With sales slumping and buyers wavering, foreclosures are up and some say that the shakedown has only just begun
CORONA, Calif. — Here’s what Dave Hennigan knows about the four-bedroom house tucked away on a tranquil Corona street: The owner is a woman, and she’s $8,155 behind on her mortgage payments.
Maybe she had a messy divorce or expensive illness. Maybe she has been spending too much and saving too little. Hennigan, a 45-year-old Riverside County real estate agent, doesn’t plan to ask.
As he navigates the suburban streets, map in hand, he rehearses his pitch. “Your name came up on a list of people who might be interested in selling their house.”
That sounds neutral, even sympathetic. If it works, he’ll have his first distressed seller.
There’s a lot of speculation about where the housing market is headed. Some analysts contend the shakeout is over. Others maintain it hasn’t even begun.
Hennigan and the company he works for, Home Center Realty, don’t have the luxury of waiting to see how the story will play out. They need to make a living now, and they’re betting that things are going to get worse.
During the four-year boom that ended last summer, Home Center expanded from 15 agents to 80 in three offices. The roster of agents has since sunk to 52, only about half of whom are active.
“The rest are looking for side jobs at McDonald’s,” said Home Center President Jason Bosch. “It happened overnight.”
Hennigan works in the Norco office east of Los Angeles. He gets a salary to help run the place, but to pay his own mortgage he still must earn commissions buying and selling houses.
In this queasy market, sales are slumping. Sellers remember the boom and want more money than they can get, while buyers feel they have unlimited time to make a decision. An agent’s best prospect for a sale is someone who must act now — a homeowner told by a lender to pay up or get out.
These owners are in crisis. They need to refinance if they can or sell and move into something affordable. If they had an easier option, they wouldn’t be behind in their payments in the first place.
Home Center Chief Executive Ron Barnard says that personally, he finds foreclosure sad, even tragic. “But as a business owner, I think it’s great.”
The new issue of the company’s 22-page listings magazine, distributed outside supermarkets and drugstores, will tout nothing but distressed and foreclosed properties: 95 of them, many nearly new, each priced at around $250,000.
“When you throw out the words ‘foreclosure,’ ’short sale,’ ‘repo,’ the buyer thinks it’s a deal,” said president Bosch. “It’s still very early, but I’m convinced that’s where the market is going.”
For Hennigan, the search for a deal restarts every 10 days, when he gets a packet from United Title Co.
Drawn from public data, it has the names, addresses and loan information for people in Riverside County who are in default, which means about three months behind. They have another three months before the bank seizes the house.
“They get sold these houses on the idea that they can handle the mortgage, and then they can’t,” Hennigan said.
When he combs through the listings, Hennigan ignores anyone who owes more on a home than it is worth. These folks are in too much trouble to be saved. He’s looking for owners who, after closing costs and a 6 percent agent’s commission (half to Hennigan, half to the buyer’s agent), will walk away with their credit rating intact and some cash to start anew. This will give them an incentive to deal.
Coming along on this afternoon’s prospecting trip is Jerald Becerra. “I’ll stay in the car, keep the engine running,” he says. “Just in case someone comes out with a shotgun.”
The target home was built in 1988. The owner refinanced two years ago, bringing the mortgage to $327,000. Based on comparable recent sales, even in this lousy market the house could go for as much as $500,000.
Hennigan walks up as Becerra hangs back. Someone is surely home. An upstairs window is wide open. A white Honda is crookedly parked in the driveway. Yet no one answers. It’s frustrating. You can’t help someone who’s hiding.
The biggest problem, Bosch believes, was created by the lenders. They used to be cautious. They’d want the borrower’s tax returns, pay stubs and bank statements, and it would all have to match up. The borrower would make three times his monthly payment. He’d have to scrape together a down payment.
Sub-prime loans changed all this. Originally these high-interest loans for credit-challenged buyers were a small segment of the market. But as houses got more expensive, fewer buyers qualified under the traditional guidelines, so they went sub-prime.
Lenders would take their word on income. They no longer needed down payments. They didn’t worry that their loans would soon reset to higher interest payments.
Nobody cared too much as long as prices went up, although many people in the business knew the day of reckoning wasn’t canceled but merely postponed.
In Home Center’s near-vacant Ontario office, Raul Palma shuts himself into his windowless office. A 32-year-old former lineman for Southern California Edison, he became an agent a year ago for the same reason the rest of them do: “It’s all about the money.”
He looks at his “motivation board” on the back of the door — pictures of luxury homes, luxury cars, luxury vacations. Then he starts playing instruction recordings on his computer. They’ve been rewritten for the housing downturn, offering straightforward and occasionally harsh suggestions for Palma to repeat to reluctant clients.
“Did you know the market is no longer appreciating?” the recorded salesman intones with Baroque music in the background.
Palma dials one number after another from a list of houses being sold by their owners. He only occasionally connects with a live human being, who generally hangs up on him.
The market, Palma explains between calls, is driving many people crazy. “Some are very distressed,” he says. “A lot of them are.”
Jackpot. A man agrees to let Palma come over tomorrow evening. He has been trying to sell his house for $375,000. If Palma has his way, it will be less.
“To get top dollar in today’s market, you have to have the cheapest house for sale in the neighborhood,” the agent says. “The way prices are falling, in three weeks it will be the most expensive.”
That’s one way markets drift south. Another is through short sales. That’s when agents sell homes in default for less than is owed on them. The bank agrees to waive the remainder in the interest of bringing the whole mess to a speedy conclusion.
The trouble is, most people in this situation have two loans. The primary lender has first claim to the money. As a result, the second lender is often unwilling to deal.
“Banks don’t have enough bad loans on their books to say, ‘We’ve got to deal with this,’ ” Hennigan said. “Within six months, that will change.”
Maybe sooner. Home Center agents have 73 homes on the market. Fourteen are being sold by their owners in a short sale, with the bank asked to swallow the difference.
If Hennigan barely knew what a default was in September, if he spent December knocking on doors failing to persuade people over their heads to let him help, now the business is coming to him.
Lenders are calling, asking him to photograph houses and evaluate their condition and marketability.
The first two were in Perris. By the time he goes to the third one, in Fontana, he knows what to expect. No point knocking on the door. This house, like the others, is empty. The electricity is off, the grass brown.
It’s a foreclosure, something Hennigan has scarcely seen. In late 2004, there were about five foreclosures a week in Riverside County. Now it’s 73 a week, and rising.
He doesn’t have a key, but the back door is open. The carpets are stained, the living room wall has a hole punched in it, and the bedroom doors are missing. Still, it’s a solid house. The lender will use Hennigan’s report to set a price and then turn it over to the agent to find a buyer. A little paint, a little plaster and it will go for $500,000.
Hennigan doesn’t know who the owners were, why they couldn’t pay or where they went. It’s much better this way. He doesn’t have to feel sorry for anyone. Instead, he can concentrate on work.
“People are walking away from their houses,” he says. “I’m giddy because I’m going to be so busy.”
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