Jim Marshall, city manager of the City of Merced, intoned theologically in the UK Financial Times on Tuesday that there “should be a special place in hell for” speculators, mainly from the Bay Area, who bought McMansions in Merced, took out subprime loans and tried to flip them before the first balloon payments hit.
In fact, Marshall knew well there was no local market for the subdivisions of McMansions the city was approving weekly during the speculative real estate boom, the collapse of which has made Merced nationally famous for its foreclosure rate, and now internationally famous, or infamous, along with Modesto and Stockton.
There was only one class of institutions that could have saved the north San Joaquin Valley from its position at the top of the national foreclosure-rate list: local land-use agencies — city councils and county boards of supervisors.
Marshall and Greg Wellman, manager of the City of Atwater, are not known as “weak city managers,” anymore than Dee Tatum is known as a “weak county CEO.” They have decisive influence over their elected councils and board. Marshall distinguished himself particularly in breaking a city ordinance to allow water and sewer hookup to UC Merced, out of the corporate limits of the City of Merced.
Behind Marshall and the crew of top staff in Merced County, the real architects of the phenomenal rise and fall of Merced residential real estate values were former Rep. Gary Condit, former Rep. Tony Coelho, former Gov. Gray Davis, former state Sen. Dick Monteith, former Assemblyman now Rep. Dennis Cardoza and the “red” and “green” teams of state and federal regulators assigned the task of streamlining the environmental approvals for the UC Merced boondoggle. (The “red and green teams” were the precursors of “smart growth,” regional planning, partnerships and blue and “green” prints for growth, “sustainable societies,” and “smart community green development.”) Once UC Merced was a done deal, speculation was rampant. At least one UC Regent was in and out of the Merced land-speculation deal before a blade of grass was turned. Former state Secretary of Food and Agriculture, Bill Lyons, Jr., scored a 500-acre annexation to the City of Merced for land he bought that is the path of growth to UC Merced. County CEO Tatum bought acreage in Planada at a discount from developers doing a complex deal, involving County permits and approvals every step of the way. Both the County Sheriff and a former District Attorney were allegedly involved in extorting a land parcel from a prisoner at County Jail in return for legal lenience.
Yet, Merced County, the City of Merced and UC Merced are still trudging forward, compounding the boondoggle with the next round, the UC Community Plan, a new town on the edge of the campus accompanied by abundant commercial development.
These days, the new speculative bubble is in industrial and commercial real estate and once again the local land-use agencies, backed by shadowy “leadership” groups like the California Partnership with the San Joaquin Valley, the San Joaquin Valley Blueprint and UC/Great Valley Center all the way up to another governor’s office, are solidly behind this new speculative bubble. In fact, the temporary residential construction work has evaporated. Now, government agencies like Marshall’s City of Merced propagandizing that this new industrial and commercial real estate speculation will produce those famous
“good, permanent jobs.” Of course, as usual, “leaders” are playing the minority card for all it’s worth, as they did when promoting the UC Merced boondoggle. But the emerging speculative bubble in industrial and commercial real estate is not about creating work places; it just another finance, insurance and real estate crap game with the same old local players lined up on the Come Line to place their bets on the next high rollers to hit town.
One helluva question might be: how many members of Marshall’s church, from government, the finance, insurance and real estate sectors as well as other investors, have been and are involved in real estate speculation themselves here in Merced County? One only asks because that “special place” may not be as far away as Marshall indicated to the Financial Times.
Marshall is stepping down soon and the public certainly has the right to expect the next Merced city manager to be less corrupted than he was. Unfortunately, the smart money is on promotion from within the same congregation.
Badlands Journal editorial board
——————————-
Financial Times (UK)
Speculators blamed for mortgage defaults around San Francisco…Matthew Garrahan…8-12-08
http://www.ft.com/cms/s/0/2926f7b6-6806-11dd-8d3b-0000779fd18c.html [1]
Subprime mortgage defaults are soaring in the northern Californian city of Merced and angry local officials are placing much of the blame for the rout on property speculators from the nearby San Francisco bay area.
Subprime mortgages are typically granted to individual homebuyers with tarnished credit histories. But Merced officials say such loans were also granted in large numbers to investors, who used them to buy homes in the city known as the “gateway to Yosemite” because of its proximity to the national park.
These investors exploited low “teaser” rates on the loans to buy homes, but ran into difficulty when the rates were reset at higher levels. The resulting defaults are causing no small measure of hardship in the city. In some cases, officials say people renting homes from these investors have been evicted as lenders prepare the properties for resale.
“There should be a special place in hell for those people,” James Marshall, Merced city manager, says of the speculators. “I’ve heard about renters who were making their payments on time and then all of a sudden they would get a knock at the door.”
Merced, a city of 80,000 people, is at the forefront of the mortgage foreclosure crisis in the US. Notices of default - the start of the repossession process - are up more than 200 per cent since the same time last year, meaning that Merced is jostling with nearby Stockton and Modesto for the title of America’s foreclosure capital.
Like Stockton and Modesto, Merced is within commuting distance of San Francisco and the Bay Area, which made it appealing to investors. Its housing market was also fuelled by the opening of a University of California campus on the outskirts of the city in 2005 - the height of California’s real estate boom.
“During the market runup, not a day went by when I didn’t get a call from people in the Bay Area or Los Angeles who wanted to buy in or around Merced,” says Loren Gonella, the owner of Coldwell Banker Gonella Realty. He says the “vast majority” of buyers were speculators.
Masoud Niroumand, housing programme manager for Merced, says investors were so confident that they often set their sights higher than one property. “There were a lot of investors from outside the area who bought more than one home,” he says. “But when the market got bad they just walked away.”
In Fresno, an hour south of Merced, investors were also able to use cheap credit to snap up multiple unit apartment buildings. Mortgages were based on a property’s market value at the time, rather than its ability to generate rental income.
“Lenders treat duplex, triplex and fourplexes the same way they treat single family homes,” says Robin Kane, founding partner of RCK Organization, a commercial real estate brokerage. “So apartment buildings with up to four units would qualify for a subprime loan.
“The guy who bought one apartment building probably had five of them,” he adds. “He got on the subprime gravy train and made a killing at the top of the cycle.”
But when the market collapsed, none of these investors had anything to fall back on.
“It was a great ride for a lot of investors but eventually the music stopped and someone had to pay the piper,” says Mr Kane. “What was supposed to be a liquid asset becomes a ball and chain around your neck when you owe more than the market value of the property.”
Back in Merced, home values have fallen 50 per cent since the peak of the housing boom in 2005. The market is awash in foreclosures, which accounted for more than 75 per cent of property sales in the last six months, according to Mr Kane.
This is good news for local buyers and has opened up the market to people who had previously been priced out. “At the peak of the boom, 7 or 8 per cent of the local population could afford to buy an average priced home in Merced,” says Mr Gonella.
“Today, it’s more like 60-65 per cent.”
But while the city has become more affordable for local buyers, it continues to feel the effects of the housing crash. “We’re going to see a lot of mom and pop businesses going of business. All the construction has gone. A lot of people worked in real estate and lending - they’ve gone too.”
Mr Gonella’s agency has put 500 homes in escrow since the start of the year as buyers have snapped up foreclosed properties at knock-down prices. But the market has not stabilised.
“It’s going to take about a year,” he says. “As long as we have all these foreclosures going on, we’re going to have downward pressure on prices. And we’re probably at the peak of foreclosures right now.”
Links:
[1] http://www.ft.com/cms/s/0/2926f7b6-6806-11dd-8d3b-0000779fd18c.html