Archive for the ‘Foreclosure Crisis’ Category

Every action has a reaction. Nothing comes out of nothing – there must have been an action or series of actions behind it. Without finding the cause no solution can be found – hence the importance of introspecting on the foreclosure crisis.

Multiple causes contributed to the foreclosure crisis. Many – from pundits to the ordinary man in the street – are analyzing the reasons. Some truth will come out of this frenetic discussion and the problem will be viewed from various angles. This will ultimately help the foreclosure victim to find the particular solution applicable to his or her specific problem.

Deregulation allowed the uncontrolled entry of greedy lenders and their agents to feed on a gullible public fed on a consumer culture. The people were taught to make debts their gods – it became almost unfashionable not to be in debt! So it was but one step to jump from credit cards to house mortgages that ultimately led to the foreclosure crisis.
The innumerable foreclosed houses begging to be sold created chaos in the market causing house prices to tumble.

There were other geopolitical factors connected with oil and gas. Developing and emerging countries demanded more fuel but the supply of energy was limited. This led to a rise in fuel prices. Food price shot up because of agriculture being depended on oil to run the farms and market the produce. With consumers cutting down on anything but the bare essentials a chain reaction set in with shops downing shutters affecting not only the retailer but whole sellers also.

Economic slumps come in cyclical order but in this case the savings were nil for either the nation or the country to tide over the crisis. The falling of the dollar following the printing of money by the government to meet budgetary demands further worsened the situation. But with wars being fought overseas the government had no other alternatives before them

Collateralized debt obligations stemming from free play of hedge funds and packaging of mortgages as investments right across the globe has been one of the prime reasons for the national and global market instability. The convoluted investment instruments have gone to such extremes that nobody knows who is or are the mortgage holders. The courts are demanding to see the papers of the rightful owners.

Credit culture has been allowed to seep into school and college classrooms with disastrous consequences. Little wonder then that adults used up all the equity on their houses to become demoralized and bankrupt today.

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The foreclosure crisis has negatively impacted new veterans in a bad way.

The story of Andrew Spurlock is one of the many. After being thrown off a roof in Iran his career in the army as a veteran infantryman came to an end. Forgetting the past and the pain of the back injury he chalked out a new life for himself in a new house with a job as a police officer and the blessings of more children.

Today at 29 Spurlock and his wife are the parents of three children. They had hoped that the transition from Iraq to life in Apopka in Florida would be smooth. But the promise of a good future proved to be false – as is the case with many veterans.

First the job in Orange County at the Sheriff’s office failed because he was told that enough time had not been spent for his decompressing after returning from two combat tours. Taken on the wrong foot he realistically settled for a job of pizza delivery. Meanwhile it took a year and a half for Spurlock’s disability claim to pass through. With no other options they turned to their credit cards to finance mortgage dues. The family debt began to spike. A good proportion of it was for meeting medical expenses for all of them including his wife and kids. Foreclosure soon began to come nearer and nearer.

While there is little respite for the ordinary American from the foreclosure crisis, the new veterans seem to be worse hit than the others. They are being slapped three times – war injury, unemployment coupled with waiting for disability benefits and foreclosures. Veteran organizations claim that this is causing many to be pushed over the edge.

It is difficult to measure the reality in numbers because no statistics are available separating the veterans from the non-veterans. Recently however the Department of Veteran Affairs have been asked how badly their members have been impacted particularly by the ongoing foreclosure crisis. The army too has begun to track similar requests. The reports coming in are gloomy. The new veterans are suffering mentally and physically from the problem of foreclosures. Their numbers have sharply risen.

Bill Nelson of USA Cares said, “The demand curve has gone almost straight up this year.” The organization is a non-profit body that offers financial assistance to military personnel and veterans. Nelson adds that the situation has become particularly bad during the “last twelve months”.

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In the middle of November of the waning year of 2008 it seems that the foreclosure crisis has worsened with numbers reaching for the sky. Meanwhile the authorities at all levels continue to try to contain the menace by administering various measures. The foreclosure crisis has led to the sprouting of foreclosure-mills that handle en masse cases on behalf of lenders and borrowers. It has brought in an endless supply of work that are not always palatable. There are sanctions, stern admonitions from judges and the like. The judges too are a harassed lot as they tackle increasing number of foreclosure related cases. Invariably this leads to mistakes and errors.

One interesting case is that of widow Joanne Fredenburg who owned a house in Lehigh, Florida. The state is one of the worst hit foreclosure zones where real estate prices have fallen to dangerous low levels. In October 2008, Joanne was served with not only one but with two foreclosure notices. These were from two different lenders who claimed to be in possession of her promissory note and the mortgage. It is alleged that she owes each of them $276,000 – which is ridiculous.

Of the two lawsuits one seems to make better sense. The plaintiff in this case is the Deutsche Bank. The latter here is a trustee for investors who have purchased mortgage supported securities. The various investors are the collective owner of loans like that of Joanne’s. A servicing company that collects mortgage payments representing the investors has filed the other legal suit. The latter cannot file the suit, as a servicer cannot be the owner of a loan. After enquiry proceedings being conducted regarding this matter the servicing company, American Home Mortgage Servicing, decided to withdraw the suit.

Despite this gesture the lawyer representing Joanne is not satisfied. He will continue trying to find out what payments had been made by his client, whether they were paid to the proper entity and whether the credit was proper.

So far the general trend had been for the accused not to contest the forseclosure suits. As a result the plaintiffs get away with almost anything unchallenged. Stray cases like that of Joanne Fredenburg bring into focus the prevailing irregularities. Entities seem to be filing and winning foreclosure suits on notes they do not own. It is hoped that Florida Circuit Judges will be able to enlighten the interested about what is going on.

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Financial illiteracy is one of the root causes of foreclosure crisis. Realizing this, a movement is taking shape among the social workers of America who are tuning themselves to address primarily the woes of foreclosure victims. Largely they became gullible victims of predatory lending because they could not understand the basics of budgeting income.

Social workers debuted during the end of the 19th century and the have mainly worked for the poor. But today in this Foreclosure Age where credit card woes are rampant many social work education centres are focusing on those who are economically vulnerable. The ever-increasing numbers of scams are also making them sit up. Some schools are offering specialized training in financial matters. Thus there is a wave of change in the field of social service work in the wake of the foreclosure crisis.

The School of Social Work under University of Maryland introduced the idea of ‘financial social work’. Workshops are held and there are for students mini-courses. Professors in St. Louis have set up a ‘think tank’ to find out in what way social work organizations and schools can best prepare their students to help clients to make financial decisions.

Reeta Wolfsohn of Ashville, North Carolina, is offering a certificate course on the Internet. It embraces 20 states. In Wilson County, North Carolina, the Social Service Department has hired a person who has completed Wolfsohn’s course as a ‘financial coach’. Susan Parker the manager of Self-Sufficiency program of Wilson County said, “Before, we’d do a two hour training session for clients and pat ourselves on the back. But we were just giving them information. No one was helping them one-on-one to change behaviour.” But the new angle of approach is not just about throwing “safety nets to families. It’s about teaching them to be their own safety net.”

Sharon Mercer is 41 and a single mother of nine children starting from 4 to 17. She has benefited from this change of approach of social workers. She did not have a job but was afraid to seek help from the county fearing that the children would be taken away from her. But she was surprised when the social workers built up her confidence. She said, “It wasn’t about just giving me a check – it was about building my confidence.’ She kept saying that she could not whereas they kept saying that she could.

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Well – this question must be nagging the minds of home owners, given the present scenario obtaining all over the country. Years back the word “foreclosure” was not heard of by many. Now that more than 2 million homes are lying in any one of the three stages of foreclosures – pre-foreclosure period; actual foreclosure by public auction and repossessed properties after foreclosure auction, not getting the minimum bid – the home prices, as a whole, have fallen down considerably in the US real estate market.

So the real estate market has dramatically changed to become a buyers market, where home buyers have abundance of properties to consider – as much as 11 housing properties vying for it when one is needed – due to lot of foreclosure properties listed in the area for distress sale. The selling prices quoted in the listings are virtually a fraction of their real value, had they been sold in the secondary homes’ market.

As such it must be understood, that if you are a home owner proposing to market your housing property, you will not be able to get the asking price now, in line with the current market trends. Stepping into the shoes of the home buyer, you can visualize the situation more clearly. When there are hundreds of homes available, which are similar to yours with regard to footage, model, year of construction and amenities, at nearly 60% of the price that the seller is asking for, would you be willing to buy it?

The point is the foreclosure crisis has severely affected the home values, in new homes as well as secondary homes. With this background, let us analyze how it affects the neighbors, if there was a foreclosure on their street.

In some neighborhoods, it is still there that a house is sold quietly by the mortgage lender to a prospective buyer for the market value, without much publicity. It is only in the case of judicial foreclosures routed through the Court, or in the case of REPO housing properties owned by Banks, a large sign board is placed in front of the property concerned, in a prominent place as “Foreclosure Sale”. In both the cases, due to the longevity of the legal procedures in the first and the time taken for resale by the Bank’s systematic approach in the second, the property gets forsaken, without proper maintenance.

Weeds and bushes grow densely, lawns go not mowed for months and the buildings get dilapidation as an eye-sore. Naturally the pathetic sight of the property creates an uncomfortable feeling for other residents of the street. But strictly speaking one house in a street like this can not have much an impact over the market value of other houses in that street.

That said, appraisal of home value, according to professionals in the field, is based on three aspects. The cost factor – evaluation of cost of the building by calculation of the value to build it with the materials used and the land cost; Income factor in respect of multi-family residences for capitalization value; and market value by comparing the sale value of similar properties in the neighborhood.

In fact authorities, who are preparing the comparable value of the subject property for assessing the market value, take into consideration only the “arms length” transactions. That is property sold by a normal home seller and bought by a willing buyer, without any pressure on either side.

If only a lot of foreclosure properties emanate from the neighborhood, consistently for over a period of say six months, then certainly the median price of the foreclosure properties will be the basis for arriving at the average market value of the property concerned. So any home owner could not help such a situation and has to face the facts.

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The former chairperson of the Federal Reserve Alan Greenspan was not willing to accept the blame for the foreclosure crisis although he admitted to ‘flaw.’ Lawmakers have been putting pressure on him to make a statement. Greenspan said that the foreclosure crisis had exposed certain flaws in his years of thinking. This had resulted in him being reduced to a ‘state of shocked disbelief.”

Greenspan had relinquished his post in 2006. He referred to the banking and foreclosure crisis as ‘once-in-a-century credit tsunami.’ It resulted in the collapse of the free market structure. He also cautioned that things would worsen before they improved. Unemployment and non-stabilization of real estate will add to the problems for ‘many months’. Greenspan is known for this firm faith in free markets.

The depressing economic reports rolling in confirmed his views. The number of unemployed rose to 500,000 last week, as thousands will be retrenched following the announcements of Goldman Sach, Chrysler and Xerox. Dow Jones has been merrily swinging downwards.

Another banking regulator suggested that the government should opt for a plan that would guarantee loans so that borrowers would be able to overcome foreclosures. This should be included in the $700 billion bail out package. The plan is being considered with the chairperson of FDIC, Sheila Bair pushing it strongly.

The House Oversight Committee interrogated Greenspan. It was totally different from the time when as chairperson he had ruled over the economic boom for over 18 years. He came to be an icon of the free market in Wall Street and was held in awe by many in the Congress. But all that is history. He is being thought of to be the main culprit for the foreclosure crisis. The Democrats accused Greenspan and former secretary of the treasury John Snow together with Christopher Cox of Securities and Exchange Commission for causing the foreclosure problem by lifting regulations. This is the biggest catastrophe since the last 70 years.

The chairperson of the panel Henry Waxman said that list of regulatory errors and wrong decisions are too long. Today Greenspan is 82. He admitted having made a ‘mistake’ in believing that the banks would provide its shareholders the necessary protection while pursuing its own self-interests. He agreed it to be wrong of him to have shrugged off fears that the housing bubble would soon burst causing the present foreclosure crisis.

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In Florida Obama made promises about containing the foreclosure crisis if he came to power. He quoted Reagan to attack the Republican handling of the foreclosure crisis.
A noisy crowd of 8,000 was told by Obama, “At this rate the question isn’t just ‘Are you better off than you were four years ago?’ It’s “Are you better off than you were four weeks ago?’” Republican Reagan made this same query in 1980 to the listeners during a debate with Democrat aspirant Jimmy Carter. Reagan succeeded in ousting Carter.

With only a few weeks left before America votes for the next president Obama has spent two full days to campaign in Florida. Twice Florida had voted in favour of Bush. Now the Democrats are pinning hopes of winning Florida back to its fold and clinch the issue. Florida is one of the top foreclosed hit states.

Obama had with him the perfect weapon – the presence and support of his former rival Hillary Clinton. She will be attending two independent events and one jointly with Obama. Clinton warned the supporters of Obama in Fort Lauderdale not to be complacent and take anything for granted. She said, “I’ve been involved in ten presidential elections as an adult, and Democrats have only won three of them. Even though the polls look good and it appears as though we’re moving in the right direction, do not get lulled into any false sense of security.”

Michelle, the wife of Obama will also be travelling through Florida. Another Democrat who was once the rival of Obama for the nomination, Bill Richardson, the Governor of New Mexico, will also be assisting Obama in Florida to get the support of Latino voters. The deputy campaign manager of Obama’s campaign Steve Hildebrand is also busy in Florida. This shows the importance that is being given to the state by the Democrats.

The Democrats are being told to vote early. This is the vital factor. Obama said, “Go early. We’re going to make sure your vote is counted.” This statement was undoubtedly a reminder to the fact that in 2000 disputed voting had finally helped Bush to walk into White House. Obama said that by going early one takes into account unforeseen circumstances like breaking down of car or some emergency at the working place. The momentum is heating up and all round there is a feeling of tension as foreclosures increase and temperatures rise.

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It is not just reading and listening about the crisis but the harsh reality is the impact of the foreclosure crisis on the day-to-day life of the common man. Economists say, “Credit is really the lubricant – the oil – of an economy.” To make credit flow the federal government has chalked out a jumbo bail out plan amounting to $700 billion. In what way will the average American be benefited?

Speaking on the specific case of the residents of Hampton Roads, according to the views of Larry Filer of Old Dominion University and Gilbert Yochum also of ODU, the local region will benefit from the inflow of federal funds. Hampton Road being a harbour that is ice-free all round the year is a favorite haunt for USA armed forces. As such it is insulated from outside shocks like the prevailing foreclosure crisis. The latest move will ensure a continuous flow “of spending outside the region into the region.”

In general the bail out is no guarantee that the frozen credit market will thaw overnight. The measures do not address the root causes. It will be impotent if it cannot check the decline in prices. The legislators are at a loss to find the fundamental reasons for the house foreclosures running wild through the country.

The ordinary American is worried about investments, retirement savings, college funds and life savings. The government has said that it will for the time being guarantee the mutual funds. In a routine move the FDIC insures savings till a certain limit. But bonds and stocks are not insured. The hope is that the move will stabilize the market.

If the government had not intervened there was the risk that the total financial system would collapse. Yochum said, “It appears credit markets would cease to function properly.” Without credit flow business comes to a halt sans buying and selling. People cannot go about buying cars and houses. Without credit – the fuel, the economy screeches to a halt.

Speaking on the reasons for this foreclosure crisis Yochum said that there have been many contributory factors – the prime being financial innovation. Lenders groped around for new ways to lend money without foreseeing the future. Gradually during the last few years many of the regulations that had been introduced since the Great Depression were removed leading to disastrous consequences – the foreclosure crisis. The running theme was to allow financial bodies to go ahead along unhindered along new lines.

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