There Were Early Signs of Foreclosure Crisis Brewing in Florida
February 16th, 2009
As early as 2005 some appraisers had got signals that foreclosure crisis was brewing in Florida. Home prices were plummeting by 30% to 40% said some seasoned appraisers who had been in the line for more than three decades.
Economists take a macro view of the problem pouring over graphs, figures and charts. But the appraiser takes a more realistic view from the ground level. The economists – all of them, went wrong while the appraiser was right.
The first signals came through sometime in 2002. There were 120 FHA foreclosures but then suddenly it came to a halt. This is the first time that such a thing had happened. The appraisers were mystified but none could see the locusts or the speculators that were coming.
The speculators came in hordes swooping up properties and then putting them back in the market within six months after hiking the rate by 30%. The local lenders had conventionally calculated price appreciation at about 3% to 5%. Meanwhile fast money had hijacked the market. The swarm was coming in from California where there were literally mortgage dealers by the hundreds. Anybody could avail of any amount of loan.
There were two jail guards residing close to Clermont. The value of their house was raised to $348,000 to $192,500 within 18 months. The jail guards quickly translated the paper gains into fancy furnishings and two brand new SUV’s.
It was quite a common sight – million dollar houses with only a bed and TV because the owner was ready to sell at any moment and go. Condo converters mushroomed in South Florida. Websites sprouted assuring 20% kickbacks on the purchase price. This was thanks to jacked up appraisals and lenders who couldn’t care less because they sold off the mortgages to Wall Street butcher shops that chopped them in pieces and sold them to international buyers.
The gist was that a speculator could purchase a condo and yet have enough cash balance to pay for two more. On top of that they could rent out the units. It was a grand bonanza for all while the party was grooving and swinging.
In 2008 Freddie Mac gave out a warning about “emerging fraud trends” in conversions. It was stale old news to the appraiser. Soon the meltdown surfaced and hit the headlines. The courts began to be overwhelmed with foreclosures. The vacant units overpowered the localities and taxpayers became overburdened with bailouts.
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