It a time of financial uncertainty many people, of all walks of life and income ranges face trouble.
We normally think that only middle class or poor people suffer from debt problems. That’s just not true. Previous high income earners are impacted by troubles as well. Former Wall Street employees are now looking for entry level jobs at $8 an hour.
Even high-rolling home builders, that enjoyed a wonder period of explosive growth are facing certain economic collapse, for no good reason, as banks call in loans and put builders needlessly out of business.
Here are some excerpts from a recent New York Times article. You can read the rest of it here.
TEMPE, Ariz. — Dave Brown, one of this city’s best-known home builders, had kept his head above water through the housing downturn, not missing a single interest payment on his loans.
Dave Brown, a builder in Tempe, Ariz., had never missed an interest payment, but his bank shut down his projects anyway.
So he was confounded a few months back when one of his banks, spooked by the decline in his company’s revenue, suddenly demanded millions of dollars in additional collateral to continue carrying loans on his projects.
He was unable to come up with the money, and in October, JPMorgan Chase foreclosed on five of his developments. Shortly thereafter, Brown Family Communities, 33 years in the business, decided to shut its doors.
“They treated me like a deadbeat who missed his car payment,” said an embittered Mr. Brown, 76. “They wanted their money now.”
No hard count exists of precisely how many builders have gone out of business since the downturn began. According to an estimate by the National Association of Home Builders, at least 20,000 builders — about a fifth of the total nationwide — have closed up shop in the last two years.
With the industry still owing hundreds of billions of dollars in loans made at the market peak, many more face insolvency in the coming months and years. “Probably north of 50 percent will fail,” Ms. Zelman said.
It was a combination of these factors that put an end to Mr. Brown’s home-building company, Brown Family Communities.
In 2005 and 2006, with loans from JPMorgan Chase and the big finance company GMAC, Brown Family Communities bought hundreds of acres of land on the far outskirts of Phoenix, in towns like Goodyear and Buckeye, where development was rapidly transforming cotton and alfalfa fields into malls and upscale subdivisions.
The company was emerging from a record year in 2005, selling an average of 85 homes a month and booking revenues of $352 million.
Each succeeding year brought a decline in sales, and by 2008, the company was on pace to sell fewer than 300 homes. A glut of foreclosures on the market drove down prices, forcing Mr. Brown’s company to discount homes by as much as $100,000.
In early 2008, GMAC, citing the depreciating worth of assets the company had used as collateral, shut off construction loans for two subdivisions under development. Though Brown Family Communities had yet to miss a payment, renegotiating the debt proved impossible, and GMAC — struggling with huge problems of its own because of the global credit crisis — foreclosed on the neighborhoods.
“They were in chaos,” Mr. Brown said of GMAC. “We couldn’t even get them on the phone.”
In late July, JPMorgan Chase followed suit, freezing construction loans on five subdivisions it had financed. Again, a workout proved elusive. And this time, when the bank foreclosed, it delivered a fatal blow to Brown Family Communities.
Neither JPMorgan Chase nor GMAC would comment on their banking relationship with Mr. Brown’s company. “We have been and continue to work with our clients to find the best solution to manage risk for them and for us,” said Mary Jane Rogers, a spokeswoman for JPMorgan Chase.
In one otherwise finished subdivision, a half-dozen of Mr. Brown’s partially built homes stand amid weeds, their wooden frames slowly bleaching in the desert sun. In another, chain-link fences surround houses that appear only days from completion.
Mr. Brown found it excruciating to fire the people who had helped him build his business.
“They’d come in and say goodbye and we’d have a good cry and then they’d go on their way,” Mr. Brown said. “There’s nothing out there for them. The real estate market’s gone.”
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