Labor union protests KB Home on behalf of borrowers

One of the biggest construction worker unions is warning of plenty more housing problems ahead -- particularly for borrowers living in new-home communities -- and is blaming the nation's home builders.

Not only are housing values plunging from their bubble-era peaks, homeowners who purchased at these newer developments are probably more likely to have 100%-financed, adjustable-rate mortgages because of builders' efforts to push risky, subprime loans, according to a report today from the Laborers' International Union of North America. As a result, the report claims, certain new-home communities are littered with vacancies created by foreclosures putting downward pressure on prices and forecast another wave to come.

The union zeroed in on Maricopa County, Ariz., and discovered that more than a third of mortgages made by the finance arms of three of the biggest builders there -- KB Home, Lennar and Richmond American -- were five-year ARMs set to adjust in 2010 and 2011.

"At the height of the housing boom, the homebuilders were increasingly relying on predatory and risky mortgage products such as those with negative amortization, loans requiring only stated income, or piggy-back loans with high-cost second mortgages, in order to qualify customers for houses which were sold at what are now clearly inflated prices."

The union, whose members were among the first hit by the recessionary effects of the housing downturn, protested builders' practices outside KB Home's Westwood headquarters today. On hand were several homeowners living in a KB development in Buckeye, Ariz., who said they are underwater -- owing more on their mortgages than their homes are currently worth -- and are facing foreclosure as their monthly payments ratchet higher and prices slide.

One homeowner in attendance was Joni Lynn, pictured. She says that when she bought her KB home in 2006, she was steered into taking on a first and second mortgage. She now owes about $204,000, but the county tax assessor lowered the value of  her home from $210,000 to $148,800.

KB Home spokeswoman Lindsay Stephenson disputed the union's claims.

"We could not disagree more with the assertions made by LIUNA. While we respect a union’s right to voice its opinion, we rest well knowing we delivered the American dream in the form of a quality home to thousands of satisfied KB Home customers. We want every KB homeowner to know that we stand ready to assist them in any way we can to ensure that they are pleased with their purchase."

Most of the major builders, including KB Home, retreated from the mortgage business when the market started to slow. KB Home sold its loan business to Countrywide FInancial Corp. three years ago, though it kept a stake in the venture.

-- Annette Haddad

Photo credit: Mel Melcon / Los Angeles Times

Questions? Comments? Tips? Email annette.haddad@latimes.com 

 

Comments

[TakeFive]

Ok Annette, time to pick up the phone and get us the rest of the story.

Why is the laborer's union running what looks like a shakedown long after the building boom. Is it competition for jobs? What else are they demanding from KB homes? Perhaps a guaranteed number of jobs?

[NevadaGal]

Yep, its a ticking timebomb out there. We just might be seeing <1997 prices in RE by 2012.

See: Pete's link to Dr Housingbubble.

[Laura]

I saw about 7 of them or so protesting outside of KB Home's Building on Wilshire earlier today. I could care less. There was one reporter covering "the story". Not much of a story. People who look like adults, but have the emotional and mental level of teenagers. Go rent. It would have been amusing if there were counter protesters with signs that read "GO RENT".

Most of these people if not all didn't put any money down anyway, so they have no loss, they just want to live for free somewhere.

It's amazing that I have absolutely no sympathy for these people. NONE! I feel the same way about KB Homes. They all deserve each other.

[Rational Renter]

I'm sorry, but I can't muster up the energy to throw a pity party for people who got in over their heads. They were greedy, and saw the McMansion in the gleam of their eyes. Personal financial responsibility is not a joke.

[Chris Pepper]

Yeah, I see pics like this and feel sorry for these folks. As much as I want to see prices retreat further, some people are in a tough spot. Getting caught in a sales person's web isn't always a good thing. Especially when you're older and these guys pull a fast one.

[E]

It's those 2005-2007 vintage 5 year ARM resets that are gonna be a real bodyslam to the RE industry.

[Patrick Duffy, HousingChronicles.com]

TakeFive, at the tail end of the report the union lays out its goals:

HUD should completely repeal the 1983 amendments to RESPA that allowed builders and other businesses to make referrals to affiliated businesses;

Bank of America, which acquired Countrywide, should discontinue the lending relationships that Countrywide had with the builders' mortgage operations;

Congress should pass the Emergency Home Ownership and Mortgage Equity Protection Act, allowing bankruptcy judges to modify harmful mortgages (such as by reducing the principal to the actual value of the home or changing an ARM to a fixed rate);

Rather than merely paying lip service to preventing foreclosures, as Countrywide did, Bank of America must start actually doing it (i.e., loan modifications).

Of course LIUNA also has its own agenda, to which it openly admits at the end of the report, including the right to organize unions, being paid a living wage, better training for workers, open access for homebuyers to affordable mortgages from independent sources and home prices that are targeted to what the community can afford.

[Cal]

I perused the report, I still don't know what they want the homebuilders to do that would help. They are asking for better wages because they are union but the homebuilders don't own the mortgages anymore, they'd have as much luck picketing Mcdonalds.

All the pity stories they have in their PDF boil down to "I didn't read the paperwork and relied on someones word who makes a commission off how much they can screw me"

[Joe Shmoe]

These souls weren't living "for free." I've heard that statement around this site repeatedly. Just because they got in at zero down and with an interest only loan, that doesn't mean they were living in these units out of the goodness of these banks' hearts. Most of these buyers were making payments, obviously. The problem is that those payments weren't applied to the principal, and that they were artificially low, not to suit the buyers' interests, but to suit the interest of the grand feeding chain that begins with real estate agents and mortgage brokers and culminates in the securities that were being exchanged at the world''s great centers of capitalism. These people got in over their heads, sure, and they made some poor decisions. They are to be pitied, not given the cold shoulder. Unfeeling posters like some of those above, however, are undoubtedly perfect and never make mistakes. I hope you never need to find sympathy over the course of your lives.

[TC]

I went to one of those nice KB home developments that was going up near my house and checked out the models and ended up talking to one of the sales guys. It was a pretty cool location and I could have gotten a home with a 50 mile view at the top of the hill. the sales guy really wanted to help me get into one, his suggestions:

I HELOC my current mortgage for the down payment and then take out a fixed rate. Not a bad suggestion if I wanted to own 3/4 of a million dollars in RE in Palmdale CA and be mortgaged up to my eyeballs. Luckily I am not stupid and was not overcome by greed. Two years later the development has ZERO finished houses on it, but they are building it up. Sad thing is they would have given me the money, no problem, sign here.

So the labor union is picketing KB homes for unfair lending practices?? Huh?? Sounds like some kind of strongarm tactic to put mud on KB's face.

And to the poster above, stop making excuses for grown adults, that's what gets this country in trouble in the first place, there is no accountability any more and this mess goes from the very top to the very bottom and all are guilty of fraud and greed.

[angryrenter]

JoeSchmoe "Unfeeling posters like some of those above, however, are undoubtedly perfect and never make mistakes."
-----------------------------------------------------------------------
Well Said sir!!!

With the exception of a few "posters" (Cal, Prime beef,itoldu2cashout) most of these folks don't post anything of value. The exceptions that I mentioned usually have interesting statistics or viewpoints that are worth reading and they usually obstain from the negative "let it burn", "it's a ghetto"," i have no sympathy" cheerleading.

It's a shame that this can't be constructive.

[TakeFive]

Thanks Patrick –

I didn’t have the temperament to read an extended union press release / grievance list last night.

It’s funny how the report tabulates all these instances of flawed loans that “got” people in homes they couldn’t afford. Where was all this concern when it was going on? Oh yeah, these protesters were too busy drawing a paycheck building the homes financed with this chicanery.

Stunning hypocrisy. Now that KB and Countrywide are like crippled wildebeests, the start to pile on.

[TakeFive]

Angryrenter wrote:

“The exceptions that I mentioned usually have interesting statistics or viewpoints that are worth reading and they usually obstain from the negative "let it burn",…”

Angryrenter, you’ve stumbled across a pretty good analogy. You know why we have such devastating wildfires in California? We don’t “let it burn.” Rather we use massive taxpayer resources to protect the interests of a select group (i.e., environmentalists, hillside dwellers, etc.). The result is eventually fire of much greater magnitude.

So we put out a fire in the 1990 by bailing out the S&L’s, disposed of thousands of homes through the Resolution Trust Corp (got my 3/2 home cheap – thanks taxpayers!), and got the banks set right.

So what happens a mere decade later? We have a banking and foreclosure wildfire that makes the first one look like some girl scouts toasting smores. And what did we just do? Why grab the bailout bucket again!

Now perhaps as an “Angry renter” you are more of an observer than participant in the housing game, so you don’t feel the outrage that any responsible homeowner would feel towards those who made greed based decisions and now have to face the music.

[AngryRenter]

Take Five-

Girl Scouts and smores...very funnny.

I actually am a homeowner and do participate in the housing game, as you so succintly put it. "AngryRenter" is meant as irony and somewhat of a dig on those that don't have any skin in the game but yet freely express their glee at others misery. I bought in 01(first time) and then moved up in 03. I HAD to buy, literaly. Death in the family, indigent mother disabled brother..blah, blah blah.

We were smart enough to have sizeable down payments and none of that exotic loan stuff and believe me they tried to push us into that.

Bailouts?
Again, the select few win, the rest of the sheep blame the other sheep and are kept busy arguing about why the sheep dislike bailout buckets.

[MediaWatcher]

Classic case of using the media. This particular union does not have members in Southern California and is trying to get a foothold here. They ran a job ad in a California trade mag about a year ago to hire a union organizer for Southern California (and Las Vegas and Arizona). The goal is not to help home buyers or even draw attention to an issue -- it's solely to get publicity so they can build their union. And the plan is to shakedown specific, large builders that will generate that publicity. Do a little of your own investigating and see if this is really a problem rather than regurgitate what an interest group with a slanted point of view says. Where is the reporting here?

[E]

Sorry AngryRenter.

Some of these people losing their homes now did live for FREE.

Zero Down, cash back at closing to be used for the "less than rent" payment.

Plenty of 110-120 LTV mortgages were issued.

Sounds like living for free to me when they are out in 2 years.

And if those "artificially low" payments weren't to suit the buyers interest then maybe they should have gotten a 30 year fixed mortgage.

Everybody seems to want to play the "dumb" card.

Bu-bu-but I didn't understaaaaaaand!

[Laura]

Angryrenter,

Just because you had a "sizable down payment" does not make you smart by any means. You just had the down payment and used it. Real estate appreciates, you had nothing to do with it.

I don't understand your viewpoint. This might come as a surprise to you but there are many out there renting AFTER having sold their properties. And then there others still who are renting because they were "priced out" of the market by stupid borrowers.

Everybody in some way or another is being affected by this REAL ESTATE MESS if you will. Some profited tremendously from it, some did well and some lost.

Actually I wish I would have used the arm, neg. amort. loans and made some more money from the "bubble". If one knew how to use these types of products right, it was really auspicious. You can't blame the products (loan types), because for some borrowers they really paid off.

[Laura]

Joe Schmoe,

And how many payments did these borrowers make that would actually have accounted for lowering their principal substantially. They were in these properties at most 3 yrs. That's nothing. On a 30yr fixed, one barely pays off the principal after 15 yrs. This is called borrowing money with interest.

[AngryRenter]

Laura-

Thanks for pointing out that using a sizeable downpayment was not an act of intelligence, I guess we were just lucky not to have the downpayments used as SUV payments or Plasma TV payments.

Not a surprise at all Luara, I actually know a few couples that did just that. One couple did it in 04, too soon if you ask me.

My viewpoint is that blaming people for being people is pointless...trying to look at data objectively to help one another without calling people stupid,greedy blah blah blah...this is boring.

I give up...you are all correct. Stupid Borrowers, greedy flippers, poor homeless cats!

Whatever.

[Laura]

Angry Renter,

I understand that you don't like the name calling and feel that it's unproductive.

But why should I help these people, or the gov. or for that matter anyone else? People lose money everyday, bad investments, bad decisions, bad timing, bad luck....such is money management.

Having written that most if not all of these people didn't lose anything. That's what makes these stories so ridiculous to me.

My point was that I know plenty of people that have made money in real estate and have sizable down payments, but I don't find them one bit intelligent, well perhaps good money managers. They know how to hold on to their cash, another word I could use would be cheap. Intelligence and wealth is an interesting question....

[chanique chatham]

for term paper