Archive for November, 2007

With foreclosures telling on all and bringing down the housing market to its knees lenders are at last awakening to the fact that when a ship sinks all go down. They are responding to strong criticism and promised the Mayors at Detroit last Tuesday that they would finance credit counseling, setting up of hotlines and put up a database to help sort out the tangled web of ownership of foreclosed properties.

At MGM Grand Detroit, mayors, lenders, bank personnel and non-profit community organization representatives went into a closed-door conference regarding foreclosures. On Tuesday the Mortgage Bankers Association promised to donate $100 per each unit of foreclosed property. The number runs into one million approximately. The objective is to set up hotlines for those in trouble. The association also is trying to set up a database to locate and detail all the units that are affected by foreclosures. As yet due to packaging of mortgages the whole thing is in confusion as regards servicers and actual lenders. By their efforts a studio will be set up in Washington, which will be available to mayors so that they can film a public service announcement regarding foreclosures. The mayor of Detroit, Kilpatrick pioneered such a move but it has not been aired as yet.

During the meeting some demonstrators, about ten in number, protested outside the hotel where the meeting was in progress. They were loud in their demands for legal action to put a hold on foreclosures.

A non-profit organization stated that 72% of those in foreclosures have the capacity to continue to stay in their houses if given the right kind of help. The mayor’s stressed on the point that those people in the foreclosure net or about to be caught should immediately seek advice and help. Three quarters of those in the foreclosure soup have not reached the end of the road but it is impossible for them to cope with rising interests – the rise often being more than double.

John Taylor, president and chief executive officer of National Community Reinvestment Coalition opines that what has happened is that an unprecedented number of people have been made to buy a bad product.

The president of the conference of mayors – Douglas Parmer of Trenton said that the problem is not confined to those in foreclosures but is spilling over to cover other areas. Consequently none will be spared.

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Economic activity of a country is concentrated in cities and the adjoining areas. Consequently the foreclosure waves will lash them the most. Billions of dollars will be guzzled up by the crisis. However affected house owners and financial bodies can work in tandem to check the fall out, as per a report released from a scheduled conference of mayors to be held in Detroit. The target is to find a panacea for the ailment.

The report said that the economic activity of the nation is being reined in because of weak investment and spending in the housing and construction fields. Some of the jumbo financial houses have already been humbled leading to the making of ghost towns that were once bustling with activity and life. The saddest part is that the foreclosure game is not over as yet.
The metropolitan regions are the largest losers. In 2008 New York will lose $10.4 billion, Los Angeles $8.3 billion, Washington $4 billion and Chicago 3.9 billion worth of economic action. The gross domestic product growth of US in the coming year will be 1.9% ($166 billion), which reads 1% less due to mortgage blues. The GDP reading (value of goods and services produced) is the best yardstick for measuring the health of the national economy. The report also goes on to say that the value of property will go down by $1.2 trillion in 2008 with house prices across the country showing an average fall of 7%. The state governments will be pinched by loss of property sales and transfer taxes. – all thanks to foreclosures.

Economists opine that the situation can be overcome if house owners, banks and holders of mortgage securities work in cohesion. If the lenders modify the payment terms and the borrowers continue to pay it then families can continue to light their home fires in their own houses. It will bring down the number of foreclosures and thus reduce the negative impact on the housing market – consequently the general economy.

The Mayor’s forum discussed the condition of the mortgage industry, steps that could be taken to avoid foreclosures and other measures that will prevent dragging down of the quality of life in the badly affected localities. The meeting is off bounds to the media. The recommendations will be presented at a Mayor’s conference in January. The manager of Global Insight, Jim Diffley compiled the report.

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The houseboat is drowning being lashed by the foreclosure typhoon. It must be saved. Counselors are throwing a lifeline in a desperate attempt to keep it afloat. Although more houses are going under, the positive sign is that at least some are being towed back to land.

It brings back a smile to the lips of counselor Melissa Hansen as some lenders have agreed either to slash loans or even lower interests from the original teaser rate! A branch of Twin Cities Habitat for Humanity is a non-profit organization that has shifted its focus from helping people to build houses to saving these from foreclosures. Counselors have never been happy in their dealings with loan servicers because the latter claimed that they only collected dues – they had no authority to change the original agreement. This argument does not hold good during these days of crisis. About 2.2 million Americans are about to succumb to foreclosures in 2008. Interests are rising making it impossible for them to continue with the payments. Consequently the mortgages have to be foreclosed. Fortunately due to pressure from all sides including the self-interest of the lenders, the servicers are beginning to soften and being more amenable to reason. Credit markets are running dry, Wall Street is edgy and Bush himself asked the servicers to modify terms. The carrot and stick policy is beginning to pay dividends with the Congress warning of new laws to rein in mortgage lending rules.

To add spice to the sauce an industrial trade group, American Securitization Forum having 350 members including investors, servicers and insurers, spoke openly about encouraging loan modifications to halt the march of foreclosures. As per their calculations two out of every three loans the servicers deal with have no restrictions imposed by the original lenders. Servicers are afraid of being sued by the lenders but the forum is allaying their fears.

The counselors are happy with the first signs of the weather clearing. About 20% of their clients have been benefited from loan modifications. It is a record of sorts. Their work has also increased. Last year they handled 152 cases but this year the number has already touched 206. Some of the most stubborn lenders are beginning to realize that it is better to bend rather than not break – given the magnitude of the foreclosure numbers.

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The statistics is rather high – of 8 properties tainted by foreclosures one tenant is looking at the sky for shelter. Tenants are taken unawares and are thoroughly confused. The worst thing is that so far nobody has focused on their plight and they have been left to fend for themselves. The renters are of many kinds – some live in apartments while others have made entire houses their homes. So far the no details have been collected about the exact number of tenants facing foreclosure related marching orders.

The figure of one out of 8 foreclosed units being occupied by tenants is rather vague and on the low side. The number is much greater. Mortgage Bankers Association have been compiling data and they are rather skeptical themselves about the ratio of 1:8. In the near future in a couple of months 1 million units are expected to fall into foreclosures and this means more tenants will find themselves at sea.

Many of the renters complain that they have paid their rents regularly and yet have not been informed about the shaky foundations of ownership. At the last minute, when they hardly have time to look around for an alternative, are they told to go. With so many looking around for rented accommodation the going is not easy.

The legal fraternity is aghast. This is not business in the usual sense – it is a sacrilege of human rights. Investors had over reached themselves and the tenants are now unknowingly for no fault of theirs paying the price of foreclosure related issues.

Not all the houses tagged with foreclosure are occupied by owners. Nevada is one of the top ranking foreclosure offenders. Here 28% of the foreclosed houses were not lived in by the owners but had been rented out. Nevada, Arizona and Florida – the top three rankers have an average far above the national median. In California of all the properties foreclosed, 22% of the units were not occupied by the landlords. These are reliable figures from online tracking agencies. Lenders hurry to evict tenants because a vacant house fetches a better price.

The Northern couple lives in new Las Vegas. Their house has now been foreclosed. They have always timely paid their rent. But now they are living under the shadow of a notice that might come any day telling them to move out within 72 hours.

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Not a single corner of Tucson has been spared from the foreclosure virus. Thousands have lost or about to lose the roof above their heads. More than 500 houses have been gobbled up during the first nine months of 2007 – double that of the figures of last year. All are affected from the lower income group residing on the South Side to the upbeat localities near Catalina Foothills.

Foreclosures have always been on the scene because of usual stories of life – unemployment, marriage blues or unforeseen medical bills. But this year the surge is causing concern and the culprit seems to the risky sub-prime mortgage lending activity of the past two years.

Many moved into houses with loans they could ill afford. Others refinanced their mortgages with these risky loans. Behind it was the logic that real estate prices could never fall but always rise. But the reverse happened causing this catastrophe. Property prices have fallen but interest continues to rise.

Most of the foreclosures are in pockets that have seen intense sub-prime mortgage activity from 2005 to 2007. These ‘Alt-A’ loans were not as stringent about prerequisites as the prime conventional loans. They were marketed to those who understood little about the financial pitfalls in the near future. Moreover these loans came with steep prepayment penalties to stop borrowers from refinancing until the high interest rate had begun to be effective. The agreements were totally one sided.

Calls to local offices dealing with distressed property buyers have gone up by four times since 2003. Many had bought houses or refinanced their loans when property values had reached Himalayan heights about two years previously. But now the scene is topsy-turvy. The hiccups in the real estate market are making it impossible to sell the house and salvage the situation. Often the house is worth less than the loaned amount! It is a sellers market.

The northeastern and southwestern outskirts of Tucson metro area saw some of the worst concentrations of foreclosures. Compared with last year, today the figures have doubled. In some places the increase is by 76%. The lower income neighbourhoods are particularly badly affected. Midvale Park tops the list in Tucson.

The foreclosure spillover is affecting tenants also whose landlords are infected with foreclosure. With this trend continuing there is every fear that prices of real estate will continue to fall further.

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The current year has witnessed some of the highest numbers of foreclosures hitting the nation. The metro areas are some of the worst affected zones.

The Beardon couple of Loganville got a bolt from the blue when they returned from a holiday last July. Sorting through the volumes of mail that had piled up, the first one they picked up was a foreclosure notice. They had refinanced their home loan in 1999. Now they are suing their mortgage company for wrongly bungling accounts and laying the blame at their door.
This is just one instance of what is happening to thousands – nay millions of others across the country. Professor Carswell of Georgia says that wrong mortgages, crisis in family life like loss of job, divorce and ill health or the like are responsible for this spiraling of foreclosures. Sobering numbers are coming in from 13 metro counties – Fulton, Deklab, Cobb, Gwinnett, Clayton, Cherokee, Douglas, Fayatte, Henry, Rockdale, Forsyth, Bartow and Hall. Metro Atlanta has seen more than 53,000 foreclosure listings in this year. In October alone 6,800 units were foreclosed. There has been 25% rise in foreclosures in the past year – the highest numbers being in Fulton, Deklab and Gwinnett counties.

Many factors have contributed to this malaise but the prime culprit seems to be the sub-prime mortgage category with its adjustable rate of interest. A counseling agency based in Atlanta comments that there has been a 200% rise this year in the number of persons seeking advice and help related to foreclosures. Two years ago four counselors managed the desks but now there are forty of them coping with the rush. More will have to be enlisted. Of those seeking help 25% came too late for help. They had vainly tried to sort out matters themselves with the lenders.

The foreclosure virus is not contained within the lender-borrower court – it has spilled over to contaminate all sections of the society and economy. Neighbours of abandoned foreclosed houses are seeing the price of their property fall, as the area becomes crime prone and dangerous. A survey shows that at the same time counties lose $5,000 towards tax collection.
The empty houses are tempting teens to take to skip schools and play truant. Soon this develops into serious crime. Soon entire Atlanta will be branded as an unsafe zone. It scares the politicians who are now beginning to sit up.

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East Side Organizing Project or ESOP is a community help group in Cleveland. It tries to work out deals with lenders. The sessions are usually well attended with about 150 attending. Darlene Stuzman was in trouble having fallen back on payments when her husband was ill. She called on ESOP at first doubtful about their efficacy.

The first step is answering certain basic questions like how far behind is the borrower, how much can be afforded per month towards the loan, has foreclosure proceedings started and the like. ESOP made it clear to Darlene and others like her what they could and could not do. ESOP has tied up with 25 lenders. They can immediately halt the foreclosure process and allow for a breather. Talks might then begin relating to reorganizing the loan taking into account how much the borrower can afford. The best option would be a short sale or deed-in-lieu. The house might be lost but the stain of foreclosure would not touch their credit history. It will give them a chance for a new beginning.

Talking with each individual follows the group session. Darlene and husband Michael had bought their house in April 2006 after taking a loan from Countrywide Financial. It was an ARM loan with an interest of 8.75%. They took another mortgage at 12.875% and found that they were paying $1,250 per month as interest. The bomb fell with an announcement of a substantial rise in interest. The timing coupled with Michael’s health problem. They fell behind in payments. At this point ESOP stepped in and was initially disappointed Countrywide’s attitude. But since October Countywide has thought it to be more prudent and beneficial to take a u-turn. Two programmes were launched – refinancing or reducing rates of ARM. At first it was thought to be mere publicity stunts but later to proved otherwise. Lenders had more to gain by coming to an agreement because the sheer number of foreclosures gnawed into their time and money. For Darlene it was good news. Her first loan was reduced to fixed 8.75% and the second loan was wiped out altogether. The best thing that Darlene had done was to keep continuous contact with the lender and kept records of the same. Ten other ESOP clients have also benefited from ESOP talks with Countrywide. Darlene’s case was the first instance of Countrywide responding to ESOP overtures.

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The abandoned pools have gone murky. Health worker scoops up some of the scum to check potency of anti-mosquito treatment. A bloated floating doll spoke volumes about a family that has vanished. It is not just mosquitoes – these stagnant pools have become depots of countless deadly diseases. Health officials are in a hurry and scurry to mend matters but the problem is of such jumbo proportions that are just not prepared to tackle it on a war footing without adequate war gear. This California story – the worst affected region – is the same right across the nation. In any kind of neighbourhood – behind the glitz and dazzle – it is the same deadly health menace repeating itself.

The administration can order and make noises about maintenance but the ownership of these houses is in a state of limbo. It is proving difficult to track down owners with mortgages being made into packets and bundled off in slices to distant investors. Joseph Schilling is the director of policy & research based in Washington dealing with problems related to deserted houses. The banks are hardly giving any importance – their task mainly being to foreclose and auction off the unit. Till buyers can be found they cannot bother. Local officials try to remedy the matter and wait to hand over the bill later to the future owner.

In the city of Chula Vista, an ordinance has been issued saying that lenders are to notify the city fathers simultaneously with the notice of default, pay fees and or hire management firms. It has been in force since a month and so far 30 voluntary registrations have been made. Another 30 are being processed.
Pools drew the attention of Governor Schwarzenegger of California who declared emergency and sanctioned $6 million for war against mosquitoes. People were urged to report abandoned pools. A hot line has been activated. No statistics about pools have come in but it can be calculated roughly from the number of foreclosures. In early November there were 370 cases of West Nile fever. 16 proved to be fatal. All were from regions of concentrated foreclosures. It is higher than last year’s count of 278 cases and 7 deaths. Officials are optimistic that the situation would have been worse if emergency had not been declared. Some suggest draining pools but that might lead to spreading of the larvae. It is a baffling situation.

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