This is really shocking to the conscience (via SadlyNo)

I don’t think we have a full appreciation of what’s really happening in these exurbs.  This is a crime.

By the way, the most lucid explanation I’ve seen about how this housing crisis happened is in this Web comic, of all places.  Basically the investment banks tried to put together a pyramid scheme, knowing that it was fated to fail but hoping that they were more clever than everyone and nobody would find out, and the housing market would hold out at the historically anomalous levels it was headed in 2004-2005.  I remember being told in 2005 when I was looking for a house that “nobody gets a fixed mortgage anymore.”  That was the mentality from the banks, the lenders, the investors.  The goal was to shovel more and more people into mortgages, no matter their credit history.  Everybody benefited; government, industry, financial institutions.  There was no check on this forward motion, the regulation that was needed.  Unregulated capitalism will always step in the “Shitpile” this way.  And the banks and the lawmakers will all get bailed out, at the expense of these people in the Hoovervilles Bushvilles.

David Lazarus is showing to Southern Californians what Bay Area readers already knew: the man really understands the problems facing working Californians, and is not afraid to write about them directly and engagingly. In January he took on Prop 13 and called for it to be revamped, if not scrapped. Today he has shifted his focus to the struggles renters face in LA.

As any of us who have lived in the area realize, rents are nearly unaffordable in the urban center of LA – the place where it’s easiest to live without a car. Lazarus opens his column with the story of a single mother who makes $38K as an admin assistant and who can only afford a rental way out in Lancaster. This is a familiar story to me – I know a LOT of Californians who make a similar commute. And as oil prices soar toward $4/gal, it is becoming more difficult for working Californians to get around.

For the last few decades, Californians have been told the solution is more of the same – more sprawl, more freeways, more commuting. The obvious solution – to build more housing in the urban core – is opposed by those who believe, as a USC professor lamented in Lazarus’ column, “density is a four-letter word.”

Lazarus helps explain why the anti-density movement is blocking what I described last summer as the redefinition of the California Dream for the 21st century – that unless we invest in greater urban density, we will inscribe inequality permanently on the urban landscape.

For example, one of the major obstacles to affordable rental housing construction in the urban core is the archaic parking requirement:

One reason housing prices are so high is a requirement that newly built multiunit dwellings (and condo conversions) provide at least one — usually two or three — parking space per unit. This inflates the cost of each apartment and discourages construction of smaller, more affordable units because developers would be required to provide even more parking.

“The fixation on parking in Los Angeles has driven up the price of housing and increased congestion on our streets,” said Donald Shoup, a professor of urban planning at UCLA. He said including two spaces with a unit can add about $45,000 to construction costs.

One solution would be to waive the parking requirement for smaller apartments, thus creating an incentive for developers to place more such units on the market. And because there’d be no parking cost built into the rent, such units would (in theory) be cheaper than apartments that come with extra room for vehicles.

This could have the added benefit of increasing demand for public transportation — presuming, that is, people would trade car ownership for reduced rent. Increased demand would hopefully spur development of commuter-friendly projects like a long-delayed Westside subway line.

But Gail Goldberg, L.A.’s planning director, said any proposal that includes cutbacks in parking tends to go nowhere. “People feel like there’s already not enough parking and that people are intruding into their neighborhood. This is a difficult discussion to have.”

Here we see the core problem: those who established themselves in these neighborhoods in the 20th century, under a now-obsolete version of the California Dream, refuse to admit that their perspectives and expectations need to change. Whether they know it or not, those who oppose density are helping establish a “homeowner aristocracy” – where the benefits of society go only to those who were lucky enough to buy a house before 2000, or who inherited from someone who did. In order to maintain the fantasy that urban neighborhoods can have enough parking for everyone who wants a car, LA is now making it unaffordable to rent a home if you are not making an upper middle class income, and those who can’t afford it are forced to drive – and bear the brunt of peak oil’s arrival.

San Franciscans might empathize. The squeeze on parking spaces there is legendary; a garage is almost a mythical prize. And yet, as many more San Franciscans are realizing, there is really no good reason to own a car if you live in the City. MUNI has its problems, but it gets people around. Carsharing services like Zipcar or City CarShare allow one to access a vehicle on the few occasions they might need it, reducing the need for parking spaces and car ownership.

As more and more scholars are coming to realize, car ownership has high costs for workers – “you work on Friday to pay for your auto”. Adding in the environmental and climate costs of long car commutes, and anti-density policies are clearly having a catastrophic effect on our state. City centers can thrive with less parking, and it brings the added benefit of not bankrupting the workers who keep that city going.

Lazarus suggests that alongside going after the parking requirement, we pursue mixed use development:

A more politically practical remedy may be to ease zoning requirements for mixed-use properties, thus allowing creation of urban villages featuring retail outlets at street level and moderately priced living spaces overhead.

This is already happening to some extent above a handful of subway stations, such as the Wilshire Vermont Station project in Koreatown. But creation of dynamic transit villages throughout L.A. remains a distant prospect at best.

It’s unfortunate that this seems a “distant prospect at best,” especially because so many other West Coast cities already embrace mixed use. Seattle, where I lived from 2001 to 2007, is an excellent example of mixed use, and in my last years there I got along quite well without having a car at all. SF and Oakland exhibit effective mixed-use policies. So does my current home of Monterey – virtually everything I need, from the library to the supermarket to bars and entertainment is a short walk or bike trip away.

Much of Southern California looked like this as well, at least before 1950. Since that time, under the leadership of conservative Republicans, SoCal pioneered the single-use, car-based sprawl that has now brought the American economy to the brink of collapse. SoCal gambled that cheap oil and affordable land would last forever. That gamble is now quite clearly lost – so why should we listen to the anti-density forces who basically would have us double down?

If we are to renew the promises of the California Dream – affordable, clean, pleasant living for all the state’s working people – we are going to have to turn to density. We need to invest in public transportation, apartments and condos, and mixed use policies. If we do, we can restore the promise of economic security to the people of our state. If we do not, we will create a pattern of inequality that will likely dominate our society for the entire century.

Looks like that Dec. 5 deadline for voting on a health care proposal has been extended, after the power play of scheduling it on the day of the Republican Assembly retreat was justified by the Speaker’s office by saying “Deadlines are deadlines.”  Until they aren’t.

And now, there’s talk of a third special session, this one on the subprime mortgage crisis.  I guess the inaction on the first two was not sufficient; we need a third.  And I appreciate efforts to stop predatory lending, though I’m not sure how this would make a dent in what is a national credit lending problem.

I’m still not sure we have a housing “crisis” or just a housing market downturn, but I am pretty sure that nothing the Assembly is going to do in a special session this year is going to affect it one way or the other. Well, they are probably capable of making it worse. But I don’t think they can or will do anything to increase the value of my home, and while I’d love the help, I don’t particularly think they should try.

I’m not as dismissive as Dan Weintraub; this is most definitely a crisis.  But I’m not really sure what the Assembly can do.  The bills they have proposed would only apply to new loans.  That’s important, but they would not do a whole lot for those facing foreclosure.  And anyway, those entering into new loans would have to be deaf, dumb and blind to agree to some no-money-down ARM at this point.  And this bit from the press conference is flat-out embarrassing:

In an illustration of the complexity of the crisis, though, one of the homeowners presented at the press conference as a victim said the house he lost was actually one of two that he owned.

While many owners have lost homes they occupied, others were investors who saw the real estate run-up of the past decade as an investment opportunity.

Sacramento resident Carlos Villegas said he was forced into foreclosure when monthly payments on the house he bought in 2005 shot up from $2,200 to $3,550.

“They gave me three days to move,” he said. “I feel frustrated with the system.

In response to questions from reporters, Villegas said after the foreclosure, he moved back to a smaller house he had purchased 10 years earlier, which he had been renting out.

Of all the people with foreclosure problems, you found a guy with another house?!?

The credit mess is a national problem, and state solutions are nice, but they’re not going to work.  Perhaps driving down the costs of healthcare through a new reform would be the BEST way to help those struggling with home payments.

UPDATE: CPR has a summary of Democratic legislative proposals, and I have to say that the steps to address the current crisis are fairly weak tea.  Some of these, like foreclosure consultant reform, are already illegal; others, like facilitating reporting on workout agreements and increasing talk between homeowners and creditors, should have been initiated months ago.  The only substantive policy I see here is shoveling $10 million dollars to credit counselors.  The federal plan being worked out by the Treasury Department, to freeze teaser rates for some mortgages, would do a hell of a lot more good.

With home prices sinking, and expected to drop another 20% after already falling 12% in just a few months, I think this deal between Arnold Schwarzenegger and mortgage lenders smacks of desperation more than anything.

Four major subprime lenders promised to give a break to California homeowners who cannot afford escalating mortgage payments, under a plan announced Tuesday by the lenders and Gov. Arnold Schwarzenegger.

Countrywide, GMAC, Litton and HomeEq – which collectively service more than one quarter of subprime loans to people with poor credit – agreed to maintain the initial, lower interest rate for some subprime borrowers whose rates are scheduled to jump significantly higher. To qualify, borrowers must occupy their homes, have made their payments on time and prove they cannot afford payments with the higher interest rate.

These lenders obviously think that they would rather get less money than no money at all.  Of course, we’ve substituted “subprime mortgages” for “mortgages that people can’t afford.”  Actually the problem is as widespread in million-dollar-plus mortgages, which aren’t subprime at all.  The lending companies basically offered lots and lots of money to anyone who was able to sign their name, and are now feeling the sting of consequences.  Will they offer the same relief to homeowners with million-dollar homes?  That seems unlikely.

So while I applaud any effort to keep people in their homes, somehow this deal makes me more worried about the long-term consequences of this runaway mortgage crisis than ever.

UPDATING THE UPDATE: We’re apparently all indirectly paying to bail out Countrywide:

Countrywide Financial Corp. fell more than 10 percent in New York Stock Exchange trading after U.S. Senator Charles Schumer urged the regulator of the Federal Home Loan Bank system to probe cash advances to the largest U.S. mortgage lender.

Schumer said he was alarmed by the volume of advances the system’s Atlanta bank has made to Countrywide considering “the rapid deterioration” in the credit quality of some of the Calabasas, California-based company’s mortgages. Schumer expressed his concerns in a letter sent today to Federal Housing Finance Board Chairman Ronald Rosenfeld.

The Atlanta bank has made $51.1 billion in advances to Countrywide as of Sept. 30, representing 37 percent of the bank’s total outstanding advances, Schumer wrote, citing U.S. Securities and Exchange Commission filings.

No respectable company would assume 37% of Countrywide’s debt.  The Federal Loan Home Bank system, however, isn’t a company at all.  It’s as close as you can get to a federal bailout.

The Federal Home Loan Bank is what the British call a quango – a quasi-non-governmental organization. Although it isn’t legally backed by taxpayer money, it’s widely perceived as having an implicit federal guarantee. And at first glance, it appears that taxpayers’ trust is being used to bail out one of the biggest bad actors in the subprime story.

More here.

The nation actually had a good employment month in October.  The economy added 166,000 jobs, mainly in the professional and business services, health care, and leisure and hospitality sectors, and even construction was largely unchanged.

On the other hand, California lost 15,800 jobs, and year-over-year unemployment is up a full point to 5.6% (and that of course doesn’t include those who have stopped looking for work).  That’s also a full point over the national average.  The apologists that call themselves economists in this article are trying to spin the numbers but it won’t wash.

October’s decline in employment, the biggest since the loss of 14,000 jobs in July, confirms that the state’s economy is slowing, said Stephen Levy, who directs the Center for the Continuing Study of the California Economy in Palo Alto.

But “this is a slowdown that the nation is participating in,” Levy said. (Then why did the US add 166,000 jobs in the same month? -ed.) […]

Levy cautioned against making “a big deal” of the overall job loss figures.

“None of this is like when we lost our aerospace industry — that was permanent — or when the Internet bubble burst,” he said.

The current job losses do not signify any loss of strength in the state’s key economic sectors, he said. “It’s not like our economy is threatened from this.”

Really?  You mean the construction sector isn’t losing strength due to the housing meltdown?  And that isn’t driving economic trouble in all other sectors, as the end of refinancing and redecorating new homes depresses consumer spending?

Ever hear of trash-outs?

“An old wooden house along Genevieve Street in San Bernardino was the scene recently of a trash pickup for tenants who lost their home to a bank foreclosure.”

“On Thursday morning, the driveway was piled up with appliances, furniture and clothes that were littered everywhere – a telltale sign of a family that recently lived there. An old gas stove with a skillet full of dust was found. In the back yard, there were mattresses, a microwave, two mangled couches and a bulky refrigerator.”

“Foreclosed homes all over the Inland Empire are turning into what Lisa Carvalho calls ‘trash-outs’ – wooden and stucco carcasses with piles of junk left behind by former tenants.”

“The High Desert offers even more interesting tales. The area is full of tract homes in subdivisions that have stacks of furniture piled inside every room, she said.”

“‘These typically look like they’re occupied, but they’re not trashed,’ she said about these homes. ‘(The owners) just walk away and wash their hands of it.'”

Distressed properties (which are usually foreclosures or short sales) made up one out of every five homes listed for sale in Orange County last week.  And it’s hard to even say who’s in worse shape, homeowners, realtors, or financial institutions stuck with mortgages that will be defaulted without delay.

This is a crisis, and economists who keep their heads in the sand aren’t serving whoever it is they’re supposed to serve.  The legislation that would have at least helped to address this was blocked by Senate Republicans last week.  Where California is able to go in the next decade relies on stabilizing this housing situation.

I didn’t have the time yesterday to mention that the Legislative Analyst’s Office has confirmed what everyone had feared for a while, that California is staring a $10 billion dollar budget deficit in the face and there’s seemingly no political will to address the structural fiscal problems underlying the projected deficit and do something about it.  All of the top legislative leaders had something to say about the LAO report, and I didn’t see a ton of leadership there.  Arnold and the Republicans focused on major budget cuts while making vague and insufficient nods toward “serious discussions” on budget reform.  Speaker Nuñez was pretty vague himself though he held the line on a cut-only approach, and Senator Perata had perhaps the strongest response, though it’s perhaps too focused on the past:

“Since last May, I have talked about California’s flawed and unbalanced fiscal structure. Today’s LAO report is another sobering reminder that quick fixes will not provide a long-term solution to the state’s budget woes.

“I once again call on the Governor and my fellow legislative leaders to begin a serious discussion about how to build a structurally balanced budget.

“There is an ongoing gap between state expenditures and revenues that this Governor helped create by slashing Vehicle License Fees and refusing to balance that loss with revenue from another source. That alone accounts for $6 billion of this problem.

“An honest dialogue about closing the budget gap must include exploring all options.”

But the real strong medicine was delivered by the LAO’s Elizabeth Hill.

In releasing her five-year fiscal outlook Wednesday, Legislative Analyst Elizabeth Hill said lawmakers face tough decisions for the fiscal year that begins July 1.

“All the easy solutions are gone,” she said.

Hill, the state’s top budget analyst, called for immediate cuts to “double up” savings for the current and upcoming fiscal years. She also offered solutions certain to meet political opposition, including raising taxes.

Her projections were worse than previously stated by the Schwarzenegger administration, which pegged the shortfall at $6 billion. Hill said the deficit has increased due to growing government expenses that have outpaced revenues in an economy weakened by the real estate slump.

Realistically, since you can’t deficit spend, it’s going to take a combination of revenues and cuts to balance the budget.  This problem is only likely to get worse.  The median home price in the state dropped $60,000 in a month.  That severely impacts property tax revenue.  And the state lost a Supreme Court case where they were trying to stop a payment of $200 million in interest to the teacher’s pension fund.  But those are just the short-term issues.  The problem is long-term.

Hill said the state’s structural imbalance has been around for years – a challenge state leaders have failed to address.

“We’ve been facing a problem every year since 2001-02,” Hill said. “And when you look out to 2012-13, we still do not have our expenditures and revenues in line.”

The state has confronted bigger fiscal crises before. In 2003-04, lawmakers were facing gaps as big as $38 billion. The state resorted to borrowing, which Hill said is exacerbating the current problem because cash is going to debt payments.

Borrowing at this point is almost immoral.  There’s going to be a need to maybe allow some painful cuts in exchange for long-term fixes in revenue structure.  Next year will be incredibly difficult.

“I made Kaleefornia a fantastic place for business!”

Gov. Arnold Schwarzenegger on Monday ordered all state departments to draft plans for deep spending cuts after receiving word that California’s budget is plunging further into the red — largely because of the troubled housing market […]

Economists say the state’s declining fortunes are due in large part to the shakeout in the housing market and a volatile revenue system overly reliant on income taxes […]

[Chris Thornberg, a principal with Beacon Economics] said the trouble in the housing sector is reverberating through the entire state economy, causing income and consumer spending to decline. He noted that unemployment is up a full percent since the beginning of the year, a jump that typically foreshadows recession.

“What’s happening right now is big in terms of the revenue hit,” he said. “The numbers are coming in way below where they should be.”

And don’t forget, one of the state’s top industries could be shut down for months. 

When you balance the budget on borrowing, have no flexibility in the budget structure, and then recession hits, there’s absolutely nowhere to go.  We have severe money gaps and no way to brek through the draconian 2/3 measure to increase revenue for vital services.  In this environment, the first order of business should be an immediate recalibration of the tax structure, not cutting a budget that’s already down to the bone.  But we all know that’s not going to happen.  It’s much better for the fortunes of those “leaders” who got us into this mess to tout an insurance company giveaway as “getting something done” so they can get themselves re-elected.

This state is in big trouble.

Statewide foreclosures in California hit the 24,000 mark in the third quarter of 2007 for the first time ever.  In fact, it beat the previous record by 39%.  Nationally, there are almost 18 million vacant homes, and the homeownership rate, often touted by the Bush Administration as proof of economic success, fell for the fourth straight quarter.  What’s really concerning are the foreclosures in upper-income areas:

In four Newport Beach-area ZIP Codes, for example, there were 11 foreclosures in the third quarter, up from just three in the same period last year. There were seven foreclosures in Bel-Air, and none a year ago.

“It’s definitely increasing,” said Joyce Essex, a Coldwell Banker real estate agent based in Beverly Hills who specializes in selling foreclosed homes.

Essex said most of her properties were in the San Fernando Valley and South Los Angeles, but about 10% of her listings are now in a more affluent part of town.

“It’s working its way to the Westside. The Westside is always last to get hit,” Essex said of the foreclosure wave, based on her experience in the 1990s downturn.

The mortgage crisis is finally catching up to those who live hand-to-mouth on a higher level.  The millions who used home equity loans to finance their lifestyle, pulling money out of their properties over and over again, now have no ability to continue the scheme.  And this is just the beginning.  Millions of variable-rate mortgages will reset to a higher rate, in some cases doubling the payment, in the next 2 years.  That will mean more foreclosures, a sapping of housing wealth, and a real impact on state finances:

More than $23.6 billion in California housing wealth will evaporate if real estate prices continue to decline and foreclosures on subprime home loans soar, according to a new congressional report that indicates the fallout from the national mortgage crisis is worsening.

In addition, over the next two years, the state will lose nearly $111 million in tax revenue from the forecast repossession of 191,000 homes and the spillover effect on neighboring property values, said the study, released Thursday by the Senate Joint Economic Committee.

“State by state, the economic costs from the subprime debacle are shockingly high,” committee Chairman Chuck Schumer, D-N.Y., said in a statement. “From New York to California, we are headed for billions in lost wealth, property values and tax revenues.”

And that’s actually a very optimistic scenario, plus it focuses only on tax revenues and not residual effects.  In a country where two-thirds of all economic activity is consumer spending, housing jitters will redound through the entire economy, with families cutting spending because they can no longer rely on their houses for retirement security.  And this isn’t temporary.

“It took Southern California 10 years to recover (from the last housing downturn), and it took the Bay Area six or seven years,” said Cynthia Kroll, senior regional economist at the Fisher Center for Real Estate and Urban Economics at UC Berkeley. “That’s a very realistic expectation.”

This was all very predictable.  Everyone knew that subprime mortgages were a risky asset on which to rest the entire economy.  But it was easy money, particularly for those financial institutions making cash in mortgage-backed securities, so they allowed it.

There is pending legislation in the House Financial Services Committee that would help protect consumers against predatory lending, and other bills would allow Fannie Mae to buy a bunch of mortgages and give homeowners a chance to stay in their homes.  Hopefully, the market has gotten so bad that legislation like this will have a chance to pass.  Otherwise, California and the nation will have a very tough road ahead, impacting the ability to improve people’s lives in education, health care, and practically everything government does.