At the core of the Great Recession is the foreclosure crisis. The usual line of thinking is to blame the banks for giving the nod to risky loans and for the borrowers who overreached themselves and started living in houses they could ill afford from the very beginning. An article in Vanity Fair refers to such homeowners are “infantile”. Financial experts have criticized them for living in ritzy houses with swimming pools and three-car garages. Even a Treasury secretary does not hesitate to have a swipe at such home owners for contracting mortgages well beyond their means.

A survey conducted by St. Petersburg Times notes that in Hillsborough County there are thousands of foreclosures. Here individual borrowers are being too much blamed for this mayhem. The reality is that those speculating in real estate and revenue-strapped local government are as much responsible for this crisis – the crumbling of the real estate market.

Investors together with flippers are responsible for nearly half the foreclosures in Hillsborough that have been posted during 2007 to 2009. Their dealing led to the massive inflation of prices of residential houses and this laid the foundation for the crash that was to follow. They were helped in every possible way at each step by the local officials.

The commissioners of Hillsborough permitted jumbo housing plans in the rural regions while overlooking impact fees from the developers. Leaders in Tampa gave the green signal to development of country clubs in distant New Tampa, closing their eyes to the obvious dangers of over construction.

In the over built real estate markets of Arizona, California and Nevada the investors purchased houses for the sole purpose of speculating – never lived in it even for a single night. But when the prices swooped down they could no longer afford to cling on to these.

Benjamin and Elizabeth Padilla purchased a four bed roomed dream in rural Hillsborough paying $200,000 for it. They are continuing to live and are current on their mortgage dues. But they are surrounded by empty units – mostly purchased by the speculating investors. The worth of their own house has rocketed down to $119,000. To make matters worse crime in the locality has increased. In her late fifties Elizabeth said, “We can’t do anything to get out of here. If we sell, we have to come up with the difference between what we bought and what it’s worth now, and we can’t afford that. We’re stuck.”

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The recession, triggered by the foreclosure crisis has hit the Afro-Americans worst. Unprecedented unemployment has totally erased the wealth of an entire generation of the Black middle-class.

The vigorous job market during the 90’s had made life somewhat easy for thousands and thousands of Afro-Americans who had moved up to join the ranks of the middle class.
Barbara Mitchell was one of these. She got employed in a customer related job with a telecommunications firms. For a good number of years she prospered on a comfortable salary that peaked to $51,000. But when her firm was shut down she had to take up another lower paying job in Wisconsin. Ultimately she could not fit into the changed circumstances and opted for retirement apprehending job termination.

Mitchell was under the impression that she had the requisites to obtain another similar customer related position but at the age of 57 and after a year of floundering about she found herself without any job, any medical insurance and practically no retirement funds for her twilight years. All that she could do is to pray for a part time job but she has realized that the recession would never take her back to the position she held only few years ago.
The harsh reality is that the recession is hitting the Afro-Americans more than others. The unemployment figures of this section of the population speak for themselves. The total unemployment is poised to touch 10%. Amongst the Afro-Americans it is 15.5%. In Illinois it is 18.6% during the third quarter according to Economic Policy Institute. For the teenagers among the Blacks the rate was 40.8% during September.

Employment rate among the minorities have always been high but the recession has increased this gap because of unemployment primarily in the manufacturing and auto group. This unemployment has joined up with predatory lending that was most prominent in black dominated localities. This lead to staggering increases in foreclosures that sent the real estate market reeling downwards. It can be read as a silent depression for the Afro-Americans.

Jean Pogge of ShoreBank that caters to the minority groups in many cities said, “The untold story is that between unemployment, a significant drop in property values, the wave of foreclosures and a lack of credit, there is a whole generation of African-American wealth that is disappearing. The traditional way Americans have acquired wealth and gotten into the middle class is through buying a home and building equity in that home. And a lot of that has been wiped out by the recession.”

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The historical collapse of the biggest bank in USA, Washington Mutual, highlighted the drama of the foreclosure crisis.

After the federal takeover of Washington Mutual in September 2008 the previous staff continued to arrive for work for many days – drifting around and twiddling their fingers till the close of January 2009 when they were finally given the exit note. Iriz Glaze one of the employees who had been slogging for decades giving her heart and soul into a company that had been like a family to her, suddenly found herself not dreaming about retiring on a rocking chair but hunting for another job in her late 50’s. In the gloom of recession it was an impossible task. She bemoaned, “When you are with one company for 18 years, you get to know everybody and everything. I loved my job, just absolutely loved it. You don’t realize that so much of your self-esteem, so much of your being, is wrapped up in what you do.”

James Meacham was in the centre of some of the most dubitable mortgage loans of Washington Mutual. With a top degree in theology he had for sometime been a minister. In 2000 he joined Washington Mutual in Seattle and came to be the vice president of Mortgage division of WaMu at Long Beach, California. The division focused on sub-prime mortgages that were granted to those with weak credit histories.

Speaking frankly Meacham said that the packaging of loans and the slicing and selling of these to investors did not make any sense. But there was the allure of hefty profits for all concerned and the appetite of the investment banks for these seemed to have no end. He commented, “There are times that I think that I should have spoken up more when things didn’t seem right to me. On the other hand, I’m not sure it would have helped any.”
His superiors put pressure on him to rapidly increase the flow of business. Formulas and monetary projections showed that the packaging and slicing of these exotic mortgages would be excellent without flaws. There was a general feeling that the game rules had changed. Meacham explained, “The basic problem was the assumption that housing prices would always go up. It was an egregious error.”

Meacham is now in his mid forties. He was one of the many executive laid off towards the close of 2005. It was these sub-prime loans that turned out to be sheer poison.

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The National Association of Home Builders recently approached the Congress to see to it that the housing sector once more took a leading role in bringing back drive to the economy. It wanted speedy action to stretch and increase the limits of $8,000 being offered as tax credit to first time nest builders. The association wanted disputes regarding appraisals to be resolved as this has been causing the pace of home sales to slow down. They also wanted the Congress to put pressure on the regulators to allow for the free flow of credit – something desirable to builders and buyers alike.

In recent months there have been signs of stabilization in the housing sector. Joe Robson the chairperson of NAHB speaking to the House Small Business Committee said that despite modest improvement the winds are continuing to blow against the industry and this is preventing any significant improvement in the real estate market. He said, “Not only are we continuing to feel the impact of foreclosures and short sales in the market, but we’re facing a severe credit crunch for acquisition, development and construction (ADC) lending. Meanwhile, the use of foreclosed and short-sale properties as comps is resulting in inappropriately low appraisals that are effectively sinking one quarter of all new-home sales right now. Add to this the fact that demand and home sales are already showing signs of slowing with the pending Nov. 30 expiration of the first-time home buyer tax credit.”

NAHB proposed that for job generation and the placing of the economy on a more sound footing Congress should stretch the tax credit facility for an extra year and to make it available to all who are buying their main house for residing purposes. Robson said, “We estimate that this would increase home purchases by 383,000 in the next year and help mitigate the foreclosure crisis by whittling down inventory at all levels of the housing market, setting the stage for a full recovery. This stimulus alone would create nearly 350,000 jobs over the coming year, which is exactly what the economy needs right now.”

On the problem relating to appraising Robson said, “Any prospective buyer would recognize the differences in the value between a well-kept home and a distressed property that is damaged or not properly maintained. The same should be true of an appraiser.”

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The foreclosure situation has radically changed the financial thinking of baby boomers. The financial advisers who are in charge of $10 trillion as assets will change their priorities as regards investments when they reach retirement point. This was view of a senior official at BlackRock Inc.

They will move on from accumulation (squeezing the most out of time from their assets) to decumulation opined Frank Porcelli of BlackRock at Reuters Global Wealth Summit held in Boston. He said, “The questions won’t be, ‘How did I do against the SP 500? The questions won’t be, ‘How did I do against the SP 500? The questions won’t be, ‘How did I do against the SP 500?Instead of a focus on building wealth and a retirement nest egg, those clients will soon focus on making the money last.”

The foreclosure crisis has disturbed more and more of this generation since the last one year and they are now worried about seeing that their funds seeing them through the twilight years that could continue for well over two decades. $10 trillion will be in the hands of the new retirees and they will take a more conservative approach towards investment coupled with traditional modes of spending patterns.

BlackRock , based in New York, is a name in managing investments – one the jumbo bodies in the world. It has assets worth $1.37 trillion belonging to its clients under its management supervision. It provides services to clients with assets touching $7 trillion. Following the buying up of Barclays BGI unit, scheduled in December, it will be the largest international manager with assets approximately valued at $3 trillion. It has won a name by serving institutions. It does not include retail customers on its list but it releases money and offers services to financial advisors who work with the retail investors.

Research carried on by the firm noted that 70% of those in the retirement bracket are agreeable to shift their accounts to a different firm if the latter offered advice and showed the way on how to prevent money running out during the twilight years. Finding a solution to this requirement is far more difficult that helping in accumulation of assets said Porcelli. He explained, “This is the equivalent of financial brain surgery.” It meant seeing to the investments as well as spending expectations of the clients.

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The current foreclosure crisis has exposed the vulnerability of a nation that is not properly educated. Meanwhile compared to other developed nations American numbers of higher educated persons have fallen back.

The current crisis expedited the trend of falling back. The social security net is in tatters and this is causing many more students in comparison to their peers say in France to be engaged in part time work while trying to attend classes. With the financial situation worsening more students are likely to opt for full time jobs relinquishing their studies totally.

As per the findings of Bureau of Labor Statistic the nation saw the loss of 273,000 jobs in September. Of these 29,000 were from the state and regional educational departments. This brings the number of job losses in this section since the previous five months to 143,000. Education is a category that is supposed to keep expanding – even when there is recession. The markets may be in turmoil but that should not mean one stops teaching the future generation. But this is exactly what is happening.

It is the state and local governments that are the caretakers of education. Sufficient federal assistance could have brought about a sea change. Some help has come but it is only a drop in the ocean. This is largely because in last February the senators with a one track mind stripped much of the assistance from American Recovery and Reinvestment Act and fed it into the stimulus bill. Consequently education finds its limbs amputated. Many teachers have lost their jobs – it being only a small part of the drama. What is more serious is the manner in which opportunities are being blocked.

Recently the Chronicle of Higher Education gave a report on the sorry state of the community college students in California. For many generations, meritorious students coming from economically modest families have made use of these colleges as rungs of the ladder to gain entry into the universities of the state. But due to the budget blues these universities are now compelled to shut their doors on the current year’s potential entry of students. This will cause lifetime damage to many students and a massive waste of human resources.

The Congress should immediately rectify the blunders of February and sanction generous rounds of aid to the state governments. Even without giving the stimulus cry this will generate and save jobs running into thousands. It would simultaneously be a future investment.

America became great riding the wave of education; the same reverse flow can cause the opposite harm.

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The impoverished foreclosure victims are sans proper legal help. More than 300,000 residential houses are being served with a foreclosure notice per month. The situation has become all the more crushing because of the lack of proper legal help for the hapless foreclosure victims.

As per the findings of a new survey conducted by Brennan Center for Justice this legal impasse has been highlighted. It read, “The nation’s massive foreclosure crisis is also, at its heart, a legal crisis.” The huge majority of the foreclosed borrowers are left to fend for themselves without legal help.

The instance of Nassau County of New York can be cited. 92% of the borrowers who are facing foreclosure because of exotic mortgage loans like sub-prime do not have any lawyer to represent them.

Legal help is vital – it makes the difference between losing and keeping the home. The lawyer can put on hold foreclosure proceeding or pressurize the lenders to make them sit at the negotiating table. The lawyer can intervene in many ways than one like putting into force consumer protection laws or nosing out violations of the law by the lenders.

The report points out two reasons for the homeowners failing to get the right kind of legal support. The first is money. This is not surprising because it is the money problem that has put them in this fix.

The Legal Services Corporation is the main agency that offers legal help for those with low income. In 1996 its budget was reduced by a third. To provide the corporation the level of funds it had got in 1981 would have necessitated an additional $753 million. Washington would not have hesitated if Goldman Sachs or any other jumbo financial body needed that kind of money. Even if it had been ten times more the cash would have been made available. But those with modest income have no influence in the corridors of power. It is little wonder then that Legal Services Corporation has become powerless to move.

The second hurdle is that intentionally the system has been structured in such a way that there are restrictions in getting legal help. There are serious limitations to the ability of homeowners of seeking legal assistance. For instance there is a bar in bringing class-action suits. Moreover they cannot make the plaintiffs pay the fees of the attorney although normally the law permits it.

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Legal firms under the lead of United Law Group joined hands in firm handshakes with 30 other prominent legal companies to from Crisis Commission on Homeowner Representation.

United Law Group is one of the leading law firms with branches across the country – Arizona, California, Florida, Nevada, New York and Ohio. It has licensed attorneys to operate in any state. The group has won a name for itself in its dedication to use the legal tool to prevent foreclosures.

The primary objective of the group is to modify the language used in SB94. If it is not done then it will prevent troubled borrowers at risk of losing their homes from taking legal help. It would prevent lawyers from offering their services to bring about modification of loans and prevent foreclosures. As the bill now stands it will stop lawyers from taking a retainer upfront fees for services. This will be detrimental to borrowers.
Martin Andelman explained, “Essentially, it is a bill that will block a homeowner from obtaining legal representation when they are at risk of losing their home to foreclosure.” Robert Scurrah of CDA Law Center said, “SB94 is fundamentally defective. The concept of protecting a consumer will be totally eroded by the elimination of representation by licensed attorneys.”

The stand of the commission is that the fees that are being now charged by lawyers are negligible considering the time as well as effort put in. It requires expert knowledge to support the cause for modification of loan. For any other project the consumers in Orange County would have to dish out minimum $300 per hour to lawyers. Lawyers are engaged by real estate firms are paid anything from $1,500 to $3,000.

Zshonette Reed of Lorden & Reed said, “In a contingency case it’s worth the risk, because there’s a fee waiting for you at the other side. But attorneys cannot afford the overhead commitment for a $2,000-$3,000 fee.”

Summing up the impact that this bill will have on troubled house owners Robert Buscho of United Law Group said, “The consequence of this bill is that homeowners are not able to get representation because the attorneys cannot afford to become unsecured creditors to people who are already struggling financially.”
The supporters of the bill contend that it will prevent increasing number of foreclosure prevention scams that are mushrooming across the country. But Buscho claims that SB94 would harm the homeowners and not the scammers. He said, “Enforcing current laws will take care of the scammers. Enforcing current laws will take care of the scammers.”

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The strong message that the foreclosure crisis has called for a revolutionary change in prosperity has been highlighted in a report released by two Nobel Prize winning economists Joseph E. Stiglitz and Amartya Sen. By using the GDP as an yardstick the policies undertaken by governments have been erroneous causing the worst crisis since the 1930’s.

The financial crisis was preceded by the booming zoom in the real estate market. This happened because of the lopsided concentration on economic growth. It led to overbuilding and over investment in real estate. Stiglitz argued that this pin pointed focus on development allowed the policy makers of America to rest on a deceptive sense of security that their policies were on the right track. Thus they did not oppose the financial entities from directing literally limitless amount of dollars into the real estate market. This led to the stacking up of consumer debts piling up at an unheard of speed.

Free flow of credit made spending possible; spending began to transform into speedier growth. There was a feeling of bonhomie that this was basically good without thinking of how long it would last and what convulsions would follow it as easy money would slow down to a trickle.

The national policy that focused on this type of growth encouraged the house owners to borrow in a manner as if repayment would never be required. Industry churned out products on the assumption that actual pollution cost was zero explained Stiglitz. He said, “We looked to G.D.P. as a measure of how well we were doing, and that doesn’t tell us whether it’s sustainable. Your measure of output is grossly distorted by the failure of our accounting system. What began as a measure of market performance has increasingly become a measure of social performance, and that’s wrong.”

For real socio-economic welfare the focus should shift from measuring goods and services that is produced to the material welfare of typical persons. Their income and consumption should be measured; so too should be calculated the health care and education facilities.

Theoretically the proposals are revolutionary and hopeful. But how to turn these general rules into actual measuring tools? That is the crux of the problem now. The report states that the two economists agree on the overall picture but they differ on the methods that are to be applied for measuring for instance education and clean skies.

Whatever the shortcomings of the report, undoubtedly the old method of measurement has taken a back seat although the new one has not yet taken on the driving wheels.

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The calendar year 2009 was a record one in many ways. Not the least of these is the fact that 89 banks actually closed, were forced to close or merged and were absorbed by another entity. These banks used poor judgement and the money that they wasted caused a huge dent in the economy and consumer confidence. Hundreds more institutions are expected to fail over the next few years due to the real estate crisis.

The state of Georgia in and around the city of Atlanta and the suburbs thereof was served well by Security Bank. They served many counties in the area and held a lot of mortgages for people in and around the area. Unfortunately the foreclosure crisis escalated and banks closed leaving many people hurt by it.

Wachovia is also another player that ran into financial issues. Fortunately they were Absorbed and taken over by Wells Fargo bank with little to no problems or inconvenience to its customers.

Vantus Bank in Iowa recently closed. It had a total of $458 Million Dollars in assets and $368 Million Dollars in deposits when it folded.

With Platinum Community Bank, the government had no luck in the search to find another entity that could someone that could handle anything from either the deposits or the affiliation of the branches of the bank so the FDIC was responsible for handling the payouts to the customers.

Banks such as the small one building First Kansas Bank of Kansas City was taken over by the Great American Bank in Kansas, mostly due to bad mortgages.

More Georgia banks such as First Piedmont Bank in Winder have closed because of too much outstanding mortgage loans.

Mortgage problems with loans are also the primary reason for closure of the First National Bank of Nevada located in Reno. The real estate market in Nevada is terrible.

The Community Bank of Arizona was forced to close its doors due to having no liquidity because of too much outstanding capitol in mortgage loans.

To show that the economy shows no favorites, the First Bank of Beverly Hills closed by the FDIC with the problems brought on by the recent real estate problems.

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