is upside down anywhere from $10,000 to $300,000," says John Maddux, co-founder of YouWalkAway.com, which charges borrowers about $1,000 for advice. Mr. Maddux says the site has received more than 190,000 visits and about 20% of their clients are investors.

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Will Birdsey, 34, and his wife, Jennifer, 33, both from San Francisco, say they are looking for a house in the Lamorinda area but don't believe prices will rise in the next year.

"I'm not bullish on house prices," said Birdsey, a commercial real estate project manager. "My wife and I believe prices will continue to decline, but we still want to look. We're not buying this as an investment."

Birdsey said that if his house's value drops in the next few years, it doesn't matter because he plans on holding the property for 20 years or more. "It's not the end of the world," he said. "We're being selective and feel time is on our side."

As prices drop and inventory and foreclosures rise in the Bay Area, many buyers feel it's time to start looking for a bargain and, hopefully, their dream house.

The debut of bigger government-backed loans next month and an expected interest rate cut could even ignite home purchases, especially for those previously priced out of the housing boom.

Alexandra Whitford, 26, of Walnut Creek recently signed the dotted line on a 1,400-square-foot, three-bedroom, two-and-a-half-bath home in Bay Point with her husband, Jeff, after looking at properties for two weeks.

"Two or three years ago, we wouldn't have been able to buy anything," she said. "It's an opportunity for the younger generation to purchase."

The Whitfords said that with lower interest rates and prices, it seemed like a good time to buy. The couple budgeted $400,000
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and started looking. Although Alexandra said she didn't plan to buy a bank-owned home, she and her husband found one that had been on the market for less than a week, paying $385,000 and 5 percent down after some negotiation.

"It turned out that prices were lower than we expected ... It was a nice little surprise," she said. "A few years ago, $400,000 was the condo next to mine, a one-bedroom, 900-square-foot condo."

While the Whitfords' timing was accidental, many buyers are trying to "time the market," or buy when prices hit the bottom.

Doug Meek, a middle school teacher who lives in Walnut Creek, is looking for a home for his 62-year-old mother.

Meek said that he was a critic of the housing boom and was sure the market would eventually subside, something he told his family prior to 2004.

"My wife and I just kept saving money and waited for this thing to really get crushed," he said. "I kept feeling pressure. I had three kids in one room. I had no idea the market would go down this much."

He and his wife bought in January 2007, when the market was just starting to slow, saying he didn't time the market correctly, but he hopes his mother and his brother, who was also looking to buy, will.

"We're basically looking for something where she will be able to sustain her lifestyle," he said.

He found a town home in Concord and made an offer of about $200,000 but hasn't heard from the owner yet. Meek feels a little vindicated though. A few years ago, the "same little condo" was twice the price, he said.

Timing the market isn't unusual.

According to Stephen Levy, director of the Palo Alto-based Center for the Continuing Study of the California Economy, the early 1990s was another period of declining values in the housing market.

"It's new over the last 200 years but not new in the past 20 or 30 years," he said.

People are only concerned about the right time to buy when values may go down, Levy said.

"Previously, there was no timing the market because the price was always going to be higher," he said.

Levy said that prices are still outstripping wages, a sign of an overvalued market, and to expect additional correction for at least another year. But Levy said that buyers attempting to time the bottom of the market may be disappointed.

"If people had timed the market a year ago, they would have blown that," he said.

Roger Stone had spent three months shopping for a home before signing a contract in February for a $465,400, 3,500-square-foot home in Tanglewood at Live Oak Ranch in Oakley.

"In that three-month period, it continued to change, change, change," the 46-year-old landscaper and tree-cutter said. "I was actually in contract with another builder to buy another house, but by December the price had changed so much. They were not willing to renegotiate, so I canceled it and walked away."

The unpredictable market is making buyers more choosy and unlikely to purchase anything not considered "a good buy."

Christopher Thornberg, an economist and founder of Beacon Economics, which has offices in Los Angeles and San Rafael, said that timing the housing market is easier than the stock market.

"These are markets that are very long; it's not like stocks, where the price goes up or down erratically," he said. "Home prices don't magically rise and fall. When prices haven't gone down for six months, then you're good to go."

Thornberg said that in the short-term, the housing market will be going down, with factors such as inflation and recession only lengthening the process.

"If you have the attitude that this is your dream house, and you're willing to take the loss in order to secure this house that you may never have a chance at again, then by all means, buy it," he said. "But if you're not that picky, then wait."

Barbara E. Hernandez covers real estate. Reach her at 925-952-5063

OK

Oklahoman

Oklahoma isn't suffering the foreclosure casualties as elsewhere in the country, where countless homes aren't selling and others are being abandoned because owners can't make payments.


The number of foreclosures in the state was down more than 12 percent last year. Still, the mess in the mortgage industry is hitting home for some Oklahomans.

Bob and Dorothy Harper of Yukon grudgingly put their dream home up for sale Jan. 16. They had it custom built in 2002 to fit their every desire.

There are more than $60,000 in upgrades, including imported Italian tile shipped from Dallas, marble window sills, oak trim, a commercial kitchen and pool and adjoining hot tub.

"It's not easy to come out of this house,” Bob Harper, 60, said. "It's everything we worked our whole lives for. We'll never own anything like this again.”

A real estate broker with variable income, Harper took an adjustable loan, figuring he'd refinance it later. He took out a second to furnish it.

Three years later, the interest rate on Harper's 30-year loan reset from more than 6 percent to 11 percent, or $940 to nearly $1,500. The hike coincided with Harper's wife's hip replacement surgery, which caused her to lose her livelihood as a beautician.

"We were like deer caught in the headlights,” Harper said. "We liquidated our 401ks, Roths, everything to hang onto the house and pay our bills.”

Refinancing wasn't an option because in today's crippled mortgage industry, lenders are making few, if any, stated-income loans — the type of loan that helped the Harpers buy the house.

The couple have listed their 2,153-square-foot home for sale and priced at $220,000, $8,000 less than what they paid for it.

The Harpers are just one example of some Oklahoma homeowners entangled in what's often described as the nationwide "mortgage mess” or "mortgage crisis.” With the appreciation of home prices the first half of the decade, buyers frequently sought adjustable rate mortgages, interest-only loans and other creative financing to get into homes.

Now that the loans are resetting, many face payments they can't afford. Their only options are to refinance their loans, default on them — or sell, if they owe less than what their homes are worth, can afford the Realtor commissions and any prepayment penalties.

Waiting to sell
Tamela McSwain grapples with a different predicament. She married and moved into her husband's home in Mustang in September, but has been trying unsuccessfully to sell her home in west Edmond since late July. The newlyweds have been carrying two mortgages, at about $3,500 a month.

"All I brought with me was my Krups coffeemaker and clothes,” McSwain said. "I left my home furnished, in hopes it would show better.

"It's been plenty long for me.”

Her new husband's home is a little bachelorized, she said. Plus, they're constantly needing candles, area rugs and other things she has at her house — but it's a half-hour's drive away.

"I'd like to dump the second mortgage, but I don't want to be silly and just dump the house,” McSwain said. She already has dropped the price on the 1,975-square-foot home $3,400 to $198,500.

According to the Oklahoma City Metro Association of Realtors, McSwain's situation is more of an exception than the norm. On average, most homes are taking about 95 days to sell, according to the association.

Planning to refinance
Mary Gardner of Edmond is among homeowners who took a creative loan. In 2003 she refinanced her home with an interest-only note.

The loans free borrowers — for up to 10 years — from paying the amount they'd typically pay toward principal, or the original loan amount. For a set period, they pay only interest. Then, their loans adjust back to full amortization over the remaining term. For example, on a 30-year loan of $150,000 at 6.3 percent fixed rate, the monthly payment — when most of it goes toward interest — would be $961; $829 in interest and $132 in principal. With an interest-only loan, the monthly payment would be $829.

"Not being locked into a higher payment has been very advantageous for us,” Gardner said.

When she took out the loan, she was working a mostly commission-based job and used the money she would have paid toward principal to pay off high-interest credit card debt, which she's now close to retiring.

Still, Gardner, who now works for a title company and draws a regular paycheck, admits she's a little scared of the current mortgage climate. Before her loan resets this summer, she plans to refinance it to a traditional fixed-rate, ideally a 15-year mortgage.

"I probably can make it without refinancing, but don't want to,” Gardner said. "Now that the rates are more favorable, I want to lock into a regular thing.”

"It's not easy to come out of this house. It's everything we worked our whole lives for. We'll never own anything like this again.”


Enid New


Home prices are good in Enid, houses are selling well and should continue in the foreseeable future, according to local real estate agents.

Anna Blubaugh, of Century 21 Homes Plus, said the Enid market is doing well. Homes average 60 to 90 days on the market, although that varies somewhat. During higher times of the year — spring and summer — days on the market may fluctuate, she said.

Some owners also are helping with closing costs, but have not taken discounts, depending on where they choose to start the listing price. Blubaugh said there seems to be a shortage of homes selling for $80,000 to $120,000.

“They sell very quickly. That’s a good price for a home for someone looking for their first home, or moving up to their second home. That’s a good manageable payment in that price range,” she said.

Blubaugh cautioned when the national media talk about real estate issues, they are referring to what’s happening on the East and West coasts, and that does not necessarily pertain to Enid.

Interest rates in Enid still are good, Blubaugh said.

Jim Nicholas, of Nicholas Realty, said Enid sales have been strong so far this year and appear to be going up.

“We have a very good market in all price ranges,” he said.

Nicholas said a home with good eye appeal usually will sell faster than an equal house without the curb appeal. There is some price discounting in every market, he said, no matter how good the market is. Part of that depends on how well the house is cared for or if the list price is too high.

“It’s market driven. Condition, location and price are always the same. I’ve been at it for 50 years and it hasn’t changed,” he said.

The only down market in Nicholas’ career was the period between 1984 and 1990, he said, but a recovery began in 1987. The middle market always has been strong in Enid. Rates in the last five years have allowed people who thought they could afford $200,000 homes to buy a $400,000 home, because the interest has been reasonable, he said.

CA bay area VCS 200k

Bay Area

While the Bay Area housing market overall is slumping and projected to get worse, a local real estate broker sees mostly positive news in Alameda and even possibly some growth this year.

Home prices on the Island remain high and may even see an increase in the spring, said Jerry Nussbaum, owner of Kane and Associates Realty.

The foreclosure and mortgage crises and the double-digit percent decline in prices seen in other areas, such as east Contra Costa County and parts of Oakland, have not greatly affected Alameda.

"While there's some softening of prices (in Alameda), particularly among condominiums and townhouses, that has not been the case as much with single-family detached homes," Nussbaum said. "I wouldn't say (prices are) at their height," he added. "They're not at their height, but the amount of decline is much less than people think it is."

Nussbaum said the city has been fortunate it has not been overbuilt and that it remains an incredibly attractive place to live.

"Right now," he said, "we have the beginnings of a fairly strong spring market."

However, Nussbaum acknowledged a dramatic decrease in sales volume in the city. Some 500 properties were sold last year, reflecting a downward trend from a high of 760 properties sold in 2003.

"We have not seen volume like this since the early '90s, the beginning of the recession of the early '90s," he said.

Other Alameda real estate agents last week said they agreed with Nussbaum's assessment.
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Maureen Shandobil, an agent with Harbor Bay Realty, said she just sold a "lagoon home" on San Jose Avenue near Otis Elementary School for $1 million. The property had 11 offers, she said.

However, home sales around the Bay Area fell in January for the 36th month in a row, and four Bay Area counties saw median prices drop below $500,000 -- something not seen since 2005, DataQuick Information Systems reported recently.

A total of 3,586 new and resale houses and condos were sold in the Bay Area in January. That was down 29.2 percent from 5,065 in December, and down 41.9 percent from 6,168 in January 2007. The figures were the lowest for any month in DataQuick's 20-year history. The monthly average is 6,319 sales.

In Alameda, Contra Costa, Solano and Sonoma counties, median home sales prices dropped below the $500,000 mark. The last time that figure was below $500,000 in Alameda and Contra Costa counties was January and February 2005, respectively, said analyst Andrew LePage.

"There was very little selling in those counties and significant chunks of it were foreclosure activity," LePage said. "In Contra Costa, 33.1 percent of homes sold in January had been foreclosed on in 2007. In Solano County it was 43.2 and Alameda it was 24.9 percent."

Foreclosed sales counted for 19 percent for the entire Bay Area.

San Mateo County also experienced its biggest drop in 20 years in sales and its median home price fell 8.2 percent. The only time home prices fell more was during the dot-com bust of February 2002, LePage said.

The drop in home sales and prices is based on three factors, he said.

"Many people are not out there buying now because they already bought and may be losing that home," LePage said. Other reasons include buyers and sellers trying to time the market and the tightening of credit standards and recorded drop-off of loans more than $417,000 in September.

The median price paid for a Bay Area home was $550,000 last month, down 6.4 percent from $587,500 in December, and down 8.5 percent from $601,000 in January last year. Last month's median was 17.3 percent lower than the peak $665,000 median, reached in July, and was the lowest since February 2005, when the median was $549,000.

"I think it looks like the typical January it was," said Larry Klapow, president of Coldwell Banker Residential Brokerage, San Francisco Bay Region. "You finally saw prices come down because the high-end homes sales came down."

Klapow said he believed the new $168 billion economic stimulus package signed by President Bush on Wednesday would help the market, especially those move-up buyers. "It's a bit of a bottleneck in that segment of the market," he said. "It will help selling the $500,000 homes and get those people moved up to whatever they are trying to buy."

The new economic stimulus package, which would go into effect March 14, could raise current government-sponsored mortgage limits from $417,000 to $729,750 until Dec. 31.

Last month, the percentage of Bay Area homes purchased with jumbo mortgages, or loans more than $417,000, fell to 34.5 percent, down from 39.6 percent in December and about 63 percent before the credit crunch six months ago.

Stephen Levy, director of the Center for Continuing Study of the California Economy in Palo Alto, said the economic stimulus package was unlikely to change much in the state's housing industry.

"I think prices are still too high, by at least 10 to 15 percent," Levy said. "Too high means that they are unaffordable to people based on their current income. We were in a stage where housing problems got way out of line because lenders were not requiring income or assets."

Lower interest rates for qualifying households between $400,000 and $700,000 would help but wouldn't be enough to offset the change in lending practices, he said.

"Some people can buy a bit larger house, but I doubt it will have much effect until the price correction and houses become affordable," Levy said. "It doesn't make a difference if the house is still $200,000 more than you can afford."

Jon Sonstelie, a visiting fellow at the San Francisco-based Public Policy Institute of California and an economist, said mortgage rates would have more effect on the housing market than the Bush administration package.

"When interest rates fall, prices tend to rise," he said.

Hans Johnson, associate director of research for the Public Policy Institute of California, said many factors were influencing housing statistics, including market psychology, decreased demand and the credit crunch.

"While there was clearly a market psychology when the market was going up," he said, "now market psychology is on the downside.''

The typical monthly mortgage payment that Bay Area buyers committed themselves to paying was $2,503 last month, down from $2,744 the previous month, and down from $2,804 a year ago. Adjusted for inflation, current payments are 4.9 percent below typical payments in spring 1989, the peak of the prior real estate cycle. They are 24.8 percent below the current cycle's peak in June last year.

Because of late data availability, the December statistics for Alameda County were extrapolated from the first three weeks of the month.

Barbara E. Hernandez covers real estate. Reach her at 925-952-5063 or bhernandez@bayareanewsgroup.com. Visit her East Bay real estate blog at http://www.ibabuzz.com/propertylines.


In the heady years of the real estate boom, buyers who pulled out of a deal usually got their deposits back.

But these days, in a market still searching for a bottom, buyers who walk away are increasingly out of luck.

"In the past, some home builders would not try to keep deposits knowing full well they could sell the property for more money within a short period of time," said Ron Rossi, a veteran real estate attorney in San Jose. "Obviously when the markets get tighter, these things get more dicey."

Just ask Seyda Harding Kaynak. Three months after she put down a $30,000 deposit on a $952,975 home to be built by Toll Brothers in Dublin, she and her husband changed their minds.

An agent for Alain Pinel Realtors, Kaynak initially was excited about the new neighborhood under construction and encouraged other clients to check it out. But after signing her own sales contract, a client she represented - who was buying a condominium in the same development - had trouble closing the deal on the condo with Toll Brothers.

So in July, Kaynak asked Toll Brothers to refund her own deposit. The company, which declined to discuss Kaynak's case specifically, refused, pointing to the signed contract, which both Kaynak and her husband signed. Eight months later, Kaynak is still fighting to get her deposit back.

California real estate law allows a seller to require a deposit of up to 3 percent of a home's value to cover damages if a buyer
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backs out. Under the law, the seller can keep that. Kaynak's deposit was up to 3 percent.

In a rising market, industry experts say, builders have been known to refund deposits because they can sell the house for the same price or more. But it's another story in a falling market such as the Bay Area, where home sales dropped 42 percent in January compared with a year ago, according to DataQuick Information Systems.

"Builders are counting on these contracts. They are investing a lot of money, buying land, paying city fees and school district fees," said Paul Desmet, president of the Ryness Co., a consultant to the home-building industry.

Moreover, when a buyer puts down a deposit, that house is considered sold by the builder, and no longer available. "That builder could have sold that house to someone else and closed on it," he said.

Kaynak, a Pleasanton resident, realty agent for 20 years and onetime lawyer, is well-acquainted with the home-building industry. She said her house wasn't even built when she tried to cancel the contract last summer. Furthermore, she said she has represented several new-home buyers in the past who backed out of contracts - even at the last minute - and got back their deposits. One client's company, for example, was acquired and he feared for his job.

"In each case, each builder said, 'We're not in the business of keeping people's deposits, we're in the business of building homes. We would rather keep their good will,' " Kaynak recalled. "I remember those words."

Glen Martin, group president for Toll Brothers in Northern California, agreed that in the past, builders more readily returned deposits. In a flat or falling market however, he said, his damages are real.

Martin said builders do consider each buyer and their reasons for breaking the contract. If a buyer suffers a serious illness or worse, a refund may be in order. But simple cold feet are not covered. Toll Brothers saw an increase in cancellations in late 2005 when the market first headed downward, but that has leveled off, he said. Cancellations declined in all new-home projects in the Bay Area from a high of 26 percent of sales in 2006 to 21 percent in 2007, according to the Ryness Report.

Toll Brothers was the only builder that would speak on the record about the company's policy on deposits. Builders contacted by the Mercury News, including KB Home, Shapell Homes, Warmington Homes, Taylor Morrison and SummerHill Homes, either did not return calls or declined to discuss the issue.

But attorneys who handle such cases say disputes over deposits are on the rise, and not just over new homes, but also for resale homes.

"I'm seeing all these $300,000, $400,000 even $500,000 deposits that are fought over," attorney Rossi said.

But in this market, buyers can protect themselves - and their deposits - if they decide to walk.

Attorneys recommend that buyers insist on inserting contingencies that cover a buyer's ability to obtain a loan, for example, and a thorough housing inspection report.

Kaynak, whose contract contained no contingencies, said that, like many buyers, she was swept away in the moment.

"It was on April 1, and if you didn't write it that day you would miss out on the $4,500 plasma TV," she recalled. "Yes, I'm an agent and a lawyer, but I'm also a human being."

Contact Katherine Conrad at kconrad@mercurynews.com or (408) 920-5073.



Contra Costa

Move over McMansion, make room for the East Bay's newer, cheaper house.

KB Home will add two new scaled-down models to its new Antioch development, Almond Ridge, that will range from the low- to mid-$300,000s.

"Our business model focuses primarily on the affordability and combines the whole idea of value to the customer," said Marc Burnstein, vice president of sales and marketing for KB Home, South Bay Division, which includes the East Bay. "The average homes size was 2,700 square feet and now it's about 2,100 square feet."

Because of the downturning housing market, a glut of foreclosures and a six-month credit crunch, home buying has slowed and builders are responding with smaller, inexpensive models aimed well below the $417,000 conforming loan limit to maximize the number of buyers.

Burnstein said the biggest expense for builders is land and by adding more density per acre, it creates more affordability. "You combine that with a build-to-order business model and people aren't going in and paying for things they don't want or need," he said.

Matt Koart, Pulte Homes' area president for Northern California in Pleasanton, said that product size would be based on local markets and developments but Pulte has no national strategy.

"It may mean a change in specifications or in some cases make them smaller," he said. "If a city is charging $100,000 a house in fees, not much changes if the house gets smaller. ... With $70,000 to $80,000 to develop the land,
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you're almost at $200,000 per house before you build anything vertical."

Bryce Ellsworth, broker and owner of Windermere Ellsworth & Associates in Brentwood, said that builders in tougher markets will find it hard to compete with newer bank-owned properties.

"People look for value and a house being under a certain price," he said. "But they want a bigger house for less money."

His client, Roger Stone, 46, who signed a contract last week to buy a new 3,600-square-foot home in the Meritage Homes' Tanglewood at Live Oak Ranch development in Oakley, disagreed. Despite his larger home, Stone believes that smaller, cost-effective floor plans are a great idea for East Contra Costa.

"When the price gets lower, the more people are able to afford them," he said. "It's human nature to want more and more ... but they may not be able to afford it."

Centex Homes and D.R. Horton are reportedly offering smaller models to cut costs nationally, but regional offices could not be reached for comment. A spokeswoman for Lennar said that there were no plans to downsize floor plans in the Bay Area.

Average square feet for detached homes fell slightly in the last three months of 2007 in Alameda and Contra Costa counties, from 2,883 to 2,675 and 2,963 to 2,822, respectively, but rose in Solano County from 2,475 to 2,658. Price per square foot for detached homes fell in Contra Costa from $293.52 to $288.88. rising slightly in Alameda and Solano counties.

Jonathan Dienhart, director of published research for Hanley-Wood Market Intelligence in Costa Mesa, said that lowering costs of new homes makes sense for builders, especially those building infill or suburban housing.

"While the price per square foot is quite high, the overall price is quite affordable," he said. "I would not be surprised if the price per square foot will remain the same or even go up, but it's being offset by smaller square footage."

Another reason for the drop in prices is affordability because financing for homes over the conforming loan limit of $417,000 dried up in August, he said.

Dienhart said that builders could continue to offer the same floor plans and slash prices or respond to the down-turning market.

"This is their response," he said. "It may still wind up being feasibly profitable for them ... but the down market was a strong motivator for them to do that quickly."

For Will Birdsey, 34, a San Francisco commercial real estate project manager looking for a home in Lamorinda, smaller homes in outlying areas won't make much of a difference.

"We're not that demographic," Birdsey said. "We're location-driven and I don't think you can replace that with a spec house. The older houses tend to be better located and on bigger lots.

Alan Nevin, chief economist of the California Building Industry Association, said that in the Bay Area, smaller homes will be seen first in the outlying areas of east Alameda and Contra Costa counties, as well as Solano County.

"It's hard to buy a $250,000 plot of land and put a 1,200-square-foot house on it," he said. "But if they were $200,000 and now you're getting it for $100,000, you can put out smaller homes."

Nevin said that publicly traded builders, who answer to shareholders, have more pressure to sell off existing land than private builders. Many will be selling land to smaller developers at a loss, possibly fueling the trend of cheaper land for cheaper houses.

"Across the board, we will be downshifting to about 2003 to 2004 prices," he said.

Barbara E. Hernandez covers real estate. Reach her at 925-952-5063 or bhernandez@bayareanewsgroup.com.


Ventura County

WSJ not surprising CFC

Wall Street Journal

Existing-home sales fell for the sixth month in a row during January as consumers stood on the sidelines watching prices slide for property.

Home resales fell to a 4.89 million annual rate, a 0.4% decrease from December's revised 4.91 million annual pace, the National Association of Realtors said Monday. Originally, the NAR estimated sales at 4.89 million in December.
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The median home price was $201,100 in January, down 4.6% from $210,900 in January 2007. The median price in December was $207,000. Falling prices have kept would-be buyers from signing off on property as they wait in hope for still-lower price tags.

"Inventories are high, so it's not surprising prices are declining," NAR economist Lawrence Yun said.

Lenders have tightened their standards on home loans, contributing to the credit crunch that is restraining the U.S. economy. Those tighter standards have priced marginal buyers out of the market and made purchasing more difficult and costly for prime borrowers.

"Subprime loan and other risky mortgage products have virtually disappeared from the marketplace, and over the past five months, this has been reflected in soft but fairly stable home sales," Mr. Yun said.

The January resales level was above Wall Street expectations of a 4.81 million sales rate for previously owned homes.

The average 30-year mortgage rate was 5.76% in January, down from 6.10% in December, according to Freddie Mac.

Inventories of homes increased 5.5% at the end of January to 4.19 million available for sale, which represented a 10.3-month supply at the current sales pace. There was a 9.7-month supply at the end of December, revised from a previously estimated 9.6 months.

Regionally, existing-home sales in January were mixed. Sales fell 3.6% in the Northeast, 2.1% in the West, and 0.5% in the South. Demand rose 3.4% in the Midwest.

Countrywide Financial Corp., reacting to negative publicity, canceled plans to host a posh ski trip for about 30 mortgage bankers at the Ritz-Carlton Bachelor Gulch ski resort in Avon, Colo., a spokesman said.

The New York Times first reported the cancellation of the trip earlier today. Plans for the trip were first reported by The Wall Street Journal last week.

The cancellation comes as Countrywide tries to damp down widespread criticism of its lending practices, which have led to a surge of foreclosures. The company's chief executive, Angelo Mozilo, is due to appear Thursday at a hearing of the U.S. House Oversight and Government Reform Committee, chaired by California Democrat Henry Waxman, who is raising questions about compensation packages for top executives of companies involved in the mortgage crisis.

The list price for a regular room on a weekday night at the Ritz in Avon starts at $750. But the Countrywide spokesman said the company would have paid "much less" than that.

The three-night event – for smaller mortgage banks known as "correspondents" that sell home loans to Countrywide – was to include two four-hour business meetings along with skiing and dinner at upscale restaurants, including the Spago restaurant, whose menu includes Kobe steak with wasabi potato puree for $105.

While many companies entertain business partners in luxurious settings, the Countrywide event was notable because of the company's circumstances. Countrywide's board agreed last month to sell to Bank of America Corp. for about $4 billion, less than a fifth of its market value 12 months earlier.

Rising defaults and falling home prices led to losses of about $1.6 billion at Countrywide in the second half, and the company has reduced its work force by 11,400, or 19%, since July. Countrywide's servicing arm, which collects payments and handles other administrative tasks, has about 90,000 loans in foreclosure, or 1% of the total.

Sen. Charles Schumer, a New York Democrat who has been pushing Countrywide and others to do more for people facing foreclosure, denounced the planned ski outing last week. "Let me get this straight: Countrywide is too cash-strapped to prevent layoffs, refinance borrowers or ward off bankruptcy without help from Bank of America, but it can afford a posh junket for its co-conspirators in the subprime mess?" Sen. Schumer said in a written statement. "This brings new meaning to 'snow job.' "

The senator called on Countrywide to "call off this shameful ski getaway and put all [the] company's resources into refinancing the borrowers Countrywide took advantage of."

The company has argued in recent press releases that it is making strenuous efforts to keep distressed borrowers in their homes. Among those efforts are agreements with nonprofit consumer-advocacy groups to negotiate loan workouts for borrowers faced with foreclosure.

Andrew "Drew" Gissinger III, Countrywide's executive managing director, residential lending, was to have been among the hosts of the ski trip. Mr. Gissinger, who was an offensive lineman for the San Diego Chargers pro football team in the 1980s, is known for a gung-ho attitude, even when the chips are down. In a memo to staff last fall, Mr. Gissinger urged employees to hang in there despite the current slump: "I've made a lot of people rich or richer who have joined me on my past crusades.''

The correspondent lenders account for a big portion of Countrywide'sbusiness. In last year's first nine months, Countrywide bought about $151 billion of home loans originated by hundreds of correspondents across the country. In the same period, Countrywide originated $173 billion of loans through brokers and its own employees.

With the industry in turmoil and many small lenders going bust, Countrywide may feel the need to cheer up the correspondents. Some such lenders say it has become very difficult to sell their loans to Countrywide because the company has grown much pickier and is rejecting as overly optimistic more of the appraisals that back those loans.

An agenda for the canceled meeting noted that falling house prices and "skyrocketing delinquencies" have created a "new world" in which "loans are being examined with the utmost scrutiny." The agenda said participants were to discuss quality control, among other topics

CA CCT helocs

Contra Costa


Bay Area residents accustomed to treating their homes like piggy banks could be in for unpleasant surprises as home prices decline in many areas. Not only are banks less willing to issue popular home-equity lines of credit, but some of the nation's biggest lenders are freezing existing loans.

Countrywide Home Loans, for example, has sent letters to at least 122,000 homeowners nationwide informing them they can no longer draw on their home-equity lines of credit. Many homeowners rely on these pay-as-you-use-them loans to finance things such as remodeling, college tuition and emergency expenses.

Morgan Hill homeowner Kelly Urbina received a letter from Countrywide two weeks ago telling her she can no longer access the credit line that she says the lender encouraged her to get when she bought her three-bedroom home in 2006.

"I still have a substantial amount of equity in my property, so I was surprised to get a letter that just said, 'We're going to suspend your line,'" said Urbina, who works as an underwriter for Opes Advisors, a mortgage banking and wealth management firm in Palo Alto. She knows the value of her property has dropped somewhat, but not ""significantly," as Countrywide claimed in the letter.

Urbina and her husband used some of the equity line to remodel their kitchen two years ago, but otherwise they have reserved it for emergency use.

Urbina said she was surprised the lender didn't simply lower the amount of her line of credit rather than
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suspend it. "I would have felt that was a very fair thing to do," she said.

Chase and Washington Mutual also have frozen the home-equity lines of a much smaller number of customers in response to falling home values, said officials with the two banks. Wells Fargo said it "has not made large-scale decisions to restrict line-of-credit access for all customers in markets with declining real estate." But the bank is reviewing its home-equity customers' accounts more frequently than in past years.

"Everybody's going to have to do it," said Guy Cecala, publisher of Inside Mortgage Finance. "We're just at the beginning of this trend of lenders freezing home-equity lines of credit."

Countrywide, which is being acquired by Bank of America after incurring huge losses because of its subprime lending, would not specify in which states or areas homeowners were most likely to have received the letters.

Because median home prices in Silicon Valley have held up better than in many parts of California, it's unlikely that a large chunk of the letters went to local homeowners. But mortgage experts say plenty of Bay Area homeowners potentially could get the same kind of news from their lenders if their equity lines of credit were generous and they did not have much equity in their homes to begin with -- or if home values in the valley drop more steeply.

"It very much could hit people up here -- whether it be Countrywide or another lender -- where values have come down," said John Conover, president of Borel Private Bank in San Mateo. "This is a significant issue for people who expect to be able to borrow on their loans."

How equity works

Nationwide, homeowners borrowed $355 billion worth of home equity loans and lines of credit in 2007, down from $430 billion in 2006, according to Inside Mortgage Finance. California borrowers make up 20 percent to 25 percent of the market.

Equity is a property's market value minus the owner's mortgage debt. So, for a home worth $700,000, if the owner has a $500,000 mortgage, he or she has equity of $200,000, or about 29 percent.

Until recently, some lenders were willing to make a combination of mortgages and equity lines of credit up to 100 percent of the home's value. So the homeowner in the example above could have gotten a home equity line of $200,000 in addition to the $500,000 mortgage, bringing the debt obligation up to $700,000.

But with home values falling and credit markets still crunched, lenders have narrowed their lending criteria. Few will extend credit past 80 percent of a home's value now. That would cut that homeowner's equity line to $60,000, resulting in a total of $560,000 in mortgage debt.

Lower values

Lenders' changes amount to a sort of hedge against the possibility of further price declines.

"Across the board, every lender has been tightening up their guideline with regard to home equity lines," said Mike Gallagher, president of mortgage broker Avantis Capital in Morgan Hill.

Countrywide cited falling property values as the reason for shutting off so many customers' access to their equity, though lenders also can restrict borrowers' access to their credit lines for other reasons, such as deteriorating credit scores.

Experts called Countrywide's mass mailing to freeze home equity lines unusual, but they noted that in a declining market, lenders need to protect themselves from avoidable losses.

Susan McHan, president of Opes Advisors and homeowner Kelly Urbina's employer, said her company has at least two clients in the East Bay who have received the letters from Countrywide. In both cases, she said, the homeowners dispute that their home values have fallen sharply, and they are working with Countrywide to try to reopen their credit lines. "They had plans that they were going to be using the loans for," McHan said.

Her company has notified other clients of the new climate in home equity lending.

"Anybody who had an equity line of 90 percent or above, we definitely sent letters warning them" that their lenders might suspend their credit lines in the future.

As for Urbina, she was not counting on using her equity line soon, but she likes having one. "What if I did have an emergency and I needed the line?" she said.

Reach Sue McAllister at 408-920-5833 or smcallister @mercurynews.com.

CA dfs exceed sales!

Mercury News

For what one expert thought was the first time, the number of monthly foreclosures exceeded the number of monthly home sales in California in January, according to data compiled by two research companies.

The data is a grim reflection of the worsening housing market, as the number of homeowners who can't or won't make their payments rises and the number of home buyers dwindles.

ForeclosureRadar, a Discovery Bay real estate research firm, said 19,821 California homes went into foreclosure in January, representing about $8 billion in home loans.

Meanwhile, DataQuick reported 19,145 home and condo sales in January.

In December, there were 12,783 foreclosures, according to ForeclosureRadar, and 25,585 home and condo sales, according to DataQuick.

Sean O'Toole of ForeclosureRadar said he doubts there has ever been another time when the number of foreclosures exceeded the number of sales in a month.

DataQuick's numbers are for closed transactions that occurred in January. ForeclosureRadar uses its own proprietary method of gathering foreclosure data.

"There's no way a market that slow can clear these kinds of foreclosures," said Christopher Thornberg of Beacon Economics, a Bay Area research and consulting firm. "What that number says to me is you have more homes getting dumped on the market in terms of foreclosures than there is demand for homes."

CA CCT layed off

Contra Costa

Jo Schliesman logged 30 years in the escrow business before the real estate slump took its toll.

Laid off last January, the Brentwood resident found another post in June -- only to have her entire office close in November.

"I don't know where everybody went, if they have jobs or not," she said. "There's no severance, nothing. ... They come in, and it's 'Bye, see you.'"

Now looking to switch careers, Schliesman finds most places she applies are overwhelmed with applicants.

"I have been basically living on my 401(k)," she said.

Wednesday, Schliesman found hope -- and solidarity -- in a seminar for displaced mortgage industry workers.

Sponsored by East Bay Works, which operates drop-in job search centers throughout Alameda and Contra Costa counties, the event drew 90 job-seekers.

"We've had a lot of people come to us looking for help," said Stephen Baiter, administrator of Contra Costa's One-Stop Centers.

"As the whole real estate sector has been crunched, people who had jobs -- in some cases high-paying jobs -- are now in a position where they need to look for other industries."

Last year, a series of large layoffs displaced more than 1,500 former mortgage industry workers in Contra Costa and Alameda counties.

Smaller office closures, which aren't reported to the state, make the total much higher, said Tracey Brown-Carter, business and economic development coordinator for the Workforce Development Board of Contra Costa County.

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Some displaced workers, such as Schliesman, are surviving on savings as they look for jobs or train for new careers.

Others are turning to social services.

A handful of former mortgage industry workers have begun showing up in county-run job clubs, designed to help CalWorks parents and other welfare recipients find jobs.

"They were people who never saw this happening," said Dee Dee Rayfield, a life and job skills coach who runs Job Club in Contra Costa. "They were already really established and already really encumbered" with expenses.

By the time they arrived in Job Club, some were in danger of losing their homes and cars, Rayfield said. "Even though they needed money, they don't want to start at the bottom; so it was a real challenge to keep their spirits up. They were looking at the jobs out there and saying, 'I can't live on this.'"

Former mortgage industry workers do enjoy one distinct advantage over their fellow welfare-to-workers: a wealth of networking contacts. "They were on their phones every break and every lunch," Rayfield said "Some of them still had deals in the works."

Wednesday's workshop took a holistic approach to those affected by the mortgage meltdown, pairing career skills inventories with pep talks and financial advice.

If warning notices arrive from utility companies, "Call them, try to work out a plan," advised money manager Judy McGourty. To stave off home foreclosure, "Answer the letters," she said. "They want to help you. They do not want the houses back -- there's too many houses."

Many at the seminar said they have given up hope of staying in the real estate sector.

Until last month, Maria De Nardo worked as a loan coordinator in Vallejo. Now she is considering a career in medical equipment

"I like the challenge" of learning something new, said De Nardo, originally from Peru. "A lot of foreigners who came here as legal residents are very adaptable."

Concord resident Susan Jordan worked for a large title company for nearly five years before being laid off just after Christmas.

"It's terrifying," she said. "It's a good company, and they hung onto me as long as they could. ... They paid me for a month, and they gave me a career counselor."

Last week, she accepted a job at a local mental health treatment center. She's waiting for her background check to clear.

"It was a great job for years, but this is what's in my heart," she said. "I feel incredibly blessed."

Sara Steffens covers poverty and social services. Reach her at 925-943-8048 or ssteffens@cctimes.com.

AZ tucson stats

Arizona Daily


New-home sales tumbled in January, according to a report released Wednesday by a local housing market consultant.
The number of new homes sold for the month fell to 257, a drop of about 53 percent from January 2007 and typical of sales in 1992, according to the Southern Arizona Housing Market Letter published by John Strobeck of Bright Future Business Consultants.
The median and average prices for new homes also dropped by 9 percent and 7 percent respectively from a year ago to $226,577 and $272,260, according to the report.
Resale home sales also dropped about 36 percent from the same month in 2007, according to the report. The median price for resale homes dropped about 8 percent to $195,000 while the average price for resale homes rose by about 3 percent to $263,571.
The average price was lifted by about a dozen home sales of $1 million or more, Strobeck said.

CA VCS fired

Ventura County

It came out of the blue.

Loretta Altman was driving to work at Countrywide Financial Corp. in Simi Valley when she got a phone call from a friend.

"She said, You've got boxes at your desk.' I said, Does that mean ...?' " Altman recalled.

Her friend confirmed that it meant that she'd been laid off.

She went into the office on Madera Road, packed up what she was allowed to take and said her good-byes, leaving with a two-week severance package.

Altman said she thinks that she was among about 20 people at her office who lost their jobs Friday.

Countrywide didn't respond to several calls and e-mails for this report. The company has about 3,500 employees in Simi Valley, according to Brian Gabler, assistant city manager.

"It was a complete side-swipe," Altman said.

When the company went through a round of layoffs in October, people were informed ahead of time that cuts were coming.

"This one was completely out of the blue," she said.

One co-worker was on vacation. She was called and told that her things could be shipped to her or she could come in and get them, Altman said.

The city of Simi Valley hadn't been notified of any layoffs at Countrywide, City Manager Mike Sedell said.

He said the city has tried to work with the company to get a handle on its plans because Bank of America is proposing to acquire Countrywide.

"We want a fair look given at continuing the employment base here as a more cost-effective way of moving forward for Bank of America in the future," he said.

At a recent economic forecast conference, Gabler said the loan servicing that goes on at Countrywide's Simi Valley center should continue to be a valuable part of the business for Bank of America.

There is speculation from current and former employees that Countrywide is laying off workers to make the company more attractive to Bank of America. On an online discussion group, there was talk of layoffs last week — particularly in information technology jobs.

A former Countrywide employee who lost his Simi Valley job in October said the process then was very organized, with employees gathered for a manager to read the layoff statement. Human resources representatives and career counselors were in the room to help the laid-off employees, who received 60 days salary as they searched for new jobs.

He said it was very different from what he heard happened Friday.

The October layoffs occurred shortly after the Calabasas-based mortgage lender announced that it was slashing up to 12,000 jobs companywide because of the housing meltdown.

That, combined with a drop in employee morale, inspired Altman, a systems analyst, to start looking for another job.

"I took that as fair warning — start looking now," she said.

She had received an offer letter for a new job Thursday, so when she got the call Friday, she was thinking: "OK, you're OK, you got the offer letter."

But it hasn't been that easy.

Altman found out Monday that her background check for the new job had been halted because Countrywide provided an incorrect date of hire for her. The company has her starting in 2003, instead of November 2005, when she said she actually joined the company. She said she's been going in circles with Countrywide to get the issue addressed. She plans to call her attorney.

"I may miss out on a great job because Countrywide refuses to fix this problem," she said.

CA VCS unauction

Ventura County

With a sleeping bag wrapped snugly around his shoulders, Kamran Jabbari was spending the night camped in front of a new condominium complex in Oxnard, staking out his spot as No. 7 in line to buy a home.

As pumped as a teen waiting to snag a Wii or an iPhone, Jabbari was willing to rough it for a few days for a chance to buy a discounted luxury condominium at Port Marluna at Seabridge.

Jabbari, owner of an Irvine software development company, was sitting huddled in the cold at a card table Friday night, playing Scrabble and trading stories with other prospective buyers. Some had been in line for three days, waiting to sign papers when the sales promotion launched Saturday.

Camping out to buy a home is unheard of in today's declining housing market. But price reductions of up to $320,000 drew eager buyers.

Ten of the 11 condos for sale sold Saturday for a combined estimate of $4.8 million, according to a price sheet. The remaining 1,720-square-foot home — a two-bedroom, two-bathroom unit — is priced at $549,990.

The price-slashing turned out to be a success for home builder D.R. Horton. The Fort Worth-based builder has been struggling, with reported losses of $128.8 million for its fiscal first quarter that ended Dec. 31. The push was a way to spur business for the company, which generated $1.71 billion in revenue last quarter, down from $2.8 billion from the same period the previous year.

Dubbed an "unauction sale," the company described it as "low auction level pricing" without the hassle. Homes went up for sale on a first-come, first-served basis, according to Chris Chambers, California regional president for D.R. Horton.

The company's goal was to reduce inventory at 23 of its communities throughout Southern California, including 11 homes at Port Marluna, Chambers said.

Buyers didn't come in droves, but at least eight were waiting Friday night, armed with $5,000 cashier's checks, food and warm clothes. One prospective buyer even had a portable propane heater.

Matthew Dwork, 23, director of marketing for Merlin Medical Supply Pharmacy in Camarillo, was the first in line. He paid someone $75 a day for three days to stand in line while he worked.

At night, Dwork took over.

Several buyers said they could not resist the discounted luxury condos, priced from $399,000 to $699,000, depending on square footage and view of the marina.

"It's a deal," Marjorie Cole, a Port Hueneme resident, said as she walked around the model homes Friday night, pointing out amenities that she liked, such as the walk-in closets and spacious bathrooms.

The sale is more than just hype — homes are actually discounted — she said. The price on the home that she and her husband planned to purchase was reduced $250,000.

Cole and others called camping out an adventure.

"We watch the show Survivior,' " she said Friday night, bundled up in a poofy jacket and ski hat. "Well, this is going to be our Survivor.' "

The wait ended Saturday afternoon when Cole and her husband signed papers on the home of their choice. Escrow is scheduled to close March 21.

Although he didn't get his first pick, Jabbari also purchased a "beautiful home" and said he couldn't wait to move in. After signing papers, he and his wife stayed the weekend at a hotel to explore the surroundings of their new vacation home and shop for furniture. He described Oxnard and Channel Islands Harbor as a "well-kept secret."

Jabbari said he trusts that the housing market will rebound. Promotional events such as the luxury condominium sale will help drive a recovery, he said.

"You have to get over your fear of What if I buy today and six months from now it's down another $50,000?' " Jabbari said.

Maria Rios, a Realtor with Century 21 New Vision, called these types of sales "bait" because they generate hype and attract people who think that they cannot afford a home.

She said it was an "excellent idea for developers," who are competing with foreclosure prices. However, Rios said she recognizes that the discounted luxury condos undercut values of other homes on the market. The traditional home seller is being left in the dust because they cannot compete with the developer, she said.

"They are cheating the people who bought the homes from them at regular price," Rios said.

On the Net:

CA VCS FBs

Ventura County

Sitting in his bare kitchen surrounded by boxes of financial records, John Bailey looked as if he couldn't believe what was in front of him.

"I never thought this would happen to me," Bailey said last month as he looked at the stack of paper that told the story of how he lost his home.

The 74 year-old, who wears his red plaid shirt buttoned to the neck, is one of the 1,500 Ventura County homeowners whom lenders foreclosed on last year as the housing market crumbled under the weight of failing subprime loans.

On the top of Bailey's stack was a letter from the bank, letting him know that his home had been auctioned off, and he had a few weeks to clear out.

It was a depressing end to a monthslong fight for Bailey, who conceded he was out of options.

He and his wife, from whom he is now separated, had refinanced their Camarillo Springs home four times over six years as its value steadily climbed.

Each time, the couple pulled out a little money to fix up the place and to supplement their variable income.

But when they tried to take out money again in early 2007, they discovered that the value of their home had plummeted.

The home was worth less than what they owed, said Bailey, who still works installing fiber optics in homes and businesses. They soon got behind on making payments and started to get notices that they were falling into default.

Bailey spent several months trying to work things out with the bank but failed. In the middle of negotiations on a "work-out" plan, the bank — without notifying him — auctioned off the property, according to Bailey. He found out about it on Dec. 4, a few days after the sale.

There's no government program he can turn to, and no more last-minute ideas or negotiations, Bailey said, just the prospect that he will never retire and never own a home again.

"I've been through ups and downs before, but I thought we'd make it through this one," said Bailey, who has dark bags under his blue eyes. "Forty-three years, and we never missed a mortgage payment on the various homes we owned. I didn't think it would turn out like this."

The correction

For anyone caught up in it, the mortgage crisis hit less like a market "correction" and more like a series of little roadside bombs that keep popping off, peppering neighborhoods with swaths of collateral damage.

It harmed poorer communities worse than others, with Oxnard taking the biggest hit in Ventura County.

The correction also did damage to parts of Camarillo, Thousand Oaks, Simi Valley, Fillmore, Santa Paula and Ventura.

About 1,500 Ventura County homeowners were foreclosed on in 2007, a 90 percent increase over the previous year, according to DataQuick, the La Jolla-based real estate information company.

Ventura County ranked 31st for foreclosure activity out of the top 100 metro areas in the nation, according to statistics released last week by RealtyTrac. The Irvine-based company comes up with the ranking by comparing the number of homes in an area with the number of foreclosure filings, which include notices of default, auction sales or bank repossessions.

Cities in California, Ohio and Florida dominated the list, with Detroit at the top followed by Stockton and then Las Vegas, according to RealtyTrac.

Although foreclosed homes make up less than 1 percent of the 243,000 county households, the numbers only tell part of the story.

Almost all who own homes here have felt the downturn in some way. Whether they were part of the more than 5,000 homeowners in default on their payments last year, or simply homeowners who watched the value of their houses — probably their biggest asset — plummet.

The median sales price of new and existing homes and condominiums in Ventura County dropped from a high of $630,000 in 2005 to $525,000 at the end of 2007. The median is the midpoint, where half the homes sell for more and half for less.

Some estimate prices won't hit bottom for two more years. That's not good news for thousands who will see the value of their homes drop below what they paid for them.

According to data compiled by The Star, the total market value of homes foreclosed on in Ventura County during 2007 totaled almost $750 million.

The Center for Responsible Lending, a nonprofit based in Washington, D.C., projects that foreclosures will, over the next year or so, continue to push home values down by an estimated $6,300 per house. The group estimates that in Ventura County foreclosures will eat away about $730 million in property values.

The group projects that nationally the amount of wealth that will be lost because of the spillover from foreclosures on subprime loans made in 2005 and 2006 will be more than $200 billion.

It goes beyond property values, with the downturn slamming mortgage companies, banks, Realtors and workers in the building trades.

Assessing the damage

Economists differ on what effect the market correction will have on the overall economy.

Ventura County has not been hit as hard by the mortgage crisis as places like San Bernardino, San Joaquin and Riverside counties, according to Mark Schniepp, executive director of the California Economic Forecast in Goleta.

Barring massive layoffs, terrorist attacks or some other kind of unforeseen shock to the local economy, "I think we'll weather the storm," Schniepp said.

Bill Watkins, executive director of UC Santa Barbara Economic Forecast Project, agreed. Economic indicators are good, said Watkins, who is more worried about how layoffs at Amgen Inc. and Countrywide Financial Corp. might hurt the area.

Both economists said efforts by lenders and President Bush to encourage banks to work with borrowers could also help some vulnerable homeowners. Over the next year or so, as many as 2 million homeowners with subprime adjustable-rate mortgages will see their rates reset higher, according to federal figures. So far, the industry has renegotiated the terms on about 200,000 of those loans.

"I see the challenge we have is the number of resets," said Bob Davis, branch manager of First Mortgage Corp. in Ventura.

Right now, Davis said, he thinks there isn't enough incentive for lenders to work with borrowers. He sees the work so far as "a drop in the bucket."

"Basically, I'm screwed," said one Camarillo small-business owner facing a possible foreclosure. "Everything they're proposing in the last 30 to 60 days won't help us at all."

The man, who asked that his name not be used, said he and his wife used the equity in their home of more than 40 years to help cover mounting medical bills for their family. It worked until the market dropped last year.

"There are needs, and there are wants," the man said. "For some people, they refinanced because they wanted the new car or the 34-inch plasma TV. We don't have the new car or any of that stuff. We took out equity to pay for needs."

It's hard to ignore that the past year was pretty bad for many homeowners. All indications are that this year will be even worse as a big chunk of adjustable-rate mortgages in the county reset to higher monthly payments.

In some neighborhoods, as many as 40 percent of the loans taken out in 2006 were subprime adjustable-rate mortgages, according to federal Home Mortgage Disclosure Act data compiled by The Star. The monthly payments on many of those adjustable-rate loans are expected to jump by 30 to 40 percent this year.

It means more homeowners likely will be stretched to the limit to pay their monthly mortgages, leading to possible foreclosure.

Trying to stay afloat

"If we can't sell, we'll just walk away," said Maria Ambriz, who with her husband, Jack, has watched the monthly payments on the Camarillo home they bought in the spring of 2006 soar from $2,500 to $4,700. They're spending about 85 percent of their monthly income just to cover the payments.

The couple said they didn't understand the rate increase that came with their adjustable-rate mortgage loan.

While the couple said they are partly to blame, they think their Realtor and mortgage broker should share some responsibility.

"No one ever explained that to us; they sort of smoothed things over and said we could do it," Ambriz said.

A friend of hers who cleans houses is facing similar problems after being coaxed into buying a $400,000 home.

"It makes no sense that she got a loan, and now she's like $30,000 in debt because she was using a credit card to try and cover her payments," said Ambriz, 55.

In the case of the Ambrizes, they thought they'd quickly be able to refinance the home as its value increased, but it didn't happen. The couple cannot refinance because the value of the home dropped, and they now owe more than it's worth.

Although they haven't fallen behind in their payments, Maria and her husband, a 50-year-old retired Marine gunnery sergeant, are each working two full-time jobs. They both work night and day.

The silver lining is that their home is so little that they pay almost nothing for their utilities, said Jack Ambriz, who works as a security guard and for a company that makes computer chips for cell phones.

"We don't see each other," said Maria, who works at a pharmacy and as a customer service manager at Big Lots. "We have so much stress."
Josie Hurtado, a Century 21 Realtor, helps Jack and Maria Ambriz sign papers to sell their condominium in Camarillo. "If we can't sell, we'll just walk away," said Maria Ambriz, who with her husband has watched their monthly payments soar from $2,500 to $4,700.

Photo by Juan Carlo Mendoza

Josie Hurtado, a Century 21 Realtor, helps Jack and Maria Ambriz sign papers to sell their condominium in Camarillo. "If we can't sell, we'll just walk away," said Maria Ambriz, who with her husband has watched their monthly payments soar from $2,500 to $4,700.
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Trying to keep up with their mortgage each month has left the couple sleepless and tense. They've both lost an unhealthy amount of weight. In December, everything reached a breaking point.

"Finally, I started crying and said, We can't do this anymore,'" said Maria, who sold most of her jewelry to keep up with her rising mortgage payments.

Their options now are limited.

If they continue to make their interest-only monthly payments, they'll owe even more on the home in a year, and its value will likely have dropped lower than it is now. They're trying to do a "short sale," selling the home they bought for $610,000 for $399,000. Of course, they would lose their $73,000 down payment and may still owe money on the house, but they would walk away with their credit intact.

"We both have cried over this," said Maria. "I'm crying right now because I don't want to lose the house. We love to work hard but not like this. There's nothing else to do. I say to my husband, Don't worry honey, we'll buy another house some day.'"

Last week, they got an offer for $405,000 on the home. While they want to sell, and their Realtor is confident the deal will work out, the bank ultimately has to approve the transaction.

In some Ventura County communities, more than half the properties for sale are either bank-owned or "short sales," homes priced for less than what the owner paid.

That means opportunity for some people.

With two kids and a relative all squeezed into their 900-square-foot Thousand Oaks home, Laurence and Kaylene Jacobson longed to move up.

But prices in Thousand Oaks, where median home values peaked at $690,000 in late 2006, were beyond what they could afford.

When prices seemed to plateau and drop a little, they saw their chance and snapped up a bank-owned home on Teasdale Street for $521,000. It had sold in 2005 for almost $700,000.

They thought they'd timed everything right, but almost immediately Laurence was laid off from Amgen.

"That was like a blow to the solar plexus," said Kaylene, who is 38.

She later collected her thoughts and chalked up the change to "God's plan" for her family. Laurence, 35, quickly switched gears and ramped up a computer consulting business he had nurtured out of his home.

The Jacobsons — the couple have a daughter Rebekah, 4, and a son, Nate, 7 — suddenly found themselves juggling a mortgage on their old home, one on their new one and an equity line of credit.

Despite the stress, the couple said, they have things under control.

"I think people got crazy there for a while, and a lot of people got into loans without really understanding what it means," she said. "We know exactly what we're doing."

Critical observer

John Kaspar is not as big a risk-taker. Ventura County's high-priced market has kept him on the sidelines. A manager at a building supply company in Camarillo, Kaspar is hesitant to leap in and buy.

Married with three children, Kaspar watched prices even in middle-class parts of Camarillo nudge up past $540,000 two years ago when he began looking.

By traditional lending standards, a family would have to earn $150,000 a year to afford a home in the range of $511,000 to $612,000, according to some estimates.

"We prequalified for $500,000, but there was no way I was going to do that," he said.

Kaspar didn't want to overextend his family. He's seen booms and busts before. He felt the "bubble was about to pop."

But it has been difficult to sit and watch.

"I have a friend who refied' five times and mostly for silly things," he said.

Now that the market's crashing, Kaspar is not sure if it's fair that people who took big risks and their lenders — some of which were "absolutely predatory" — should get government help.
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CA CCT FB

Contra Costa

he numbers are in, and Contra Costa County is every bit the drive-you-mad-for-a-patch-of-ground bastion we thought it was.

A statewide report released today found that no California county beats Contra Costa in long commutes, with nearly half of all workers needing at least 30 minutes to reach their jobs and one in six commuting an hour or more each way.

Contra Costa also tops the state's 20 most populous counties in home ownership -- at more than 70 percent --yet few can honestly afford it, the report shows. The nonprofit California Budget Project analyzed 2006 census, housing and economic data and found that the income needed to buy a median-priced home in the county -- $138,715 -- is nearly twice what the median household makes.

That finding may explain another Contra Costa characteristic: The county ranks near the top in the rise in foreclosures.

"It's sort of everybody's picture of what Contra Costa County is," said Jean Ross, director of the research group. "People who in their 20s or early 30s might have lived in San Francisco have moved out to the suburbs, where they can buy a house with a backyard. You can't afford to live in the place you work. It's just a real problem."

The report offers a detailed account of the swell and swoon of the state housing market and the fallout on families and the economy.

In Alameda County, it takes more than twice the median household income to afford the median-priced home, based on a traditional though largely
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obsolete benchmark: Thirty percent of household income going toward a conventional 30-year mortgage.

Studies have shown that those loans diminished as Bay Area home prices soared and lenders heaped less desirable mortgages on an eager market.

Bernie Kellman needs no reminder. He finally shed his bike messenger life in San Francisco and moved across the Bay, got a good job and bought a house in Richmond in late 2004.

Now he's stuck with payments from a loan that rose sharply after three years. Kellman says he was duped. Hoping to stave off foreclosure, he pays two-thirds of his mortgage each month while he struggles to reach his lender. He says he gets 20 calls a month, reminding him he's behind.

"I was swept up in the idea I could own a home. I was so excited to see I could do it," said the 50-year-old psychiatric social worker with a 3-year-old daughter. "We're Bay Area people. We expect to pay more. Take 50 percent. That leaves me a lot for food, drink and toys for the kid. But I've made such a mess, got in such a deep hole. I'm not getting anywhere."

Lawmakers are scrambling to ease the pain as a new wave of homeowners face payment increases. Many experts say a recent lift of federally backed loan limits helps some higher earners but not most of those in trouble. The California Budget Project called for other steps.

Among them:

# Dedicating a portion of real estate document fees to affordable housing

# Withholding state transportation and infrastructure money from cities and counties that fail to plan for their fair share of the state's housing needs

# Demanding that cities and counties adopt policies for developers to set aside some new units for lower income buyers.

"We have a $14.5 billion (state budget) shortfall," Ross said. "We need to use every tool we have as effectively as possible."

The challenge is daunting. According to a draft report by the Association of Bay Area Governments, the nine Bay Area counties need at least 214,500 new housing units to meet demand, including about 84,000 for low- and very-low-income households.

Still, penalizing communities that fail to craft those state-mandated plans misses the mark, said Bill Higgins of the League of California Cities. It is a costly process, he said, and most that remain out of compliance are smaller, cash-short communities. Almost 80 percent have complied, according to the state Department of Housing and Community Development. In the East Bay, Alameda, Albany, Pleasanton, Antioch, Orinda and Moraga remain out of compliance.

"People assume it's a NIMBY problem," Higgins said. "That's part of it. The real problem is a lack of money to fund affordable housing."

One Bay Area economist found that prices rose higher and fewer houses were built in cities that mandated discount housing from developers. "The policy is completely counterproductive," said Edward Stringham, a fellow at the Oakland-based Independent Institute.

The report also called for the state to demand that lenders meet with those who fall behind. That came as a welcome note to Kellman, who has grown tight with his lender's phone tree.

"I'm not that poor. I have a good income," he said. "Maybe I can make my case for being a guy they can do business with."

CA MN auctions

Bay Area


Anyone looking for a housing auction has two to choose from in the East Bay this weekend.

Hudson and Marshall, a Dallas-based company, will be auctioning more than 300 bank-owned properties running from San Jose to Vallejo on both Saturday and Sunday at the Hilton Oakland Airport Hotel. Another auction by Beverly Hills-based Kennedy Wilson, selling 46 newly renovated Fairfield condominiums, is set for Sunday at the Hilton Concord Hotel.

The 46 Raintree Terrace condos range from a one-bedroom, one-bath, 669-square-foot model to a two-bedroom, two-bath, 867-square-foot plan. Starting bids on five of the one-bedroom models are $120,000 and homeowners association fees are $316 a month.

Kennedy Wilson auction group president Rhett Winchell said the original prices ranged from about $220,000 to $332,900.

"Right now, the price is set at about 60 percent of its original asking price and the process is now in the buyer's hands," Winchell said. "They get a good discount and are aware of what everyone else pays."

Another incentive is $2,500 off for buyers who can close escrow in 30 days. Winchell said representatives from Wells Fargo Home Mortgage will be on hand at the event to help buyers with financing.

Bidders are asked to bring a $1,000 cashier's check made out to "First American Title Company" and a lender pre-qualification letter.

"This isn't a place that has an unpublished reserve where the seller is not obligated to sell," Winchell said. "If you bid
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$125,000, and it's the only bid, then you get it."

Dave Webb, co-owner of Hudson & Marshall, said his company will be auctioning off about 300 foreclosed properties Saturday and Sunday. Although homes in San Mateo, Fremont and San Jose are being auctioned, most of the properties are in east Contra Costa County and Oakland.

"Some of the stuff needs a lot of work but the majority is ready to move in," Webb said.

For the Hudson & Marshall auction, bidders need a $2,500 cashier's check made out in his or her own name or a personal check for 5 percent down, Webb said.

"Anyone bidding should get out there and know what they're buying," Webb said. "Have it inspected. ... It's all sold 'as-is.'"

Prospective buyers are encouraged to visit the properties before the auction by arranging a visit through each property's listing agent, he said.

Steve Cardinalli, a Realtor with Regency Real Estate in Tracy, is the listing agent for 721 Copperfield Court in Brentwood, a three-bedroom, two-bath, 2,058-square-foot home, or No. 198 on the auction list. It's one of four properties listed with Hudson & Marshall, he said.

"All the business we do is about REO properties," he said, mentioning they had 70 bank-owned listings in their office Wednesday. "Mostly it's our lower-end properties and fixers that are going faster. Anything with a lot of work and investors come in almost immediately."

Cardinalli said that most of the bank-owned properties do have a set number where the bank will not negotiate a lower price, especially if it's been on the market a short time. "But the longer it's been on the market, the more flexibility they have," he said.

Barbara E. Hernandez covers real estate. Reach her at 925-952-5063 or bhernandez@bayareanewsgroup.com. Read her real estate blog at http://www.ibabuzz.com/propertylines.

CA CCT PMI

Contra Costa


The second-largest U.S. mortgage insurer announced Monday it would no longer insure home buyers with less than 10 percent down in California and other "distressed markets" to protect the company from a wave of anticipated losses in the housing market.

PMI Group Inc., a Walnut Creek-based corporation, reported it would end underwriting mortgage insurance for those buying homes with less than 10 percent down in California, Florida and most of Arizona and Nevada starting March 1. It said it would also stop insuring loans nationally for home buyers with less than 3 percent down.

"In looking at the data, even a 3 percent down payment makes a big difference whether a loan is ultimately successful," spokeswoman Beth Haiken said. "In those declining markets, we are requiring a minimum of 10 percent down ... I think we're certainly not alone in trying to manage that risk effectively."

Other industry giants -- such as the largest U.S. mortgage insurer, MGIC Investment Corp. -- announced plans last week to limit their exposure by demanding higher credit scores and larger down payments.

Starting March 3, MGIC said it will require at least 5 percent down on homes in so-called restricted markets. They include the entire states of Arizona, California, Florida and Nevada and major metropolitan areas such as Washington, D.C., Detroit, Chicago, Boston and Atlanta. Those buying condominiums would have to put down 10 percent.

The Milwaukee-based insurer will
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require higher credit scores as well. Homeowners in the restricted markets who put down at least 10 percent will have to have scores of at least 620 out of a possible 850.

MGIC announced last month that it could pay $2 billion in claims this year, up from previous estimates of $1.5 billion. MGIC blamed rising delinquencies and claim sizes.

PMI reported paying $92.6 million in claims for the third-quarter of 2007, a rise from $62 million year-over-year. The company also reported net loss of $65.2 million in the third quarter of 2007, compared with net income of $70.8 million the previous year. PMI plans to release its fourth-quarter report Feb. 26.

Haiken said that 32 percent of PMI's mortgage insurance went to homeowners with less than 3 percent down. By the end of the fourth quarter, it declined to 21 percent.

"But we thought it was still too high for our taste," Haiken said.

Buyers typically must get mortgage insurance when they put down less than 20 percent of their home's value. When borrowers miss payments, as more have been doing, the insurers pay lenders. If homes end up in foreclosure, both the lenders and insurers lose money.

"Despite warning signs throughout the industry that (high loan values greater than 97 percent) was a contributing factor in losses, it does not appear that PMI or the industry took steps to rein in production until recently," reported Steve Stelmach, an analyst with Friedman, Billings, Ramsey & Co. Inc. of Arlington, Va.

Stelmach, who penned a third-quarter report on PMI, said in the report that PMI's diversification let it withstand more risk than other mortgage insurers, but it also increased its reserves by $263 million to cope with losses. The average claim size was $68,000, a year-over-year rise of 20 percent.

"What lenders are concerned about are appraisal values in softer markets, and most of California qualifies for that right now," said Howard Shapiro, a senior equity analyst with Fox-Pitt, Kelton in New York City. "You can't charge enough for some of the riskier borrowers."

However, Shapiro said that PMI's decision to raise its qualifications was "probably more cosmetic than anything else" because so few lenders are doing 100 percent financing after the credit crisis began in August.

PMI share fell from a high of more than $50 a year ago to $8.27 at the close of trading Monday.

"(Their stock price) is down even though the actual losses haven't hit yet because people are anticipating a tsunami of losses," Shapiro said."

Haiken said the new policy may not be permanent. "But I also wouldn't say it's the last change we would be making," she said.

Barbara E. Hernandez covers real estate. Reach her at 925-952-5063 or bhernandez@bayareanewsgroup.com. Wire reports contributed to this story.

DISTRESSED MARKETS

Two of the largest U.S. mortgage insurers announced they would be requiring larger down payments to decrease exposure to risk, especially areas termed "distressed" or "restricted" markets that include those hit hard by foreclosures -- California, Florida and most of Arizona and Nevada.

PMI Group Inc. (Starts March 1)

At least 10 percent down in distressed markets.

A minimum 620 credit score is required.

No negative-amortizing loans or option-payment mortgages.

This affects:

All of California, Florida, Michigan, most of Arizona, Nevada and New Jersey. It also includes the metropolitan areas of Barnstable Town, Mass.; Gulfport-Biloxi, Miss.; Bend, Ore.; Providence, R.I.; Myrtle Beach, S.C.; and Winchester, Va.

MGIC Investment Corp. (Starts March 3)

At least 5 percent down in distressed areas except a mandatory 10 percent down on condominiums.

A minimum 620 credit score is required.

No cash-out refinances.

No reduced documentation.

No investment property loans.

No negative-amortizing loans or option-payment mortgages.

This affects:

All of Arizona, California, Florida, Nevada and metropolitan areas such as Denver, Atlanta, Honolulu, Detroit, Baltimore and Portland, Ore.

CA CCT loan bill

Contra Costa


The National Association of Realtors called it "a major stimulus for the housing industry." The California Association of Mortgage Brokers called on legislators to pass the bill. While many real estate professionals hope the $168 billion economic stimulus package passed by Congress on Thursday will give the industry a much-needed boost, others are not as optimistic.

"This package will help the East Bay," said Ed Jeffry, president of the National Association of Responsible Loan Officers, and a Brentwood loan consultant. "It will stabilize the market. ...The FHA is the most secure loan in the marketplace from a consumer and bank standpoint."

The package includes raising federally backed loan limits from $417,000 to as high as $729,750 from July 31 to Dec. 31. The loans, from the Federal Home Loan Mortgage Corp. (Freddie Mac), the Federal National Mortgage Association (Fannie Mae) and the Federal Housing Administration, are to make it easier for those in high-cost areas to refinance or even buy.

While the Freddie Mac and Fannie Mae loans require higher credit scores, the FHA loans would be aimed primarily at those subprime borrowers with marginal credit and around 3 percent equity in the home.

"If you can provide evidence that you make the payments, a bad credit score doesn't exclude you from financing," Jeffry said.

Although there may be some advantages, some experts find the package mostly ineffective.

Christopher Thornberg, an economist and founder of
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Beacon Economics, said the stimulus package would not bring the real estate industry around. The proposed new loan limit of $729,750, he said, caters to a small number of households in the Bay Area that make more than $160,000 a year.

"The people who are in trouble are not being helped by this plan," he said. "How many people earn that kind of money to buy those homes? Prices are falling, and they're falling for a good reason: because they're too high."

While Thornberg did think extending unemployment benefits was important for the economy, he said the rest of the package would have minimal impact.

Jay Damato, the broker and owner of Elite Financial in Walnut Creek, said that while he hoped to do some new mortgage refinancing, he doesn't think the proposed laws will change the housing market.

"At least 70 percent of my clients are in the $450,000 to $650,000 range," he said. "But I need rates to come down to make it really worthwhile."

Damato is glad that it looks like the package will become law since bills changing the government-sponsored loan limits have met with defeat several times.

"The new FHA is going to help a subprime borrower who has been able to make their payments but is struggling because of their loan reset (rising interest rate)," he said.

Because the borrower has to have at least 3 percent equity, Damato said that there will be some homeowners who can't get the loan, especially in places such as Antioch where the market has suffered a severe downturn.

"(The package) is good for the mortgage guy because it gives our clients more options now, especially on refinances," he said. "But it's not going to turn a down market into an up market."

Paul Ward, a broker associate at Keller Williams Realty in Danville, agreed.

"It will help psychologically," he said. "Overall, it will be positive, and it's definitely a plus, but it's not a panacea."

Stephen Levy, director of the Center for Continuing Study of the California Economy in Palo Alto, said that raising the loan limits was a good long-term solution for the state.

"In the long term, it would help people get good interest rates, but in the short term, interest rates are not the biggest obstacle to the housing industry," he said.

Levy estimated that the package would equal about 1 percent of the gross domestic product of the state and may moderate the downturn, but not enough to prevent the state's mild recession, expected to last through 2009.

"I think the impact on the housing market is overestimated," he said. "I expect prices to fall the rest of the spring and into the summer. I think we have a long way to go on the price correction."

Barbara E. Hernandez covers real estate. Reach her at 925-952-5063 or bhernandez@bayareanewsgroup.com. Read Property Lines, her East Bay real estate blog, at http://www.ibabuzz.com/propertylines.