Archive for May, 2008

The Cleveland foreclosure crisis is worsening from day to day. The neighbourhoods of the city are dotted with vacant houses, owned by lenders or the banks. Financial bodies now possess more than 11,000 properties in Cuyahoga County according to project reports undertaken by Case Western Reserve University. The numbers account for more than half the units in Cleveland. The banks are selling these houses for peanuts to investors who are snatching them up for some hundred dollars!

James Odell Barnes has for 30 years been the first person Wall Street lenders called when they wanted to get rid of foreclosed houses. Currently Barnes is buying 100 houses in a week in Cleveland and Detroit. He is a broker and helps investors buy houses for as low a rate as $250 per house. In turn the investors sell them at a price that is 20 or 30 times higher than what they paid. David Green is a worker in a restaurant. He is seeing hand written signs on houses in the locality offering rent at less than half the price his restaurant is paying. Green has now entered the game and trying to fix a house he had bought for $18,000 in the middle of the town. Like him there had been 100 to 150 buyers who had bought similar houses from one Jeff Ball. Ball explains that he is meticulously matches the houses with the income of the potential buyers to make the transaction viable and affordable. This scheme greatly helps those with bad credit.

But it has not been smooth sailing for all the brokers. Some have become very unpopular. Destiny Ventures of Tulsa has been twice tried in court for violating code. They did not come to court and were unwilling to pay fines. The court seized a bank account to adjust one set of fines.

At this point another danger is brewing following on the footsteps of the foreclosure crisis. It is the investors who are buying up units for a song and then flipping them for neat profits. When local buyers are not available these sellers go online. Five buyers have contacted from Canada to buy houses in Toledo and Cleveland. The local administration is a bit worried about the influx of outsiders who might not be held accountable for the health of the locality, as they are interested only in the flipping.

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Stories are rolling in about unwary renters being caught in the foreclosure net. A septuagenarian man in Bridgeport returned home to his apartment to find he had been locked out. His landlord had been foreclosed upon and the unfortunate renter had become a pawn in the game. His attorney, Richard Tenebaum, commented that such incidents are regularly happening in and around Connecticut. During the past few the eviction numbers have nearly doubled, he added.

The debate is mainly about the plight of the single families. But till now hardly has anyone focused on the plight of the renters who are being victimized for no fault of theirs. A recent study shows that a third of the foreclosures in Connecticut, that is responsible for half the total numbers of actually foreclosed upon, are multifamily houses. Many of these are occupied by low-income families, whose landlords fell into the foreclosure trap.

From December 2006 to end of March 2008 there had been 2,295 foreclosures in Connecticut. The term ‘foreclosure’ covers all the different stages of this judicial procedure from default and auction notices to repossession by the lender. Of these 760 (33%) were multifamily houses according to a report of National Low Income Housing Coalition. Research director Danilo Pelletiere of NLIHC caustically remarked’ “It’s an ignored part of the foreclosure crisis”.

An increasing number of calls from ousted families last summer made NLIHC sit up and take a note of the foreclosure pattern all through New England. There were 34% multi-unit houses in foreclosure in Massachusetts. The rate was 41% in Rhode Island. New Hampshire being more rural had a lesser percentage of the same category – 12% of the foreclosures. Most of these houses accommodated as many four family units.

The tenants in large housing complexes face less risk of eviction from foreclosures, opined community development specialist, Michael Santoro of Department of Economic and Community Development in Hartford. For example in 60 unit complexes the new buyers do not want to dislodge anybody because in these cases cash is flowing in.

The tenants of a foreclosed unit are referred to as John or Jane Doe in the legal documents when proceedings start against a landlord having renters, clarified Tenebaum of Connecticut Legal Services. The Does usually forfeit their tenancy rights together with the exiting landlords. In brief renters are given no notice and have limited protection from the law

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Foreclosures in Weld County during the first quarter of the current year showed an increase of 26% in comparison to the same quarter of 2007 as per reports released by Colorado Division of Housing. There were 813 foreclosure postings – the second highest in the state. It was a drop of 2.5% from 834 filings that had been listed during the last quarter of 2007. Denver had the highest postings – 2,042. Weld came second with the foreclosure rate being 1:102. Across the state the rate was 1:159.

According to Matt Revitte of ProRealty the figures point to rough days ahead – “there’s still pain to be had” he said. Mortgage lender Angel Fuchs said that the numbers should not be a cause of surprise. It was expected, considering the entry of new set of adjustable mortgage rates being reset.

Across Colorado State there was an increase of 23% in foreclosure activity during the first quarter as compared to that of the previous year of 2007. Foreclosure postings increased by 6% from last quarter of 2007. During the first three months of the current year there were 11,630 foreclosure listings – an increase from 10,995 recorded during 2007, last quarter. In 2007 first quarter there were 9,443 foreclosure listings. During the whole year 39,915 foreclosures had been noted.

It is predicted that foreclosures will spike by 15% in comparison to 2007. It increased by 40% during 2007 and by 30% during 2006.

In Weld County thee were 442 foreclosure sales. Due to change in foreclosure laws it will not be able to collect sales data until the latter half of the year. More time is being now given between sale notice and auction proceedings.

Rivitte says that despite all this, sales have picked up. This is because of the silver lining behind the foreclosure clouds. It is presenting a great opportunity to many. With prices at an all time low one can buy affordable houses. This is the time for renters to check on their credit ratings and qualify for various schemes that are encouraging purchasing of houses.

Foreclosure is a judicial process. When the borrower lags behind in payment the lender seeks the permission of the court to foreclose upon the mortgaged house. . Accordingly a court auction is held. If that fails then the banks repossesses the unit and tries to sell directly. With innumerable foreclosed weighing them down the banks are now offering huge discounts.

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Foreclosures are the mere symptoms. The call of the hour is to dig for the root causes of foreclosures. Once that is found then the symptom can be uprooted – but not before. No solution will be effective if the remedial arrow is blindly thrown in the dark.

The usual run of thinking points to the sub-prime mortgages with floating interest. But despite the media rage about it, this is not the root cause. Some opine it is the change in real estate prices.

A Boston Globe article commenting on the increased number of foreclosures in Massachusetts said that this was due more to dropping house prices rather than the rising mortgage interest rates. The survey is based on the findings of the Federal Reserve Bank of Boston. Unaffordable loans do not directly cause foreclosures. During the economic slump of 2001 falling behind in mortgage payments was quite common but foreclosures were rare because the real estate continued to go up. Thus by selling the houses the people were able to escape foreclosure. Debts were repaid and there was enough left over to start life afresh without stains. The increase in house price acted also as an incentive for borrowers to try hard to become current in their mortgage payments. It was worth the while to keep the house. The house was a valuable asset and became even more so with each passing day. In the falling market the converse is true. Today the value of the house has gone down. So what is the point of struggling to keep it? Little wonder then that foreclosures are exploding. The report concluded that the rise and fall of housing prices play “a dominant role in generating foreclosures.”

The report points to the fact that the recent attempts by local and federal government to help the borrowers might prove to be ineffective.

Henry Paulson, the Treasury Secretary is attempting to freeze the monthly payments on mortgages by putting on hold the rise in interest. It does not show much in depth thinking because the primary cause of foreclosures is not addressed. It is declining equity that drives foreclosures and not the other way round. To take the bull by the horns it is time to find out what is causing this fall in real estate prices. It will need a lot of digging that will bring out many skeletons in the cupboards.

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With more cases pouring in, foreclosure scams are now leading to arrests. In California the situation is dotted with foreclosures with scammers following close on its heels. The story is the same. The victims fell for the scheme of promises to protect properties. Hundreds of victims lost not only their houses but also tidy sums of money to these scammers. Recently four arrests have been made.

It is mostly the Latino immigrants who are being foreclosed upon. They are easy targets for these scammers. It is happening in San Diego, Riverside, San Bernardino and Los Angeles Counties. They are being duped into signing off the title deed of their houses with the lure of establishing that property as a federal land grant. The victims were made to believe that if this was done then the units could not be repossessed. In reality there is no legal basis to the argument said the Attorney General of California, Jerry Brown on Thursday 22nd May 2008. He explains “there hasn’t been a legitimate use of the land grant since the conclusion of the Mexican-American War.”

On Wednesday last, the FBI from the District Attorney’s Office of San Diego County took into custody William Hutchings (62), Xiaoke Li (43), Edgar Martinez (30) and Diego Gil (38). The first two were from San Diego. The residence of the other two remains unclear. An arrest warrant has been issued for Shawna Landis (29) residing in Sorrento Valley. They are all facing similar charges of conspiracy, theft and fraudulent practices on many counts. Their assets are being frozen together with their bank accounts. The companies through which they operated are now being placed under injunction. Penalty charges will be brought against these. The accused targeted the non-English speaking Latino house owners who were under the foreclosure cloud. They came with promises of help and assistance. The victims relied on them to stop being evicted. Hutchings has been identified as the ringleader of the nefarious scheme. The group operated through a number of limited liability corporations – Federal Land Grant Company, Land Grant Services and KBS Resources. Seminars were organized by the team in which the participants were told that if they wanted to stop the taking over of their properties they would have to sign over the deeds to any one of the corporations. Then they would record a land grant on the aforesaid property. This was their mode of operation according to court reports.

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With much fanfare housing relief has made its debut but too many conditions will help too few foreclosure victims. The sponsors say that about 500,000 will be helped but what about the cut off date of 1st October excludes many? The Senate Banking Committee passed a housing bill and panel chairperson Dodd was euphoric in claiming that many will benefit. It is however most unlikely that the magic figure will touch 500,000. Experts analyze that at the most 325,000 will be helped. It would cut down the apprehended number of future foreclosures by 8% for the forthcoming years, says analyst Alec Phillips of Goldman Sachs.

The key clause of the bill permits the Federal Housing Administration or FHA to insure new loans up to a limit of $300 billion. This is dependent on a condition – the lender will have to write down a part of the loans and bring it at par with the current appraised value of the units. The official version of bill has not yet been released.

The enforcement of the bill will take off from 1st October although previously it was assumed that 1st June would be the cut off date. The bill is connected to political expediency. The four-month pause will flush out a 1.5 million borrowers who had taken sub-prime loans and whose loans are geared to increase. By the time 1st October comes, many houses would have been swallowed up by foreclosures. Thus those whose rates went up from 1st January 2008 would not benefit from the bill but would be sacrificed to the wolves. The bill will help those whose rates will rise from the third quarter. In May the maximum resetting takes place. They too will not be able to avail of the opportunity of saving their houses. In those states however where the foreclosure process goes on for about a year the bill will help some.

If the Congress had addressed the problem before the massive numbers had reset, a substantial number of foreclosure victims would have been helped and the foreclosure numbers contained. There were however explanations Jaret Seiberg an expert from Stanford Group (Washington research firm dealing with policies) said “there’s upfront planning that needs to occur for this to be successful.”

Political heat is on with heated arguments between Democrats and Republicans. This has largely led to the delay in putting into action positive thoughts of help.

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So far Silicon Valley has been fortunate. The foreclosure attack on Silicon Valley has been relatively less severe in comparison to the rest of California. But real estate agents and tax experts believe that it is biding time – soon foreclosures will flood the valley.

At a recent meeting of Silicon Valley Association of Realtors, Pamela Simmons of Simmons and Purdy commented that foreclosures continue to rise as the state struggles through falling estate prices and at-risk mortgages. According to information complied by DataQuick, the Trustees Deeds numbered 47,171 during the first three months of 2008 as compared to 11,032 during the same period in 2007. This calculated to a jump of 327.6%.

About 18 months ago Simmons had noticed the first flow of foreclosure cases increasing. The first lot consisted of those who had no reason to buy a home at the very onset. They had no steady income and became easy targets of predatory lending tempted by nil down payment loans. These buyers were the first ones to succumb to foreclosures.

The second lot of foreclosure victims consisted of those in trouble for having contracted sub-prime mortgages with adjustable interest rates. These rates began to swing up throwing down the borrowers. It became impossible for them to keep pace with the upswing.

The third wave is now visible, says Simmons. These are house owners with negative amortization loans. It means these borrowers siphoned off equity from their house during the boom period but now that the prices of real estate have fallen they are getting entangled in the foreclosure net. For some the monthly payment has increased by as much as $3,000. The third group with multiple mortgages on their properties is referred to as ‘flippers’. It is like a game of musical chairs. Now that the music has stopped they do not have a chair to sit on!

Simmons further went on to explain the difference between judicial and non-judicial foreclosure. The former is processed through a court of law starting with the filing of complaint giving details of the debt. If the court is satisfied with the plea then it issues an order for the lender to proceed with an auction and realize dues together with incidental fees. The judicial process is extremely costly and may involve an expenditure of $100,000 for the lender. Non-judicial foreclosures are conducted without the mediation of the courts. Nearly all the foreclosures in California State are non-judicial.

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This time the women voters in
Clermont County are readying to battle foreclosures. The Clermont County League of Women Voters will be addressing the foreclosure problem during their meeting in May this year.

Foreclosures have churned into a national problem during the past few years. In Clermont County during 2006 there had been 2006 foreclosures as per figures released by Legal Aid Society of Southwest Ohio. In 2007 there had been over 1,000 foreclosures.

Analysts opine that there are three major factors behind this crisis. Firstly the credit standards had been too lax. It allowed people with modest income to be lured into buying houses they could ill afford. The temptation of no down payments and initial teaser rates were too much for them to resist. This predatory lending has harmed society and the economy. Predatory lending is that type of granting loans when the lender does not take into consideration the ability of the borrower to repay. On top of this the interest rates are usually very high. Loans were sanctioned after inflating the value of the property. But when the latter came down to realistic levels the loan amount remained higher than the price of the unit. Thus even by selling the house the borrower could not avoid the stigma of foreclosure. Predatory loans are also saddled with exorbitant pre-payment penalties making it impossible for the borrower to refinance.

Secondly the prices of essentials have suddenly started to increase. Medical bills, repair expenses have shot up while the income has often been going down if not been actually interrupted. Few weeks of unemployment will automatically lead to default in mortgage payments and end up in foreclosures.

The general depression in the economy has led to plants downing shutters. Layoffs have become common. Usually the income from two family members contributed to the running of the mortgage. Thus even if one lost a job the mortgage suffered. Illness and divorce have their negative impact also.

The women voters en bloc actively gave support to a bill passed in the previous year aimed at controlling predatory lending. The new law is being enforced now and it is hoped that it will address the abuses in the mortgage industry. The foreclosure on old loans however will continue to harangue society for many years to come. With interest rates rising there is apprehension that the country will be flooded anew with foreclosures.

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