Loan losses put Granite Bay bank at risk of failure, seisure

By Charles Piller
cpiller@sacbee.com


Problem loans for residential and land development have placed Granite Community Bank, a small lender in Granite Bay, at risk for failure and seizure by the government, according to regulatory filings and banking analysts.
The bank lost more than $5.5 million last year, including more than $3.5 million in the fourth quarter. According to Oakland-based Foresight Analytics, Granite Community holds $14.2 million in loans that are in default or close to default – about four times the bank's reserve fund to cover such losses.
"They do face a takeover at some point in time unless they can improve their capital situation," said Bert Ely, a banking industry analyst in Alexandria, Va., who reviewed the bank's most recent government filing for The Bee. Ely said the bank reported an unusual burden of bank-owned real estate – a result of area foreclosures – and a perilous dependence on construction and commercial real estate loans.
"It's quite possible that their losses … will wipe out their capital and render them insolvent," said Ely.
Last March, just 30 U.S. banks or thrifts faced such severe problems, according to data from Foresight, a market research firm. All but one have since been seized by regulators. As of September, 56 banks or thrifts struggled with challenges as extreme as Granite Community's current plight; since then, 41 of those have failed.
After a bank failure, depositors are safe, protected by insurance for up to $250,000 each, but shareholders lose their investments and local commerce could suffer.
"Our special marketplace, south Placer County, has been impacted dramatically" by the recent economic downturn, said David R. Kaiser, Granite's chief executive. "We've been aggressive at recognizing problems. We haven't tried to sugarcoat anything.
"We see a fairly bright future," he added, noting that remaining challenges are "not a bottomless pit." Kaiser said he hoped to increase lending to small businesses this year as the economy recovers.
The Granite Bay lender, founded in 2002, is among several small local banks that have been hammered by the region's exceptionally severe real estate bust and ill-fated lending practices. Just five of the 15 commercial banks based in the Sacramento area made money last year.
Granite Community did not receive funds from the federal TARP bailout, unlike the second-biggest regional loser in 2009, Community Business Bank in West Sacramento. It lost nearly $4.2 million – more than its entire $4 million bailout.
Last year, The Bee examined Community Business Bank's unusually high level of insider lending to its own directors and their family members. Since then, the West Sacramento lender has sharply reduced its loans to officers and directors.
Mark Day, Community Business Bank's chief financial officer, said tax disadvantages due to his bank's status as a relatively new institution worsened its 2009 losses. He did not respond to a question about whether the bank still intends to repay its bailout funds, as officials said last year it would.
Sacramento's River City Bank lost $3.3 million in 2009, Five Star Bank in Rocklin lost nearly $2.3 million, and Community 1st Bank, a Roseville lender that also got TARP funds, lost $1.2 million.
Granite Community's condition is by far the worst of any local bank, according to leading financial rating companies. It's the second lowest-rated bank of its size in California and is in worse shape than more than 98 percent of peers nationally, according to Bankrate.com. Bauerfinancial.com gave Granite Community zero stars – the lowest possible rating.
In 2008, Granite Community entered a formal agreement with its chief regulator, the U.S. Comptroller of the Currency. The agency required the bank to increase capital reserves to cover bad loans. But the bank's condition has since deteriorated, as demand for housing and commercial development collapsed.
Granite Community is trying to raise $6.5 million from investors to return its capital holdings to levels demanded by regulators. So far, the bank has taken in about $2.2 million, Kaiser said, which is being held in escrow until other funds are raised.
Raising enough capital "is definitely an uphill battle" for a small, struggling bank in today's economic climate, Foresight's Matthew Anderson said. Takeover by a larger, healthier bank might be another option, he said.
"Someone putting capital in has to ask," Ely said, "is this bank insolvent, and if so, am I throwing good money after bad?"

10 indicted in Elk Grove case of alleged mortgage fraud.

By Jim Wasserman
jwasserman@sacbee.com


Three years after a 30-home buying spree during the worst excesses of the housing boom, five Roman',Times,serif; FONT-SIZE: 15px; CURSOR: pointer; FONT-WEIGHT: 400" class=" lingo_link lingo_link_hidden" href="http://topics.sacbee.com/Elk+Grove/" rel=nofollow>Elk Grove residents and five accomplices face federal charges of writing phony loan applications and defrauding lenders of $5.5 million.
Allegations surfaced in a 48-count federal grand jury indictment announced Wednesday against the owner of Roman',Times,serif; FONT-SIZE: 15px; CURSOR: pointer; FONT-WEIGHT: 400" class=" lingo_link lingo_link_hidden" href="http://topics.sacbee.com/Elk+Grove/" rel=nofollow>Elk Grove-based Liberty Mortgage Co. and Roman',Times,serif; FONT-SIZE: 15px; CURSOR: pointer; FONT-WEIGHT: 400" class=" lingo_link lingo_link_hidden" href="http://topics.sacbee.com/Liberty/" rel=nofollow>Liberty Real Estate and Investment Co. Nine others, including Roman',Times,serif; FONT-SIZE: 15px; CURSOR: pointer; FONT-WEIGHT: 400" class=" lingo_link lingo_link_hidden" href="http://topics.sacbee.com/Liberty/" rel=nofollow>Liberty employees, homebuyers across California and an Elk Grove attorney alleged to have written phony letters for three buyers, also were indicted.
Charges include conspiracy to commit mortgage fraud, mail fraud and making false statements in Roman',Times,serif; FONT-SIZE: 15px; CURSOR: pointer; FONT-WEIGHT: 400" class=" lingo_link lingo_link_hidden" href="http://topics.sacbee.com/mortgage+applications/" rel=nofollow>mortgage applications to federally insured banks.
This week's action is one of the biggest sweeps yet against locals alleged to have helped seed the housing meltdown through real estate fraud. Following thousands of foreclosures across the Roman',Times,serif; FONT-SIZE: 15px; CURSOR: pointer; FONT-WEIGHT: 400" class=" lingo_link lingo_link_hidden" href="http://topics.sacbee.com/Central+Valley/" rel=nofollow>Central Valley, federal authorities say prosecuting mortgage and real estate fraud is one of their highest priorities.
U.S. Attorney Benjamin Wagner alleged Wednesday that Liberty owner Hoda Samuel, 58, of Elk Grove and nine others masterminded home purchases from April 2006 through February 2007 with loan applications that lied about incomes and job histories. Their goal, said the indictment, was to "enrich themselves" with "substantial" loan brokerage and closing fees or with thousands of dollars kicked back to buyers after close of escrow.
Most of the homes were financed by subprime lenders that later failed or imploded due to lax loan standards used at the height of the housing frenzy. Lenders financed 26 of the homes with so-called "100 percent financing" in which buyers in the alleged scheme made no down payments. Later, all but two of the 30 homes in Sacramento, Elk Grove, Oakley, Lodi and Olivehurst were foreclosed, costing the U.S. financial industry $5.5 million, said Wagner.
Liberty's real estate and loan firms are closed, said Samuel, reached by telephone Wednesday in Roman',Times,serif; FONT-SIZE: 15px; CURSOR: pointer; FONT-WEIGHT: 400" class=" lingo_link lingo_link_hidden" href="http://topics.sacbee.com/Elk+Grove/" rel=nofollow>Elk Grove.
"We're not doing any business," she said.
Citing advice from her attorney, Samuel said: "I cannot talk about it. I know I am not guilty. But I cannot talk about it."
Four other indicted Roman',Times,serif; FONT-SIZE: 15px; CURSOR: pointer; FONT-WEIGHT: 400" class=" lingo_link lingo_link_hidden" href="http://topics.sacbee.com/Elk+Grove/" rel=nofollow>Elk Grove residents included Connie Devers, 40, Charles Roman',Times,serif; FONT-SIZE: 15px; CURSOR: pointer; FONT-WEIGHT: 400" class=" lingo_link lingo_link_hidden" href="http://topics.sacbee.com/Robert+Maness/" rel=nofollow>Robert Maness, 32, Ronald Burris, 36, and Roman',Times,serif; FONT-SIZE: 15px; CURSOR: pointer; FONT-WEIGHT: 400" class=" lingo_link lingo_link_hidden" href="http://topics.sacbee.com/Sean+Patrick+Gjerde/" rel=nofollow>Sean Patrick Gjerde, 34.
Those indicted from Lodi, Oakland and San Diego included Dana Faulkner, 43, Roman',Times,serif; FONT-SIZE: 15px; CURSOR: pointer; FONT-WEIGHT: 400" class=" lingo_link lingo_link_hidden" href="http://topics.sacbee.com/Tracy+Painter/" rel=nofollow>Tracy Painter, 50, Ygnacia Bradford, 34, Roman',Times,serif; FONT-SIZE: 15px; CURSOR: pointer; FONT-WEIGHT: 400" class=" lingo_link lingo_link_hidden" href="http://topics.sacbee.com/Nicole+Dawson/" rel=nofollow>Nicole Dawson, 40, and Daniel Harrison, 40.
Samuel, Devers, Maness, Painter, Gjerde and Harrison pleaded not guilty in federal court.
Appearances by the others are pending, federal authorities said.
The indictments allege that buyers represented by Roman',Times,serif; FONT-SIZE: 15px; CURSOR: pointer; FONT-WEIGHT: 400" class=" lingo_link lingo_link_hidden" href="http://topics.sacbee.com/Liberty/" rel=nofollow>Liberty offered sellers $15,000 to $40,000 more than the asking price for their homes, saying the extra money was going to contractors to make the properties livable for disabled people.
That money never paid for any work, however, but was funneled back to Roman',Times,serif; FONT-SIZE: 15px; CURSOR: pointer; FONT-WEIGHT: 400" class=" lingo_link lingo_link_hidden" href="http://topics.sacbee.com/Liberty/" rel=nofollow>Liberty's clients, their friends and family members, the indictments state.
Liberty employees made up jobs and incomes for buyers, then acted as contacts to verify the information when lenders called, said the indictment.
Gjerde, an Roman',Times,serif; FONT-SIZE: 15px; CURSOR: pointer; FONT-WEIGHT: 400" class=" lingo_link lingo_link_hidden" href="http://topics.sacbee.com/Elk+Grove/" rel=nofollow>Elk Grove attorney, is accused of writing letters for three buyers, "falsely" verifying their employment, and claiming he had prepared their tax returns for years, according to the indictment.
On Wednesday, Gjerde's attorney, Tom Johnson of Sacramento, said: "We intend to go to trial. We intend to contest the allegation."
Johnson also said the federal government is targeting the wrong people.
"The real culprit was the lenders and the large banking institutions," he said. "The same people who were just venomous to our economy are the same people who are not being indicted."

Sacramento region's housing market slowly, fitfully rebounds.

By Jim Wasserman
jwasserman@sacbee.com


As housing led us into the Great Recession, goes popular wisdom, housing needs to lead us out. And housing looks unready to lead us anywhere.
Those words were used to tease a national radio broadcast Wednesday about the housing market.
The message: Housing is down. Run for your life.
Every day the media report some confusing new monthly data about housing. It's all breathlessly urgent. But it often makes no more long-term sense than the stock market. Markets plunge one day when investors get more pessimistic about the recovery. They soar the next when they get more optimistic. Daily, a blizzard of reports arrives. Something's looking better. Or it's worse.
Home Front knows nothing for certain in this fragile economic environment. But inside a swirl of dueling data, a few things are still real.
All real estate is local
What's true on national news may not be true where you live. Nine days ago the nation hyperventilated because a federal agency reported May single-family housing starts fell 17 percent from April. It was "the largest monthly drop since January 1991." Oh no!
But Thursday came new California counts from the Construction Industry Research Board. May housing starts in Sacramento, Placer, El Dorado and Yolo counties were up almost 10 percent. End of the world? Not here.
This is a long, slow slog
Nobody said recovering from a crash would be easy or fun. But one day, one house at a time, this market is resetting itself. Foreclosed homes get buyers at today's prices. These owners stay and heal neighborhoods.
Negative equity – owing more than your house is worth – is still terrible. But it's slowly, slowly easing. A year ago more than half of area mortgaged houses had negative equity. Now it's less than half. The trend is moving the right direction. It is not getting worse.
Foreclosures are stalling
It's hard to fathom why this is true. More people than ever are behind on payments with unemployment at 12 percent. But banks have managed to prevent a tidal wave of repos that would further tank your home values. Maybe it's just muddling through. But it has slowed foreclosures.
Government, too, has muddled along with program after program to save borrowers. Most of them have been perceived as lame. But more than 6,200 area borrowers did have permanent loan modifications at May's end.
Now, governments, even lenders, are drifting toward principal reduction. That cuts what people owe to keep them from walking away. It's too late for many. But slowly, institutions are becoming more open to what many believe is the best possible cure.
It's still cheap to borrow
Predictions since 2006 said interest rates would cross the 7 percent barrier and shut down homebuying. They remain below 5 percent. And almost all of today's mortgages have safer terms. The supply of people with the nastiest loans is shrinking, not growing.
Many who can refinance are also trimming their debt. Day in and out, that's a big thing happening amid the daily blizzard of economic reports. Many who can are slowly deleveraging. It's painful. It was necessary.
Nobody's saying things are swell. But keep perspective. From the bottom, so slowly, the direction is usually up.

California to offer program to trim underwater mortgages

By Jim Wasserman
jwasserman@sacbee.com



Lots of people will want to get in on this one: California is going to use federal money to pay down the mortgages of struggling homeowners.
The California Housing Finance Agency announced Wednesday that it will spend $420 million to trim individual mortgages by up to $50,000. Lenders will be asked to match the amount, a deal that could make thousands of mortgages newly affordable across the Sacramento area.
The program, launching Nov. 1, will be run on a first-come, first-served basis, said Evan Gerberding, marketing manager for the CalHFA's "Keep Your Home" initiative.
"Unfortunately, there will likely be more demand than funding," she said.
Specifics on the selection process are still in the works. But CalHFA will exclusively fund applicants from low- to moderate-income households. In Sacramento, that's expected to mean people earning less than $68,000 a year. Borrowers will have to be delinquent or in imminent danger of defaulting, but have adequate income to continue paying after getting the help.
Gerberding advised people to keep checking the Keep Your Home website for applicant criteria to be posted later. She said people struggling to make payments shouldn't wait for the program to start, but should contact lenders and loan counselors now.
Thousands of Californians who meet the income guidelines will want in, but one fact will block many.
"This is to help people with purchase loans," Gerberding said Wednesday.
That rules out borrowers whose troubles began with cash-out refinances when their homes were worth more than now. Gerberding said exceptions may be made for people who refinanced to get lower interest rates. The program also requires that homeowners live in the house they mortgaged.
For years, federal and state governments have rolled out programs to stimulate loan modifications, and most have proved disappointing. California's new program is one of the first large-scale attempts at wholesale "principal writedowns," where loans are shrunk to more closely match today's home values.
"We think it's encouraging that they took on principal reduction in the way that they did, devoting most of the resources to it," said Kevin Stein, associate director of the California Reinvestment Coalition.
The low-income advocacy group has campaigned for principal reductions since 2007.
"That's the real need in California, to address the negative equity of borrowers being underwater," Stein said.
CalHFA, the state's affordable housing bank, estimates it will help 40,000 or more households avoid foreclosure with principal writedowns and other plans unveiled Wednesday. In all, the agency received $700 million for the relief programs, part of a $1.5 billion federal initiative to curb foreclosures in the hardest-hit housing crash states.
"We anticipate offering this over the next three years," Gerberding said.
The agency will also spend $129 million providing up to $15,000 to help people catch up with late payments.
An additional $64 million will provide the unemployed up to $1,500 a month to pay the mortgage for six months.
Finally, homeowners will receive up to $5,000 to move when they cannot afford the mortgage under any circumstances.
In all, the program will steer a maximum of $50,000 to qualifying households to avert foreclosures.
The CalHFA manager said there is no geographical quota. But help will roll first to hardest-hit counties, including much of the Central Valley.
In Sacramento, Placer, Yolo and El Dorado counties, 12 percent of mortgages are seriously delinquent or in the foreclosure process. And nearly half the region's mortgaged households owe more than the house is worth, according to housing industry tracker CoreLogic.
"There are thousands who could benefit," said Pam Canada, executive director of Sacramento nonprofit loan counselor NeighborWorks Homeownership Center.
Gov. Arnold Schwarzenegger pledged Wednesday to work with CalHFA "to ensure that these programs are implemented in a way that assists the greatest number of Californians."
CalHFA hopes banks will match the $700 million.
"We're asking lenders to come to the table with us on this," Gerberding said. "We can't force them to do that. But many of them have indicated they are happy to do that," she said.
Gerberding said CalHFA will add fewer than 10 new staff members to run the program. Administrative costs are estimated at about $52 million – 7.5 percent of the funding.
More information is available at the Keep Your Home website: www.keepyourhomecalifornia. com; or call (916) 373-2585.

$ 1 million-plus homes selling again in Sacramento region

By Bob Shallit
bshallit@sacbee.com


There's life again at the upper end of the region's residential real estate market, with a spate of recent home sales in the $1 million to $2.5 million range.
"We haven't seen anything like this in two years," says Kim Pacini-Hauch, a Lyon agent who specializes in upper-end homes.
Among the 30 or so closed escrows since April 1 in the $1 million-plus category: a home at 630 Hawthorne Road, for $2.23 million and one at 1213 Mariemont Ave. for $1.8 million, both in Sacramento County; a home at 1964 Shoreview Drive in El Dorado Hills for $2.23 million and one at 6110 Terracina Court in Loomis for $2.5 million.
Among sales currently pending: a home at 2671 Huntington Road in Sacramento County that had an asking price of $2.3 million.
Why the recent pickup after a two-year stretch of extremely limited activity?
Pacini-Hauch cites several factors, including "realistic" pricing by motivated sellers, attractive interest rates and a decision by buyers – many of them sitting on cash – to finally get off the fence.
"They're feeling confident," she says, "that we've found the bottom" of the market.
Stop, thief
Credit a sewer upgrading crew with taking a bite out of crime in south Sac.
The crew, from Insituform Technologies, is working to reinforce an eight-mile stretch of pipeline running from Power Inn and Fruitridge roads to the sewage treatment plant in Elk Grove.
On a recent afternoon, project superintendent Rich Frymire heard a woman screaming that her purse had just been snatched. He saw a guy jump into an SUV and tear off.
Frymire, a former Marine, got into his truck, followed the bad guy and flagged down a cop. An arrest was made, the purse returned.
The victim was thankful, says Dillon Miele, a project engineer with the Sacramento Area Sewer District.
"She bought the whole crew lunch," he says.
Planning on the cheap
A Sacramento company has come up with a novel way to help cash-strapped municipalities complete general plan updates: It's teaching them to do the work themselves.
After a year of preparation, Mintier Harnish has just taken the wraps off of a three-day training program it's offering to cities and counties for between $10,000 and $25,000.
That's compared with the $1 million or more regional planning firms like Mintier Harnish often charge to update general plans, which guide municipalities in development and land-use decisions.
"We're giving away some of our trade secrets, I suppose," says principal Jim Harnish. "But it's an opportunity to benefit us and the public agencies as well."
Get a whiff of this
Turns out that Sactown magazine may have a "first" after all with that dazzling citrusy scratch 'n' sniff cover on its current issue.
We reported last week about the "Best of the City" issue, suggesting it could be the first time such technology was employed on a mag cover. Then we threw some cold water on that assertion.
The New York Times had also written in a blog about the unusual cover – prompting a reader's e-mail pointing out that Wired mag had published its own s 'n' s cover in 1999.
Sactown co-editor Rob Turner did some research and found that Wired merely used a sticker. It didn't embed a scent into its cover, as Sactown did.
So Sactown rules.
Still, Turner gives props to Wired, which mimicked an underarm odor on its cover.
As he notes in a posting on the Times' site, that's "nothing to sniff at either."

Sacramento-area home sales for May reported strongest in 4 years

By Jim Wasserman
jwasserman@sacbee.com


More than 3,700 Sacramento-area buyers claimed keys to new and existing houses in May, the strongest sales month in four years, a La Jolla researcher reported Thursday.
Sales prices also continued to drift upward. Sacramento scored a fifth straight month in which prices beat the same time last year, La Jolla-based MDA DataQuick reported.
Sacramento County's median price for existing homes and new houses combined is $182,000 – 4 percent higher than in May 2009. Median is that point where half sell for more and half for less.
The latest numbers show that a spring homebuying surge that started in March has strengthened in Amador, El Dorado, Nevada, Placer, Sacramento, Sutter, Yolo and Yuba counties. Altogether, 3,716 homes changed hands in the region. About 9 percent were new houses, DataQuick reported.
But the region is also seeing a steady rise in for-sale signs. At month's end, 7,424 – the most in a year – dotted the streets and roads of Roman',Times,serif; FONT-SIZE: 15px; CURSOR: pointer; FONT-WEIGHT: 400" class=" lingo_link lingo_link_hidden" href="http://topics.sacbee.com/El+Dorado/" rel=nofollow>El Dorado, Placer, Sacramento and Yolo counties, Roman',Times,serif; FONT-SIZE: 15px; CURSOR: pointer; FONT-WEIGHT: 400" class=" lingo_link lingo_link_hidden" href="http://topics.sacbee.com/Sacramento/" rel=nofollow>Sacramento researcher TrendGraphix reported.
Distress also continues to haunt the capital region. An estimated 12 percent of mortgages in El Dorado, Placer, Roman',Times,serif; FONT-SIZE: 15px; CURSOR: pointer; FONT-WEIGHT: 400" class=" lingo_link lingo_link_hidden" href="http://topics.sacbee.com/Sacramento/" rel=nofollow>Sacramento and Yolo counties are delinquent, in the foreclosure process or tied to a bank repo, says Orange County housing analyst CoreLogic. Bank repos still accounted for 47.6 percent of sales in Roman',Times,serif; FONT-SIZE: 15px; CURSOR: pointer; FONT-WEIGHT: 400" class=" lingo_link lingo_link_hidden" href="http://topics.sacbee.com/Sacramento/" rel=nofollow>Sacramento County, said DataQuick.
But those who have money and jobs are buying, says Sacramento real estate agent Roman',Times,serif; FONT-SIZE: 15px; CURSOR: pointer; FONT-WEIGHT: 400" class=" lingo_link lingo_link_hidden" href="http://topics.sacbee.com/Ted+DeFazio/" rel=nofollow>Ted DeFazio of Ellington Properties. He brokered three of the region's closed escrows in May. DeFazio confirmed that a statewide trend of fewer bank repos and more higher-end sales is also happening locally.
"I sold two houses in the $500,000 range in May," he said. Those sales, growing as sellers become more realistic about values, are tugging the county's median toward $200,000. Sacramento County prices bottomed out at $160,000 in February 2009.
Prices are also edging up for cheaper houses. Mike Lyon, head of Lyon Real Estate, cited a 15 percent rise in the price per square foot for houses under $200,000 the past year.
DeFazio said higher-end sellers are proving more willing to deal this year, and buyers "are getting into neighborhoods they wouldn't have been able to afford back when."
The numbers reveal a sizable number of first-time buyers who started sales contracts before April 30 to collect a federal Roman',Times,serif; FONT-SIZE: 15px; CURSOR: pointer; FONT-WEIGHT: 400" class=" lingo_link" href="http://topics.sacbee.com/tax+credit/" rel=nofollow>tax credit of $8,000. Many are also staking claim to California's first-time buyer tax credit of up to $10,000. Those became available May 1.
More than 15,000 first-time California buyers have applied for the state tax credit, which is now 80 percent claimed, according to the state Franchise Tax Board.
In addition to the tax credit, buyers are attracted by interest rates that have remained below 5 percent for six weeks.
Senior loan consultant Brent Wilson, of Comstock Mortgage in Sacramento, said most home loans are going to "first-time homebuyers and investors in that more moderate price range."
According to DataQuick, investors accounted for 25.4 percent of Roman',Times,serif; FONT-SIZE: 15px; CURSOR: pointer; FONT-WEIGHT: 400" class=" lingo_link lingo_link_hidden" href="http://topics.sacbee.com/Sacramento/" rel=nofollow>Sacramento County sales. Buyers paying cash constituted 31 percent of sales.

State says recession may have bottomed out.

The state Department of Finance, agreeing with most other economic forecasters, says California's economy appears to have hit the bottom of the recessionary trough and is beginning to recover.
"A resurgent labor force is one of several signs that the economy is slowly getting back on its feet," the department says in its monthly economic bulletin. "A resumption of job growth pulled discouraged people back into the labor market. Building activity, both residential and nonresidential, appears to have stabilized and, while still at low levels, has improved modestly from the beginning of 2009."
The department, echoing a report last week from Controller John Chiang, says that general fund revenues so far in the 2009-10 fiscal year, are running slightly ahead of the state budget forecast. By the end of May, one month before the fiscal year closes, general revenues were $76.2 billion, about $300 million over the forecast.
Earlier in the year, the state was hoping for a multibillion-dollar windfall, but revenues in April, when income taxes were due, fell well short of expectations. Overall, income taxes ran $424 million above expectations through May, but sales taxes fell short and other, minor sources of revenue ran on track.

Builder to lease solar-power equipment

By TIFFANY HSU
Los Angeles Times


One of the country's largest home builders is offering a new financing option that could make it easier for people to afford solar-powered homes.
Calling it the first large-scale program of its kind, Lennar Corp. plans to announce Tuesday a partnership with solar panel manufacturer and installer SunPower Corp. to lease panels rather than requiring home buyers to purchase the technology outright along with the house. Last year, Lennar and SunPower launched a successful test run of the leasing option in 150 Sacramento, Calif., homes.
Under the program, customers would essentially buy the electricity produced by the solar panels, making monthly payments to SunPower that the company says will average $65 over 10 years, or about $7,800 total.
Previously, the roughly $20,000 cost of the system was automatically folded into the price of a new home and added to the mortgage. The actual out-of-pocket cost was less because of rebates and tax credits.
Still, some buyers balked at the expense, said David Kaiserman, president of Lennar Ventures. He said he expects the leasing program to attract more homeowners to solar-equipped properties.
"Solar's something most people would like to have but just can't afford," said David Kaiserman, president of Lennar Ventures. "Even with state and federal subsidies, people still stretch to come up with the upfront money."
The Lennar partnership with SunPower is also more convenient than leasing programs through third-party manufacturers and installers, executives said. SunPower adds the panels as the home is being built without dragging the homeowner through the permitting and installation process necessary on an existing structure.
Miami-based Lennar has installed SunPower solar panels on more than 1,700 homes in California since 2006.
The photovoltaic systems, which blend in with surrounding tiles on the roof, are made of monocrystalline cells and can produce an average of about 3.5 kilowatts at any given time, said Matt Brost, general manager of SunPower's New Home Division.
Under the leasing system, any government incentives associated with the panels are passed along to SunPower. That allows the company to charge homeowners less than their average utility rates.
Participants Dalia and Dan Mask pay $26.90 a month for the electricity produced by the panels on their three-bedroom home in the Kavala community in Rancho Cordova, Calif. For those times that they need more energy than the solar system can deliver, they're still hooked up to the local utility grid. Their last utility bill was just $4.80 and usually comes in under $50, compared with $125 a month when they lived in an apartment.
"The savings is huge," said Dan Mask, 52. "In the summer time, you've got a tremendous amount of sun, and we don't use a tremendous amount of electricity. You could save hundreds on your electricity bill."
The companies said they expect most customers to renew their lease at the end of the 10-year term, but homeowners may also buy the system, have it removed or turn it off.
Lennar, which may expand the leasing option to states with favorable solar incentives, is considering rollouts throughout California and also in Colorado and New Jersey. The program is already being offered in Lennar communities in Sacramento, Fresno, San Diego and Corona in the Inland Empire.
"The incentives are in such a state of flux that we're really monitoring it moment by moment," Kaiserman said. "We're going to be nimble and evolve the program as incentives continue to evolve."

Short sales -- and ways to explain them -- rise in Sacramento

By Jim Wasserman
jwasserman@sacbee.com


Every for-sale sign tells a story. These days, most tell about trouble making the house payment.
Yet in Sacramento, more such stories are ending with short sales and fewer with foreclosures. The numbers show it. In mid-May, 58 percent of homes for sale in Sacramento County were short sales and only 13 percent were bank repossessions, said Tom Beede, president and chief executive officer of Metrolist Services Inc.
"Short sales are more profitable for the banks and they're doing a better job of processing them," he said.
In short sales, lenders accept offers from new buyers that are below what current owners still owe.
But as short sales become the next big thing and promise to remain strong for five years or more, they're fertile ground for misbehavior, say real estate professionals and regulators. In today's Wild West of distressed real estate, short sales can appear as a game of everyone for themselves: scammers vs. home sellers, sellers vs. their lenders and even lenders vs. lenders.
Nearly 4,500 borrowers in Sacramento County are trying to do short sales right now. Here are just a few of the things to watch out for, and what players say they're seeing:
• Unlicensed short sale "negotiators" are approaching homeowners, asking for thousands of dollars up front to negotiate with lenders, said Tom Pool, spokesman for the California Department of Real Estate. Only attorneys and licensed brokers can ask for money up front – and only after the DRE approves the agreement with an individual seller. The DRE recently published a consumer alert about this and other scams.
• Real estate agents or these negotiators are lowballing offers to overwhelmed banks, a practice called "flopping." After the bank approves a short sale at a low price, the agent or negotiator quickly flips the house to a new buyer for much more. Elizabeth Weintraub, a Sacramento short sale agent with Lyon Real Estate, said would-be floppers often want to use their own title companies. That's a red flag.
• Real estate agents say banks are illegally seeking extra money in hidden side deals before approving short sales.
Here's how it works: A bank that holds the "second" loan, such as a home equity loan or down payment, asks a seller for more money without telling the lender that holds the primary loan. It's an unrecorded deal outside the escrow process.
"I'll say, 'I can't make side deals. It's illegal,' " said Edda Nix, a Lincoln short-sale specialist with Century 21. "They say, 'That's too bad. You can't get our approval.' "
"That's really a huge problem," added Gloria Borges-Valdez, a Lyon Real Estate agent in Sacramento.
• Some homeowners, especially savvy, well-off owners who owe far more than their houses are worth, are hiding savings and income to persuade lenders to agree to short sales. Many can afford their mortgages, said Coldwell Banker short-sale specialist Mike Toste of Roseville. But they also know it will take years to recoup their 2006 values.
Short sales do less damage to credit scores. They also make it possible to buy another house sooner.
Said Toste, "We turn away more people than we take on, because of their financial ability to pay (the mortgage). People just want out."

Central Valley counties are major areas for cheaters targeting lenders

By J.N. SBRANTI
The Modesto Bee


Lenders are being warned there's a higher risk of mortgage fraud in Stanislaus County than anywhere else in the United States, and it's almost as bad in Merced and San Joaquin counties.
The risk of borrowers ripping off lenders is twice as high in the Northern San Joaquin Valley compared with the national average, according to mortgage application data analyzed by Interthinx.
"When you talk about mortgage fraud, you're talking about bank robbery without a gun," said Ann Fulmer, Interthinx vice president of industry relations. "It robs a community of its value and security." Interthinx analyzes mortgage applications for more than 1,100 lenders, running data through its computers to spot potential fraud.
Apparently, fraud is rampant in Stanislaus, where foreclosures are high and median home prices have fallen about 66 percent since 2005.
"Fraud flourishes in unstable markets," Fulmer warned. She said there was lots of mortgage fraud when the region's home prices soared several years ago, and now new scams are being used to push down prices. "Fraudsters are really adept entrepreneurs,"she said.
Computer analysis is getting more sophisticated, too, enabling Interthinx to spot suspicious trends.
"We are seeing a resurgence of schemes involving real estate agents," Fulmer said.
Interthinx has started publishing the Mortgage Fraud Risk Report for lenders, and the latest issue puts Stanislaus atop the list.
"It gives lenders an idea where they really need to pay attention," Fulmer said, "which allows them to take defensive action." Stanislaus' real estate insiders are well aware of this type of fraud.
Mortgage fraud comes in many flavors. Basically, mortgage fraud is any material misstatement, misrepresentation or omission used to obtain a real estate loan. Lenders are the victims.
That's different from predatory lending, in which borrowers are victimized by lenders or mortgage brokers who put them into overpriced loans.
The hottest form of mortgage fraud in the Northern San Joaquin Valley involves bogus property valuations.
Fulmer said a lot of the fraud involves the resale of foreclosed bank-owned homes and "short sales," in which homes facing foreclosure are sold for less than their outstanding mortgage.
Here's one way that scheme works, according to Fulmer: A bank repossesses a home, then hires a real estate agent to resell the property. That agent secretly creates a limited liability corporation that offers to buy the property for a very low price.
Meanwhile, other interested buyers also submit bids for the home, offering considerably more than the LLC's bid.
But the dishonest agent tells the seller (which in this case is the bank) only about the low bid from the LLC. It illegally keeps the other bids secret.
Figuring that the LLC's bid is the best deal available, the bank agrees to sell for the low price just to get the foreclosed home off its books.
Then the agent immediately resells the house on behalf of the LLC to one of the other bidders for the house.

More California homeowners walk out on mortgage

By TIM SHEEHAN
McClatchy Newspapers


A generation ago, a house was more than a house.
It was part of the "American dream." And foreclosure was a horrifying but unlikely prospect for families who plunked down their savings and took out mortgages to become homeowners.
But a two-year recession has driven foreclosures to a record pace. For many families whose homes are worth far less than what they owe, financial and emotional stress is changing the "stay-at-all-costs" mindset.
In areas hardest hit by plunging real-estate values - including the San Joaquin Valley - some people who can afford their mortgage are opting to walk away from their loan and let their bank repossess the house.
"It's very stressful to get to that point," said James Graham, a 48-year-old power-plant worker who walked away from his home in Bakersfield last fall. "You're raised up to do the right thing and pay your mortgage, pay your bills."
"But when you get to that point where it's time to walk, it's time."
It's called "strategic default," and experts say it stems from frustration with home values that have plummeted since buyers bought or refinanced at the peak of the real-estate boom, and banks dragging their heels on loan-modification requests.
"If you've got a mortgage that's $400,000 and the homes around you are selling for $150,000 ... it doesn't take a rocket scientist to figure out there's a compelling reason to walk," said Robin Kane of RCK Organization, a Fresno property broker. "Especially when you find out the guy across the street is renting for $1,200 a month and your mortgage payment is $3,600 a month."
There's no definitive figures on how many mortgage defaults are by choice versus crisis. But a recent survey by the University of Chicago suggests that about one-third of U.S. home mortgage defaults are strategic.
"Foreclosure is no longer the 'F-word,' " said Jon Maddux, CEO of YouWalkAway.com, a San Diego company that charges a fee to coach homeowners through the foreclosure process. "There's much less stigma attached to it now."
With foreclosure and mortgage delinquency rates in the San Joaquin Valley among the highest in the country - and uncertainty over how long it will take home values to recover - experts believe strategic defaults in this region will increase.
A GROWING CONCERN
"People are walking away from homes in every county in California," said Walter Dees, the Los Angeles-based lead housing counselor for the nonprofit Clearpoint Credit Counseling Solutions. "They don't see the value of continuing to pay for a house that will take 10 years or more to regain the value it had before."
Many in that situation don't feel like they're getting the help they need from their lender, Dees added. "People are trying to do modifications first, and depending how that goes, frustration sets in and they start talking about walking away."
Economists estimate that about 25 percent of U.S. mortgage borrowers are "under water," owing more on the loan than the home is worth. In the San Joaquin Valley, where median home values have fallen by 40 percent or more since 2006, nearly half of home mortgages were under water by the end of 2009, according to CoreLogic, a real-estate tracking company in Santa Ana, Calif.
Graham, a control-room operator for a power plant, bought his three-bedroom, two-bathroom Bakersfield home for about $162,000 in 2003. As property values roared upward in 2005 and 2006, lenders inundated Graham with offers to refinance against the rising value the house.
"People were just dying to give me money and I was just dying to take it," said Graham, who eventually refinanced for $320,000 to consolidate some other debt. "I thought I'd always have my house to back me, that it would keep going up in value." But when the market collapsed, "my house was worth 60 percent of what I owed."
Graham was transferred for work to Sacramento and had no takers when he tried to sell his home. Rent in Sacramento and mortgage payments in Bakersfield "financially drained me to the point where something had to break," he said. "It was so stressful, I decided to let (the house) go because it was just eating me up."
Graham's home was taken over by Fannie Mae in August, and a new owner bought it in December for $171,000. But Graham, who transferred back to Bakersfield and now rents an apartment there, doesn't regret his decision despite a sizable knock to his credit score from the foreclosure.
"It was very hard to get to that point where you actually make that choice," he said. "It's such a prideful thing when you're used to making your payments. ... But my life has improved greatly since I walked away from that mess."
A SENSIBLE CHOICE?
For homeowners who owe substantially more than the home is worth, an Arizona law professor suggests walking away makes more economic sense than continuing to throw money at a mortgage.
"Millions of homeowners could save hundreds of thousands of dollars by strategically defaulting on their mortgages," said the University of Arizona's Brent T. White in a discussion paper published earlier this year.
"Homeowners should be walking away in droves. But they aren't," he said.
The reasons, he added, are more emotional than financial: "the desire to avoid the shame or guilt associated with foreclosure," and "fear over the perceived consequences of foreclosure."
A national housing survey made public in April by the Federal National Mortgage Association, or Fannie Mae, shows the considerable cultural pressure to hang in with a mortgage.
"The public (still) strongly believes in the importance of upholding the financial commitment involved in buying and owning a home," Fannie Mae CEO Mike Williams said, "even during these challenging times when home values have fallen."
The Fannie Mae survey revealed that almost 90 percent of Americans, and about 70 percent of mortgage borrowers who are delinquent on payments, "do not believe it is acceptable for people to stop making payments on an underwater mortgage." But borrowers reported they were twice as likely to consider stopping payments if they knew someone else who had defaulted.
FACING CONSEQUENCES
Like any foreclosure, a strategic default leaves a scar on a borrower's credit history.
Credit counselor Dees - whose housing counseling program is underwritten by an assortment of federal grants and grants from banking organizations and other industries - said many of his clients are frustrated after their bank has denied a plea for help, especially after so much news about bank bailouts and government programs to modify loans.
"One of the first things we explain is that you're not hurting the bank by walking away," Dees said. "You're only putting yourself in a worse situation."
While still a red flag, either a short sale - in which a bank agrees to let the owner sell the home for less than the balance owed - or a deed in lieu of foreclosure "look more favorable on a credit report," Dees said. "It's much better to work with the lender to get it sold the right way."
Maddux and White suggest that the effects of foreclosure are overblown.
"The perception is grossly misrepresented," said Maddux. "The damage isn't as bad as people think - it's about 100 (to 125) points on a credit score."
White said most people "can expect to recover from the negative impact of foreclosure on their credit score within a few years." By renting for far less, they can apply the rest of their mortgage payment to get ahead on other bills, he said.
"The financial costs of foreclosure, while not insignificant, are minimal compared to the financial benefit of strategic default, particularly for seriously underwater homeowners," White wrote.
Kane, the Fresno broker, said he believes a modest surge in consumer spending across the country may be in part because more people have stopped making mortgage payments.
"When you've got 7.9 million mortgages in the United States that are delinquent or in default, that money is going somewhere else," he said. "These people are doing something with their money."
Part of what is slowing down bank willingness on loan modifications, he added, are credit checks that reveal many delinquent borrowers are current on their credit cards, medical bills or other expenses, Kane said: "The only thing in delinquency is their mortgage."
EMOTIONAL DISCONNECT
Kane said the latest generation of homeowners views real estate differently than their fathers and grandfathers.
"Up until this decade, people bought a home because they wanted a place to raise their kids," he said. "They wanted good neighborhoods, good schools."
Now, however, "What was an American dream became an asset to trade," he said. "There's no emotional attachment to an investment. ... And the older generations are perplexed by that attitude."
Adding to the detachment, Kane said, are the changes in banks and the entire process of dealing with loans.
"Years ago, you went to the bank, met with someone who trusted you and loaned you the money. Those days are gone," he said. "The moral justification not to walk is really diminished because the relationship between the borrower and the banker is gone."
As more mortgages are sold to other servicers as investments, Kane added, "when you call about your loan, you're not a person. You're a number on a computer screen in India."
Despite incentives from the federal government to modify loans for struggling homeowners, Kane said banks have been largely disinterested in working out mortgage modifications that involve reducing the principal owed to reflect the deflated value.
But, he added, a rise in strategic defaults may work to bring more bankers to the table to work with borrowers on loan modifications and avoid the costs of a foreclosure.
"As long as someone keeps making their payment, there's no reason for a lender to step up and give you a break," Kane said. "The best thing about this is that lenders may finally get serious about modifying loans."