Friday, April 27, 2007

Loan fraud out of control

From today's Bakersfield Californian:

Loan fraud cases rising

Officials confirm that mortgage scams occur in Bakersfield market

BY RYAN SCHUSTER, Californian staff writere-mail:

Local law enforcers and real estate professionals say mortgage fraud litters Bakersfield's housing market, confirming allegations disclosed last week.

No numbers were available to quantify the extent of the problem and no agencies would confirm having ongoing fraud investigations. But police and industry insiders say they are seeing more local instances of various types of mortgage fraud.

"It is very prevalent and it will become more prevalent," said Detective Frank Wooldridge, who handles real estate fraud cases and other financial and white-collar crimes for the Bakersfield Police Department. "There is real estate and mortgage fraud going on in this town. To say it is not, you are just missing the boat."

Last week, local appraiser Gary Crabtree told The Californian that he has documented about 20 suspicious local home sale transactions in the last year -- and that the number has since grown to more than 50 as news of his allegations spread. He has referred some of them to the FBI, California Department of Real Estate and California Office of Real Estate Appraisers.

Mortgage fraud varies wildly and can include anything from inflated appraisals, falsified documents and identity theft to schemes targeting homeowners headed for foreclosure.
Crabtree said typical cases of potential fraud he has seen involve a property that has been on the market for a while without selling.

Then a buyer, sometimes a real estate agent or an investor, submits an offer for more than the asking price. The buyer asks for money back at closing, sometimes $30,000 or more, often under the guise of making repairs such as installing a pool, landscaping, a new roof or new carpeting.

"We've been presented with offers for well in excess of the sales price, asking for us to cut back to the buyer large amounts of cash," said J.R. Lewis, sales manager with Watson Realty ERA. Lewis said his agents are required to bring all offers to the sellers, but then he said the agents have to tell the sellers they cannot accept the offer because it would constitute fraud.

The buyer or a so-called "straw man" buyer, whose identity and credit history are used on paperwork but who has no other role in the transaction, typically secures loans totaling 100 percent of the sale price, which has been inflated to include the amount going back to the buyer, Crabtree said.

The sale records at the higher price, the seller gets the amount originally requested, the buyer gets money back at closing and the real estate agents and loan brokers pocket their commissions, Crabtree said.

The buyer sometimes rents the property out or makes mortgage payments for a while, but Crabtree said often the properties end up in foreclosure, leaving the lender left holding the bag.
"The lenders are totally unaware they were defrauded until the property goes into default," Crabtree said. He added that mortgage fraud has contributed to foreclosure activity that is now five times as common as it was last year in Kern County, and which is helping to drive many so-called subprime lenders out of business.

Many of the buyers, often investors recruited to participate in the scheme, are qualified for loans they cannot afford to repay and end up losing everything, Crabtree said.

Crabtree said the "cash back scheme" can involve real estate agents, appraisers and loan agents using falsified documents.

"They are actually making offers on properties that are higher than the list price," Crabtree said. "Buyers in collusion with real estate agents, loan agents and appraisers are falsely inflating the price, representing it as something higher than it is selling at."

A recent survey by the Appraisal Institute found that 90 percent of appraisers nationwide reported being pressured by brokers, lenders and real estate agents to inflate appraisals, and 75 percent reported "negative ramifications" for not cooperating by inflating appraisals.
"We get calls from a lot of people asking if we can do an appraisal and 'hit' a number for them," said local appraiser Michael Burger of Michael Burger & Associates. Burger said he tells the callers his business won't participate in such activity and they go elsewhere.

Several local real estate professionals said scheme perpetrators also contract with inexperienced or out-of-town appraisers who are not familiar with the local market and take advantage of them by giving them incorrect comparable properties.

One example of potential fraud Crabtree cited involves a house that sat on the market for four months last year listed at $260,000 before being taken off the market. It was re-listed at the same price and sold earlier this year.

The deed showed a sale price of $300,000, with the buyer receiving 100 percent financing on a loan for the amount. Crabtree said the sales price was inflated, allowing the buyer to qualify for a bigger loan.

Crabtree said the buyer bought another house in similar fashion last year from the same real estate agent.

Tom Pool, a spokesman for the state Department of Real Estate, said Bakersfield was a haven for investors because of its quick appreciation and prices that remain more affordable than most of the rest of the state. Pool said it also left the area more susceptible to these types of schemes.
Greg Harding, chief of licensing and enforcement with the Office of Real Estate Appraisers, said he started to see more potential cases of inflated sales prices late last year, and that the number of complaints is still on the rise.

"This is a new way of doing business because we are in a declining market," Harding said.
The true scope and effect of mortgage fraud on the real estate market may not be known for some time. But more fallout is expected.

"It is so widespread that the masses don't realize it yet," said Mike Colpitts, founder and editor of the Web site "When it really hits the fan, it is going to have devastating impacts on the real estate industry."

Wednesday, April 25, 2007

Bakersfield #8 in foreclosures

Bakersfield in top ten nationwide for foreclosure rate



Wednesday, Apr 25 2007 12:02 PM

Bakersfield had the eighth-highest foreclosure rate in the nation during the first quarter of 2007 with one foreclosure filing for every 83 households.

The national foreclosure rate in the first quarter was one foreclosure filing for every 264 households and California’s first quarter foreclosure rate was one filing every 152 households.
Bakersfield had 2,779 properties enter some stage of foreclosure in the first three months of 2007, according to RealtyTrac, an online marketplace for foreclosure properties.

California’s 80,595 foreclosure filings in the first quarter was up 68 percent from the previous quarter and more than twice the state’s total from the first quarter of 2006.

The foreclosure numbers included notices of default, a precursor to foreclosure, notices of trustee and foreclosure sale and bank repossessions. The numbers included houses and some condos.

Local market update for March 2007

A few items to note before you review the March 2007 numbers. We now have 3,910 homes on the MLS. That is a 13 months supply of homes. The sales numbers are declining and inventory is growing. Also, the sales numbers include foreclosures. This distorts the sales activity and when taken out the months supply of actual sold homes approaches 16 months. Second, the days to sell is a total JOKE. This number, as reported numerous times, does not adjust for the re-listing scam. From the Bakersfield Californian :

Local angle

Bakersfield home sales volume declined by nearly half in March as compared with a year before, while the median price of an existing home fell 4 percent, according to new data.

A report released Tuesday by local real estate appraiser Gary Crabtree indicates hat 292 existing homes sold in Bakersfield in March, down 47.7 percent from March 2006. New home sales fell 45.8 percent during that period to 169.

The median price of a new home in Bakersfield — the point at which half the houses sold for more money and half sold for less — declined 1.2 percent to $320,000, Crabtree reported. For existing homes, March’s median price was $278,500.

Crabtree also reported that homes stayed an average of 65 days on the market in March — an increase of 41.3 percent over a year before.

Monday, April 23, 2007

Any suckers out there?

When I read a craigslist gem like this one, I am reminded of the PT Barnum quote "there is a sucker born everyminute."

From CL:

Fourplex 4-3 bedrooms. Rents are $2900/mo market is $3200/mo. No cost on appraisal, bank fees, points, no one touches your credit. Go in and assume loan with only 10% down. Motivated seller. Clean, fast transaction. Live ine one rent out others. Not on mls, pocket listing. This is only one of many investment pportunities I have for you. One of these deals can make you more than your 1 or 2 yrs/ salary. Call Susan 562 756 1122/agent. No outside agents.

Location: Bakersfield

Is there anyone foolish enough to believe this?

Prices continue to decline

March 2007 numbers are out and the YOY decline is now up to 3.45%

Numbers for California from Data Quick

Saturday, April 21, 2007

Appraiser: local fraud is rampant

Great piece in today's Bakersfield Californian by reporter Ryan Schuster, on the shady dealings in the local real estate offices.

The truth is coming out on all the real reasons for the run up in prices. All the local fraudsters will be exposed. We know who you are and the end is near. If anyone has any additional information or would like to report more cases of real estate shady dealings email me, and if you don't trust me, email Ryan @ the Bakersfield Californian:

Appraiser: local fraud rampant

Authorities alerted about suspicious mortgage cases


e-mail: Friday, Apr 20 2007 11:46 PM

Last Updated: Friday, Apr 20 2007 11:46 PM

A local home appraiser is alleging widespread mortgage fraud in Bakersfield’s housing market, accusing local real estate professionals of artificially inflating prices to generate illegal profits.

Appraiser Gary Crabtree said Friday he has alerted federal, state and local authorities to “suspicious” home sales in the Bakersfield area. But he said he believes what he has found is just the beginning.

“I think I’ve just scratched the surface,” Crabtree said. “I know there are other people in the real estate industry in Bakersfield that have knowledge of this. They are just not talking.”

After documenting 22 suspect cases in the last year, Crabtree said he has referred six of the strongest instances to the FBI, California Department of Real Estate and California Office of Real Estate Appraisers, and three to the Bakersfield Association of Realtors. He also has attempted to notify the lenders involved in each of the 22 cases.

Crabtree said some of the properties in question may have been “flipped” — purchased and sold for profit — by investors, real estate professionals or so-called straw man buyers whose identities and credit histories were used to secure loans. The cases include what Crabtree said appear to be fraudulently inflated sales prices and buyers purchasing properties with 100 percent financing.

Some buyers received money back at the close of escrow, Crabtree said, sometimes under the guise that the money would be used for installing amenities that were not installed, such as backyard landscaping.

Crabtree said he believes some real estate agents and brokers as well as lenders and appraisers may have taken part, while others were taken advantage of in the scheme.
Some of the properties have gone into foreclosure or received notices of default, Crabtree said, leaving lenders holding the bag.

“It has falsely inflated values,” Crabtree said. “Foreclosures will follow.”
Powers said a relative who earns about $10 an hour was approved for a $200,000 loan and asked to falsify documents to say he made more money.

“If anybody asks you to tell a lie or an untruth to get qualified for a loan, you shouldn’t do it,” Powers said. “If you have to tell a lie, don’t do it, even if you want the house real bad.”

Karpe confirmed that his organization received information from Crabtree, but said the potential wrongdoing falls outside the association’s policing authority. He said the Realtors association would wait to see if any punishment was handed down from higher authorities.

“Once some of the investigations go through and people get their just punishment, it will clean things up,” Karpe said. “But you are always going to have people pushing things. Most of the people in our business do good business, but a couple grab the headlines and it taints the whole industry. I don’t like it.”

Crabtree said he began tracking the questionable transactions so he wouldn’t use them as comparable properties when doing appraisals.

Crabtree said word is out in local real estate circles that he has provided information to agencies about potential improprieties.

He said he has lost business as a result and others in the industry have stopped talking to him for fear of being implicated.

But he said he believes it is the right thing to do.

“I could have just let this gone on and not said anything to anyone,” Crabtree said. “But it is my responsibility as an ethical appraiser to report these cases of suspicious activity.”

Friday, April 20, 2007

Gary Crabtree exposes fraudsters

Local appraiser exposes mortgage fraud. My only question is who are these people he has exposed? Are they locals?

From the Baltimore Sun:

Gary Crabtree, president of Affiliated Appraisers in Bakersfield, Calif., documented the practice recently for the FBI and state financial and real estate regulators. The basic scenario, said Crabtree, involves realty agents who have listed houses that aren't selling. To move the properties, they entice buyers - or friends - to "submit an offer [for the home] that is $30,000 to $100,000 above the current list price," with the promise that they'll get substantial cash at closing.

The realty agents then amend the Multiple Listing Service asking price up to the artificially inflated offer price. A house that had been sitting for months with no takers at $450,000, for example, might be relisted by the agent at $525,000.

Then, working with a cooperative appraiser who has promised to "hit the number," and an unscrupulous mortgage broker who simply wants the commission, they "change the [loan] documentation to reflect the [artificially inflated] sales price." The loans typically are for 100 percent of the price of the house. The seller nets the price he or she had originally listed - $450,000 in this example - and the buyer gets a portion or all of the $75,000 inflated differential as cash at closing.

The wholesale lender purchasing the loan from the broker doesn't look hard at the appraisal, and funds the excessive loan amount none the wiser. Public records do not reflect the $75,000 slush in the transaction. The realty agents and loan brokers pocket their commissions; the buyer pockets the cash from the closing proceeds, makes loan payments for a while and then stops. Within months, the property is headed to foreclosure.

"It's total fraud, of course," said Crabtree, who is documenting 32 cases of alleged appraisal hanky-panky for state regulators and the FBI. "You can throw a dart at just about any large subprime lender, and something like this [scheme] is going to stick."

Yet some lenders are in denial that they've accepted grossly inflated appraisals. Crabtree said he contacted one major East Coast lender with the documented details of a "cash back at closing" scheme that he submitted to state regulators. So far, the lender has not even returned phone calls, according to Crabtree.

To compound the problem beyond the individual foreclosures themselves, the inflated selling prices of the homes involved remain "in the system" for use as "comparables" for valuations in the coming months. That $525,000 recorded closing price on the house that wasn't selling at $450,000, in other words, might now be available on the public records as a "comp" for overvaluing future sales.

Opteum Financial confirmation

From their website:

Thursday, April 19, 2007

Opteum - Done?

From Brokers Outpost:

Just a note to tell you all how much I’ve enjoyed working with you. However, I sadly report that as of tomorrow Opteum Financial Services, LLC will be closing their doors. Pipelines currently in house will be worked and closed up to 5/31/07.I’ll be in touch with you about when and where I may reappear.Thanks for your business and hopefully we’ll work together again soon.

PS. This email will be shut down this evening. Use my cell if you need me.

Arlene Gardella
Wholesale Account Executive
Opteum Financial Services, LLC

Wednesday, April 18, 2007

Countrywide is everything ok?

From the Countrywide REO Website is a list of 15 properties they have foreclosed on in Bakersfield. If you attempt to go to the website have patience. Countrywide has so many REO properties (foreclosures) that the website takes several mintues to load. Here is the list of Bakersfield properties, with the agents name and number who is attempting to find a greater fool:
















Monday, April 16, 2007

Kern County notices of default up 181% YOY

Data Quick News states that Kern County notices of default are up 181% year over year. Kern County went from 461 NOD's in the first quarter of 2006 to 1,297 in the first quarter of 2007.

From DQ News:

California Foreclosure Activity Jumps Again

by Real Estate Analyst John Karevoll-->April 16, 2007

La Jolla, CA.--The number of default notices sent to California homeowners last quarter increased to its highest level in almost ten years, the result of flat appreciation, slow sales, and post teaser-rate mortgage resets, a real estate information service reported.

Lending institutions filed 46,760 Notices of Default (NoDs) during the January-to-March period. That was up by 23.1 percent from a revised 37,994 for the previous quarter, and up 148.0 percent from 18,856 for first-quarter 2006, according to DataQuick Information Systems.

‘A dark cloud over the American dream’

From the Central Valley Business Times:

The worst of the U.S. housing slump may be over but not the foreclosure nightmare that haunts many of the nation’s homeowners, says a Central Valley real estate investment and foreclosure information company.

More than a quarter-million (253,803) pre-foreclosures and notices of pending foreclosure auctions were filed nationwide in the first quarter of the year, according to figures compiled by of Fair Oaks.

That means 2.4 out of every 1,000 homeowners faced losing their property to foreclosure in the first three months of 2007, according to its calculations.

Those numbers are up 22.5 percent from the 207,128 filings in the fourth quarter 2006. They also don’t include tens of thousands more now-vacant properties that actually were lost to foreclosure during that same period, says Those “REO” or bank-owned real estate filings totaled 110,791 in the first quarter alone, says, which has been analyzing housing markets since 1992.

“The numbers cast a dark cloud over the American Dream of homeownership,” says Alexis McGee, president of “Unfortunately for those overextended homeowners it’s a cloud that isn’t likely to lift any time soon either, especially in light of the recent troubles in the sub-prime lending market.”

Recently some of the nation’s biggest subprime lenders have cut back or shut down their operations. New Century Financial Corp., for example, stopped taking new loan applications, and then filed for Chapter 11 bankruptcy protection; mega-lender Countrywide Financial pulled out of the subprime market altogether; and another big player, Fremont General Corp., after watching its stock plummet, is selling off its subprime lending unit.

The end result is that financially strapped homeowners now have even fewer bailout options, says Ms. McGee.

“Remember, a lot of these foreclosures, auctions, and REOs are in part a result of homebuyers who really couldn’t afford to purchase their homes, but did so anyway with creative financing (relaxed loan qualifications, too) and the expectation of rapidly rising home prices,” says Ms. McGee. “Now, those low monthly mortgage payments have adjusted upward beyond reach, housing price appreciation has stagnated or dropped, and in many cases their lender is gone. Though the remaining lenders hope to help their homeowners work out their mortgage woes, the plain fact is that the financial markets are now using tighter underwriting guidelines then they were just a few months ago."

She says that homeowners who can’t afford their monthly payments, rather than simply refinance their way out of trouble as was common in the past, will now have to sell their homes quickly, or risk losing them to foreclosure.

“That means in the coming months we can expect to see many more pre-foreclosure filings, more auctions, and more REOs,” she says

Saturday, April 14, 2007

Flashback on Crisp and Cole

Recall this damage control piece by the Californian on September 26, 2006. So far two of the major points outlined have proven to be true. The first on "investigations", just see my last post. The second one "talk of a split", Cole is no longer the broker of record for Crisp and Cole.


The Californian has received a slew of tips that Crisp and Cole were being investigated by the FBI, state Department of Real Estate and Internal Revenue Service.

(2)Talk of a split
The Crisp and Cole partnership is not splitting up

Friday, April 13, 2007

State files charges against Carl Cole and Tower Lending

As first reported by one of my loyal readers the DRE is investigating Carl Cole and Tower Lending. Hopefully this time around we get the real story and not another puff piece from the Bakersfield Californian.

From KGET TV 17:

BAKERSFIELD - The California Department of Real Estate took the first steps Friday to suspend or revoke the license of Bakersfield real estate giant Carl Cole.

The accusation also names Tower Lending, the Crisp & Cole mortgage affiliate.

Cole is the broker and officer responsible for Tower Lending, and he denies the accusations.

Last year, Cole separated from the mega-brokerage Crisp & Cole and opened his own office. The D.R.E. allegations do not name Crisp & Cole Real Estate.

The allegations concern mortgages on three Bakersfield homes, which the D.R.E. said are typical of more than 50 loans made illegally in 2005.

The D.R.E. said Tower Lending, under Cole's supervision, used an unlicensed broker to solicit prospective borrowers and lenders for real estate loans.

If proved, that's grounds for revocation of Cole's license, but Cole said he was as much a victim as anyone.

He said he hired the broker from another mortgage company and believed the man when he said he was licensed.

Cole said as soon as he discovered the man had no license, he fired him.

The allegations also said Cole signed papers claiming he had personally discussed the terms of mortgages with three homeowners, going over complicated legal issues outlining their rights.

But the DRE said Cole never met with those clients.

From KBAK:
State levels allegations against prominent realtor

29 Eyewitness News has learned that serious allegations are being levied by the state against one half of a high profile, Bakersfield real estate agency.

Bakersfield realtor Carl Cole, one half of the real estate team of Crisp and Cole, faces 10 serious code violations from the California Department of Real Estate. The case also includes the realtor's in-house mortgate company, Tower Lending.The state alleges Cole and Tower Lending violated a number of "California Business and Professions Codes."

The allegations include "negligence, fraud or dishonest dealing, substantial misrepresentation and failing to exercise reasonable supervision over the activities of his salespersons."The 14 page filing cites three specific real estate deals.

Cole can file a Notice Of Defense to appeal the charges. A hearing date would then be set.Cole and partner David Crisp recently got a tentative thumbs up for a $400 million high rise project on the campus of Cal State Bakersfield.

The whole state is going to be foreclosures

From the current edition of Bakersfield Magazine just out on newstands, comes an interview with local realtor Betty Byrom. This magazine has no online link for the story, if you want the whole article you will have to pay $2.50 for a copy or just go to Barnes and Noble and read it for free.

Here are some highlights from the Q&A section:

You have been called the "Queen of HUD". Do you still specialize in those
kind of sales?

There is no HUD now, hasn't been any HUD for the last four years because the market was crazy. When the market's good there are no foreclosures but there will be. This whole state's going to be foreclosures (soon) so I'm starting campaign now.

What is your view of the current real estate market?

Its a little below normal. I think it has almost reached bottom. I knew it was coming 15 months ago, told all my investors if you're going to sell, sell now. All those crazy loans people did, the repos are going to be horrible, but it's mostly going to be the upper-end ones. I think it's going to be the more expensive ones - your million dollar houses are going to see it first.

Will it continue to grow as it has in the last few years?

No, because we have too much inventory now. We have always grown a little. But we are not going to get any big industry in here as far as I know. We grew when we were affordable; we're now almost as high as the rest of the state.

Thursday, April 12, 2007

NOD filings for the week of April 1 to April 8, 2007

NOD filings for the week of April 1 to April 8, 2007:


Tuesday, April 10, 2007

Affordable alternative?

Looking back at the posts from the Californian on affordability ties in with the story from today's LA Times on the Lancaster/Palmdale areas. These areas were crushed in the 90's in the last run up, which was not a bubble. They will fare much worse this time around (if that's possible to even fathom) as the amount of speculation is much worse. These areas ran up this time, as they did the last time around, because they were considered an "affordable" alternative. As expected they are already feeling some serious pain:

John Rockey has been hanging drywall for 35 years, and he's seen it all in the boom-again, bust-again Antelope Valley housing market.

As residential construction flourished in the late 1980s, his company's ranks swelled to 200 — then shriveled to five when the economy tanked a couple of years later.

By the time a new building spree peaked in 2005, Rockey's payroll had again grown to 200. But then came slumping home sales and a sharp rise in mortgage defaults and foreclosures.

Now, his Lancaster-based Progression Drywall Corp. is down to 50 employees, and he's got a serious case of deja vu."This is looking like 1990 all over again," he said.

For many in the high desert north of Los Angeles, those are chilling words.

"The Antelope Valley is still the last affordable place in the L.A. area," he said. "As long as the job market remains relatively strong, we'll be all right. We will survive

Thursday, April 05, 2007

"‘Unprecedented’ foreclosure activity"

From the Central Valley Business Times:

With the Central Valley leading the way, 5,316 homes were lost to foreclosure sales in March in California, according to figures compiled by Foreclosure Radar, a Discovery Bay-based foreclosure listings and software company.

The homes sold at auction last month represented a 27 percent increase from February and a 264 percent increase in the last six months, the company says. Of the $2 billion worth of properties sold in March, 4,796 went back to the lender after receiving no bids, representing $1.82 billion, it says.

While foreclosure sales are increasing throughout the state, Foreclosure Radar says there are significant regional differences.

Despite considerable news coverage of San Diego foreclosures, San Diego County ranked 15th highest with one foreclosure for every 5,668 residents in March and while Los Angeles easily ranks number one in volume each month, adjusted for population, Los Angeles County ranks 38th with one foreclosure for every 12,182 residents.

The real foreclosure leaders are in the Central Valley, the company says.

Four of the state’s top five counties for foreclosure sales last month, on a per capita basis, are in the Valley.

Sacramento County ranks first with 2,605 residents for every sale. Neighboring San Joaquin County is third, one sale for every 2,872 residents. Yuba County is fourth, at 2,909 residents per sale and Stanislaus County is fifth with 3,597 residents per sale.

Riverside County is second with 2,747 residents for every foreclosure sale, according to the company’s figures.

Foreclosures sold at auction now account for 15 percent of all home sales in California and continue to rise,” says Sean O’Toole, CEO and founder of Foreclosure Radar. “This isn’t just a story about failing subprime lenders and their customers. At the current pace, foreclosures will be a significant part of the real estate economy. A fact which bears close scrutiny even in areas that are not yet affected.”

Foreclosure Radar says it is the only service that tracks the actual auctions of property on a daily basis. It says its data are based on individual sales results at daily foreclosure auctions throughout the state, not estimates or projections.

Wednesday, April 04, 2007

Zone funding

Per their website:

Zone Funding has announced today that new loan submissions will not be accepted at this time due to market turbulence. Zone Funding will continue to process loans already submitted. If you have any questions regarding loans in process, please contact Vicky Hernandez at (805)244-9522 or Jamie Monostori at (805)244-9523. Zone Funding will be evaluating the current environment and will be making an announcement shortly.

Quote of the YEAR!!!

"You can be a shoe salesman one day and the next say, ‘I’m a mortgage broker.’”

From the

"A buildup in housing inventory means that responsible buyers will be able to purchase homes at more affordable prices"

From CBSMarketwatch:

WASHINGTON (MarketWatch) -- It is difficult for the Federal Reserve to gauge the true health of the housing sector given the recent damage in the subprime mortgage market, said Richard Fisher, the president of the Dallas Fed Bank on Wednesday. He said the housing markets may "feel some short-term pain" because 40% of homebuyers last year were nonprime, either subprime or Alt-A loans. This pain will make it "less clear whether housing construction has bottomed and how long the housing downturn may last," Fisher said. Fisher said the economy will grow more slowly because of the housing market, but is strong enough "to weather this storm." A buildup in housing inventory means that responsible buyers will be able to purchase homes at more affordable prices, he said

Mortgage tree lending update

All those who said "business as usual with MTL" apparently are not in the loop on whats going on? I have highilighted some information in the story below.

From the Central Valley Business Times:

W.J. Bradley Company Merchant Partners LLC, a Denver-based acquisition firm that is consolidating small and medium sized mortgage brokers and banks, says it has reached a definitive agreement to acquire MortgageTree Lending Corp., a Modesto-based mortgage banker and broker.

The transaction is expected to close in late May. Terms of the transaction were not released.

Founded in 1986, MortgageTree is a privately held retail originator of residential mortgage loans that acts as both a mortgage banker and broker. In 2006, the company originated $788 million in residential mortgage loans. The company is licensed in 32 states, has approximately 390 employees and 55 retail branch offices, located throughout the country. The company originates conforming, non-conforming and subprime loans.

As is the case with other W.J. Bradley acquisitions, Ms. Diana Grossmann and Robert Draizen will continue in their positions as CEO and chief operating officer, respectively, Bradley says. They will continue to have a financial interest in the company's future.

Ms. Grossmann says her company was looking for a partner who could help it “work through the current, challenging market environment and give us better platform to grow when market conditions improve.”

“We are already taking steps to restructure our operations to reduce costs and eliminate redundancy as we move onto W.J. Bradley's centralized fulfillment platform," she says. Details of that restructuring were not revealed

Mortgage insiders situation

Here is an honest mortgage guy with a great blog. From his mortgage broker/bankers blog. I wonder how many other loan shops are in this same boat?:

As some of you know my company is a mortgage bank, which means we lend money using a short-term warehouse line of credit and then sell the closed loan to the investor. There are a lot of benefits but there are also risks, such as when a lender won't purchase your loan for compliance or other issues.

We have a loan that we weren't able to sell because New Century, who was scheduled to buy it, closed its lending doors the day before our loan was supposed to be purchased. At the same time many investors were tightening the guidelines so they were no longer able to buy it either. We had to sell the loan on the 'scratch and dent' market at a discount of 87 cents on the dollar. This results in a net loss to the company of about $55,000. A big loss.

Now the scratch and dent company is telling us that the appraisal, which New Century signed off on, has been cut, because property values are declining in the area. They now want to buy it at 77 cents on the dollar, which now represents a 99,000 dollar loss. Almost double the already big loss. If we have to sell it at $100,000 loss it is going to severely damage our company.

Fortunately we have other options and we're in the process of exercising them now. It's amazing to me that so many small mortgage banks like ourselves will end up footing a good portion of New Century's bill, while some Wall Street bank makes a fortune by buying their assets for pennies on the dollar.

Monday, April 02, 2007

Fremont AND LEND auditor resigns

From yahoo finance:

On March 27, 2007, Grant Thornton LLP ("Grant Thornton") advised Fremont General Corporation (the "Company") that Grant Thornton is resigning from its position as the Company's independent registered public accounting firm.

On August 8, 2006, the Company's Audit Committee engaged Grant Thornton as the Company's independent registered public accounting firm for the fiscal year ended December 31, 2006. Grant Thornton had not previously audited the financial statements of the Company or any of its subsidiaries for any prior period. Since Grant Thornton's engagement, (i) there has not been any matter that was the subject of a disagreement (as described in Item 304(a)(1)(iv) of Regulation S-K and the related instructions) between the Company and Grant Thornton and (ii) no "reportable event" (as defined in Item 304(a)(1)(v) of Regulation S-K) has occurred.

Grant Thornton has taken the position that, in light of the Company's current operating environment and the industry in which it operates, that they needed to expand significantly the scope of their audit. Grant Thornton had asked for additional information in connection with its audit beginning in the latter part of February and stated at that time that it needed to perform additional procedures and testing in connection with completing its audit. At no time did the Company either fail to provide to Grant Thornton any requested information on a timely basis or communicate to Grant Thornton that it was opposed to any additional procedures or testing or that it was opposed to such an expanded audit scope. The Company repeatedly has requested that Grant Thornton complete its audit and did not at any time seek to place any limitations on Grant Thornton in connection with the audit.


U.S. Securities and Exchange Commission\
Office of the Chief Accountant
100 F Street, NE Washington, DC 20549
Re: Fremont General Corporation File No. 001-08007

Dear Sir or Madam:

We have read Item 4.01 of Form 8-K of Fremont General Corporation dated March 27, 2007. We believe it should be supplemented and, in part, amended as follows.

We believe that our communications to the Company as described in the third paragraph is a “reportable event” as described in to Item 4.01 of Form 8-K in accordance with Item 3.04(a)(1)(v)(C)(1)(i). Additionally, we communicated to the Company that in addition to its current operating environment and industry conditions, there were other significant events that have occurred at the Company that were a factor in our determination to expand the scope of our audit.

The third paragraph also notes that “ no time did the Company either fail to provide to Grant Thornton any requested information on a timely basis....”. During the course of the audit there were instances where the Company did not provide certain requested information to Grant Thornton on dates previously agreed upon with management. Additionally, as we resigned prior to completion of the audit, we are unable to evaluate or determine the completeness, sufficiency or timeliness of the information provided in response to our requests.

Very truly yours, GRANT THORNTON LLP (signed manually)"


On March 27, 2007, Grant Thornton LLP (“Grant Thornton”), the registered independent public accounting firm for Accredited Home Lenders Holding Co. (the “Company”), verbally advised the Company and the Audit Committee of the Board of Directors of the Company (the “Audit Committee”) of its resignation as the Company’s independent auditors. Grant Thornton further advised that it declined to complete the audit of the Company’s financial statements for the year ended December 31, 2006. On March 30, 2007, Grant Thornton provided the Audit Committee with a letter dated March 27, 2007 regarding its resignation as the Company’s independent auditors. A copy of that letter is attached as Exhibit 16.1 hereto.

The Audit Committee did not request or approve the resignation of Grant Thornton. The Audit Committee has voluntarily reported Grant Thornton’s resignation to the SEC. In addition, the Audit Committee is reviewing the circumstances relating to Grant Thornton’s resignation. The Audit Committee has begun the process of searching for a new registered public accounting firm and will file a Current Report on Form 8-K upon the engagement of a new auditing firm. No assurance can be given as to when a new auditing firm might be selected.

Grant Thornton’s audit report on the Company’s consolidated financial statements as of and for the year ended December 31, 2005 did not contain an adverse opinion or disclaimer of opinion and was not qualified or modified as to uncertainty, audit scope, or accounting principles.

SEC filing

Southstar DONE!

Per their website:

SouthStar Funding, LLC sincerely regrets that it was necessary to cease its mortgage lending operations. The recent unprecedented downturn and policy changes in the mortgage industry necessitated this action. SouthStar appreciates its employees' and customers' loyalty to the company
throughout the years.

First reported here!


Dear Employees:

It is with great regret and sadness that I must announce that SouthStar is ceasing its mortgage lending operations today, April 2, 2007. We are canceling any pending closings and will not close or fund any new loans going forward. All pending loan files will be returned immediately to our customers.

This decision was brought upon by events that developed toward the end of last week. Two of the primary purchasers of our loans refused to fund pools that were already locked and committed until we reimbursed them up front for all of our existing repurchase obligations – something that we were financially unable to do. Another purchaser only bought a portion of loans that they had previously committed to, kicking out a significant portion of loans for various reasons unrelated to underwriting guidelines. We rely on the cash from the sale of these pools to fund our operations. Without the funds from the sale of these loans, we are approaching an insolvency situation. We identified two potential buyers of our company that would have allowed us to continue operating but were notified on Friday and Sunday respectively that this would not be a viable option. This leaves us no choice but to cease operations.

Our first priority is to protect employee compensation: salaries, bonuses, commissions and severance pay. At this point, we cannot guarantee that we will be able to do this but we will make every effort humanly possible.

Senior Managers will be meeting with everyone within the next hour to formulate a plan for the remainder of today.

It is an extremely difficult thing to see a company that you have put in so much effort, time, blood, sweat and tears fail. Personally, it feels to me like the loss of a loved one. The most difficult thing to handle is having to say goodbye to so many wonderful friends and extended family. Mike, Brian and I appreciate everything that you all have done for this company and want to sincerely thank you for your efforts. We should all be very proud of what we accomplished over the years and today’s events cannot diminish that.

It has been an honor to work with each of you. I wouldn’t have changed anything for the world.

Kirk Smith President SouthStar Funding

Sunday, April 01, 2007

$80,000 saved!

Your continued patience is paying off in the form of some rather significant savings. The following is a listing where you have now saved $80,000., that is approximately $750 a month in PITI you can spend on whatever you want. Keep up the good work!

This home, at 12402 Portebello drive, is listed by Touchstone Real Estate Group with the following heading - "WAS $975,000, NOW $895,000!!!"

The following is the information from the local MLS:

JUST REDUCED! Unique Hard to find attached mother in-law unit in Trinity at Villages of Brimhall Gated. Roberson built custom hm appr. 4,300 Sq Ft w/a gorgeous pebble tec beach entry pool/spa. Home sits on appr. 18,000 sf lot & 5 bd + office, 3.75 ba. Gourmet kit, w/GE SS appl. & Granite counter tops. Master suite w/sitting area, dual fp, wet-bar, lavish btrm w/glass block shower dual vanity, his/her closets, & jet tub. All bdrms are spacious. Living, family & din rm 3 water heaters, 3 AC units.

Click here for more details on this property.

Mortgage Tree Lending?

The following is an email from a reader regarding Mortgage Tree Lending:

"News for you, Modesto based Mortgage Tree Lending shut it doors Friday, March 30th. Mortgage Tree has two net branches in Bakersfield, and additional offices throughout the US. (50+)"


Looks like the local real estate community spinsters are working overtime to drum up a reason to say "its a great time to buy". Not that they ever need a reason for that.

Before we get to the latest article. Lets look at some some other measures of "affordability". During the most recent speculative mania, the dot.con bubble, YHOO was trading at 100 times earnings, while JDSU was trading at 200 times earnings. Both stocks were projected to continue growing at 50-100% per year. We all know what happened with those projections. Those projections sound very similar to some Realtors who claimed "10-15% for the foreseeable future" and "we should see 20-25% increases in 2006".

So was YHOO more affordable as a stock compared to JDSU? Within a few years both stocks had dropped over 80%! They were both incredibly over priced and no matter how hard the cheerleaders at CNBC tried to pump up the market, eventually some sanity returned and the true valuations appeared. That is what will eventually happen to our housing market. The fundamental drivers of local real estate prices, primarily household incomes, will eventually catch up with mass speculation fueled by cheap and easy credit.

Our affordability index (HH income to Median home prices) has gone from 38.5% in 2001 to 13.5% in 2006. Median prices have gone from $93,000 in 2001 to $276,000 in 2006. Meanwhile HH incomes have gone from $36,000 in 2001 to $37,500 in 2006. How could home prices go up so dramatically and HH incomes not even keep up with inflation? Mass speculation fueled by cheap and easy credit. The same things that drove the last speculative mania. The same thing that has driven every speculative mania since the Dutch Tulip Bubble, the South Sea Bubble, the 1920's Florida land bubble, the 1929 stock market bubble, the 1980' Japanese bubble in real estate and stocks and all the other speculative mania. As with all these once the credit spigot turns off and investor sentiment changes the game is over!

From today's Bakersfield Californian:

City leads in affordability

Experts not surprised by reports touting Bakersfield's market

BY JOHN COX, Californian staff writer e-mail:

News that Bakersfield's home market was listed as the most affordable in California last year doesn't surprise Michael Marlowe "at all."

In fact, the owner of Michael Marlowe Realty in Bakersfield said affordability is the silver lining behind a recent report by the California Association of Realtors that Bakersfield's median home price declined by 5.1 percent to $280,000 between February 2006 and February 2007.

As he and many other Bakersfield real estate agents see it, the area's relatively low home prices -- as compared with other metropolitan areas across the state -- ensure that the city's home market will not experience the free fall predicted in other markets across the country and the state as the nation's housing market cools.

"The value in Bakersfield is pretty good," Marlowe said. "Our home prices won't drop as much as other areas because of our affordability to begin with -- our original affordability."
A recent report by BusinessWeek Online supports the belief that Bakersfield remains an affordable place to buy a home.

The 2006 Coldwell Banker Home Price Comparison Index, which looked at major metropolitan areas across the nation, found that Bakersfield's home market was the most affordable in California. It compared the prices of 2,200-square-foot single-family residences with four bedrooms, 21/2 baths and a two-car garage.

The index determined that no other market across the state posted a lower average price than Bakersfield's average of $303,750. (Beverly Hills ranked as the most expensive, with an average price of $1.8 million.)

Local real estate agents have welcomed the index as a nugget of good news amid a series of troubling reports. Several forecasts have called for a 5 to 6 percent decline in home values this year. Also, the number of Kern properties entering some stage of foreclosure in February was 634 -- almost 31/2 times the total in February 2006, according to RealtyTrac, an online marketplace for foreclosure properties.

Local appraiser Gary Crabtree, who makes people in the real estate community wince with his public prediction that Bakersfield's median home price will decline by as much as 6 percent in 2007, says the forecast would be worse if not for affordability.

"We still have that going for us," he said.