We’ve talked a lot about the $1 million house in the CD because it always seemed to be a good example of the irrational exuberance of the local real estate market. But since it sold at a foreclosure auction in January, we’ve been going through property records that also make it look like a good local example of the national mortgage mess that has been taking down our economy.
Three years ago, this property in the 2300 block of E. Columbia was a small one-story rental with a flat roof. But in April of 2006, the long-time owners sold it for the relatively modest sum of $185,000.
Just two months later, the property sold again for $300,500 to a small local home builder. The purchase was financed with a $640,000 construction loan from the First Independent Mortgage Company, and soon the small existing structure was demolished and construction started on a much larger 3,850 sq. ft. home. The new house was completed in the spring of 2007 and put on the market for an amount just shy of $1,000,000.
On May 7th of 2007, the builder replaced the original construction loan with a new adjustable-rate WAMU home loan for $660,000, taken in his name. Note that according to public documents we got from the county, a provision of that loan was that the borrower would occupy and use the home as his primary residence for at least one year. I talked to a neighbor near the property who confirmed that the home has never been occupied by anyone, and I know from personal experience that the property was offered for sale throughout the term of that mortgage. The only way that would not be mortgage fraud is if WAMU had granted the builder an exemption in writing. There is no record of any such exemption in the county’s files on the property.
On June 22nd of 2007, the builder went back to WAMU for some more cash, this time taking out a $239,900 home equity loan. Although there’s no information on how those funds were used, the property on E. Columbia was complete and no other major work was seen on it after that point. But now WAMU was at a pretty large risk, assuming that an unoccupied mega-house in the CD was worth almost $900k.
For the next 15 months the home stayed on the market, seeing a few minor downward adjustments in price but no buyers. But evidently during that time the builder was starting to fall behind on payments for the WAMU mortgage. According to public documents, by September 30th, 2008 he had fallen $13,341.25 behind on monthly payments, and the principal balance on the mortgage had actually risen to $673,668.
The builder was never able to get current on the loan, and the property went to foreclosure auction on January 2nd of this year, selling for $500,000 cash to the current owner. It is now back on the market for $695,000.
Counting only the original mortgage and the equity loan, WAMU lost almost $400,000 on the house. That doesn’t include the large transaction fees that go along with a foreclosure and auction. Multiply that by thousands of similarly bad lending decisions across the country and you can see how it could be enough to bring down a large bank.
We tried to contact the builder for comment on this story, but were unable to find a working phone number for him.
The interesting thing for me with this story is how it diverges from what many of us assume is the main story line of the mortgage mess: people who bought too much house and got saddled with new-fangled interest-only mortgages that soon became unaffordable. But I wonder how much of the problem is actually similar to this one: small-time real-estate developers and speculators who combined a lot of bad business bets with a bit of fraud and ended up bringing everything else down around them.
mind your own business!!!!!!!!!
public records are public business, cool your jets Mr. capital letter-exclamation point…….
i agree with you…people are so nosey
huh? is right. This is all public record. What’s the harm in showing how some poor decision making is impacting us all?
If you want people to mind their own business, then why are you reading this?
maybe others just prefer to stay in the dark and hope everything works out…
Booyah, you wouldn’t happen to be a local builder who used to own a house on E. Columbia? In any case, demanding that people MYOB is like throwing fresh meat at dogs.
With the federal government bailing out banks, seeing how these bad debts came to pass is in the interest of everyone. We need to find ways to avoid the problem in the future.
Scott wrote: “But I wonder how much of the problem is actually similar to this one: small-time real-estate developers and speculators who combined a lot of bad business bets with a bit of fraud and ended up bringing everything else down around them.”
I suppose one could wonder if there’s a “chicken and egg” mystery here. Perhaps small businesses like the builder’s acted in a more literally, legally, fraudulent manner than the big businesses in the financial services industry.
But, it’s hard to see individuals like the builder as the true *source* of the problem. Rather, the banks encouraged individuals and businesses like the builder’s to participate in *their* bad business bets and bits of fraud. Banks like WAMU went out of their way to find people like the builder and give them huge loans beyond the risk tolerance of their bank. So, I think one has to look at the banks as the source of the speculation (the “game”), and acknowledge how people like the builder (and all of us homeowners) were invited into it.
In terms of every small player in the loan game, statistically, a certain number were going to default because they weren’t lucky or otherwise were truly making a bad bet. And, statistically, a certain number who were going to default also tried to hide that from the bank through some ponzi scheme or fraud. In a healthy banking system, the banks know that and stay profitable in spite of that. In the current crisis, the banks threw caution to the winds, and made bad bets on people making bad bets–and tried to hide *that* through their own ponzi schemes.
you can get a million dollar home for cheap at the expense of WAMU
This isn’t just small local builders, it’s an entire industry. One way or another builders (and of course lenders and other industries related to housing) inflated the housing bubble and are responsible for the predicted crash. Yes, predicted–I was reading alternative news, govt reports, blogs, and consumer complaints that warned of this years ago. The govt looked the other way instead of enforcing laws, and only started calling predatory lending “mortgage fraud” when banks were eventually the ones getting hurt. As long as mortgage fraud was overall profitable, the banks didn’t care. But when the house of cards came down, they whined for–and GOT–a multi-billion-dollar bailout at our expense. Now the rest of the housing industry wants a bailout too, though they wrapped it in pretty ribbons called home buyer tax credit, etc. Good article, keep ’em coming. People need to read in mainstream media how the industry–large or small businesses both–created this problem.
I think investigation of public records is fine. I also think that bringing this issue to the attention of the community with hard numbers. This is a great way to spell out the problem to those who may not fully understand how foreclosure happens.
What I don’t like is naming a “small local home builder” in this mess and painting him as fraudulent, negligent or any type of negative light with out knowing his situation.
I thought the goal of CD News was to support the community. This would include the people living and working here. How does painting this man in a negative light while using his name support his business? How is CD News promoting community naming a small business man with out all the details?
In times of financial crisis, lets be constructive not destructive.
Thanks – I’ve removed the name since it wasn’t a crucial part of the story
Area housing will fall about 50% from the peak.