Archive for the ‘Foreclosure Crisis’ Category

Following the footsteps of foreclosure woes are scammers wearing rescue masks – out to dupe the vulnerable. They pick the bones clean leaving nothing but despair and hopelessness.
Jon Richards (D-Milwaukeee) compares the situation to a lifeline being turned into a noose to throttle the foreclosure victims. Together with Senator Jim Sullivan (D-Wauwatosa) Richards introduced the Homeowner Protection Act that will make it a criminal act to obtain property deed by deceit and falsehood.

At the root of the foreclosure rescue move is the re-conveyance contract. By it the title is transferred to the person posing as rescuer. The borrower is made to believe that this is the only way he can save the house. But the terms are couched in deceit and too late the ex-owner realizes that he has been taken for a ride. A representative of the Legal Aid Society opines that so far there has not come been a single instance of an ex-owner regaining lost ground via the rescue-scam route.

Milwaukee County was the happy hunting ground for sub-prime predatory lenders. Today it shares with the nation the rising rate in property foreclosures. A couple of vultures are now looking around to muddle up the mess further.

The new law is intended to rope in foreclosure scammers and send out warning signals. According to its tenets the owners must get a contract in writing with the right to cancel it within 5 days. Repayment is to be planned according to the ability of the owner. Any form of deceit undertaken to close the deal will amount to fraud. The idea is to protect owners from eviction and for this any complaint will primarily lead to delay in the process. The penalties that will be imposed on foreclosure scammers will be stiff – a fine up to $10,000 with the responsibility of paying for 150% of the damages. This package comes may come with the bonus of a visit to the jail.

More and more incidents of fraud are coming up leading to falling housing conditions. With resetting looming large more foreclosure listings are anticipated. This year the number of foreclosures may well reach 5,000. Since 2002 The Metropolitan Milwaukee Fair Housing Council has stumbled upon 800 loans that raise questions.
The bill is comprehensive and because of strong public feeling will in all probability it will pass through without a hitch.

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Kansas is reeling under foreclosures causing state officials and even the Attorney General Morrison to sit up. There has been 29% rise in August as compared to the same month in 2006. It is the same across the entire country with local variations.

Morrison initiated the founding of a task force consisting of 15 members to study the reasons behind this catastrophe, which has affected those on and below the middle-income divide. They are being asked to address the issue and recommend remedies. Tom Thull, the Banking Commissioner of the state, is heading the panel. Previously he was a Democratic representative from North Newton. The main focus of attention is mortgage fraud and predatory lending. It is not all frothy talk and bubble – they want to be active and positive. Indications are there that in the next few months the crisis is going to worsen.

Foreclosures are concentrated mostly in the urban centers – Kansas City, Wichita and Topeka. But the effect is not contained within this zone – it spills over to affect the economy of the state. It is difficult to precisely calculate the loss in numbers and figures. Kansas seems to be less affected mainly because here there has been less real estate activity in the recent past. Relatively the economic scene is not quite so grim as other places.

However in comparison to what is happening elsewhere Kansas pales into insignificance. In some places the numbers have doubled according to online trackers. Michigan, Indiana, Ohio and Nevada are the worst sufferers.

In August three counties were responsible for 76% of the foreclosures in the state. Wyandotte led the race with 143 and a ratio of 1:465. This is six times more than the national average and 1.1 times the average of the country. On the other extreme side are Ellis and Finney Counties with no foreclosures in August. Reno had three while Saline and Neosho Counties had one foreclosure each.

The data pointed to an urban concentration of foreclosures everywhere. But statistics is not always balanced because trackers tend to skip the smaller counties.

The key factor is that there are not enough affordable houses. To own a house one has to run up an impossible debt. The task force must go to this root of the problem apart from advising the law to step in with more teeth.

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Everybody has heard about it. The Congress will plug the sub-prime crisis. The Democrats are in the forefront. But their medicine of shuffling taxes seems to take it off the shoulders of one group and putting it on those who are in the clear as regards payment of mortgage dues.

Today a foreclosure sale is taxable income. The borrower gets from the bank a certain amount. This amount attracts tax. Even if the bank does not give anything but rather forgives a part of the loan then that forgiven-amount is taxed. Under the new bill income from foreclosures will no longer be taxed.

Critics opine that such a step would invite reckless borrowing. However on humanitarian grounds it seems a just move.
The tax story however does not come to a simple happy ending in this way. But tax spared from this end must be replenished in another way. The government coffers must not run dry. The thrust is on targeting small landlords and owners of second houses – who need not necessarily be wealthy. It is not unusual or a sin to buy a second property as investment during a housing boom.

There are about 1.6 million absentee house owners only in Washington metropolitan area. Take the instance of one person who is renting out the second unit because it is impossible to get a fair price in the present market. In this way he will survive through a bad economic patch and not go for a sale that will incur heavy loss. In fact – given the present rise in rental units there is a good chance of making some honest money.

As per current rules if the landlord has bought the house for five years and of these years he has spent two residing in it then he gets a tax exemption of $500,000 for married couples and $250,000 for single persons. It has been encouraging people to go in for buying. This together with other factors like mortgage interest deduction has played a strong part in the housing boom. But the new bill will change all that. The 2/5-year period will be scaled back and any equity from rental or sales during this period will be taxed. The landlord will be spared only for the time the unit was occupied. Millions will be adversely affected by this change. So is the step a panacea at all?

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Once upon a time it was taken for granted that real estate prices would go up. But reality proved to be contrary. Sellers are being forced to drop prices even at a heavy loss if the unit was bought in 2005 or 2006. The housing bubble, which had been getting bloated since 2002, has suddenly busted. It was a fall out from the foreclosure fiasco. Credit began to slow down and so who would or could buy houses? The confidence of many was shaken. Who knows whether prices would further fall or not? So there is no point in investing now. Rather before things get worse it is better to sell off.

Research shows that some of the worst hit areas are east Contra Costa and Alameda Counties together with Solana County and even San Francisco. The infection seems to be spreading all round the Bay area. San Joaquin County tops the list of affected areas with 1 in every 27 foreclosing during the first half of 2007. This is the highest ratio in the entire country. According to another online survey the Central Valley recorded a drop of 7.7%. It is the high-end houses that are causing the median to rise. The regular homes will not be sold until completing all those in the foreclosure listing. It is the foreclosed units that set the rate. A buyer will look at the foreclosed one down the street and give that offer with a take-it or leave-it attitude. Some are just testing the market and thereby adding to the list.

A lot of difference can be made if owners are willing to cut prices but some are stubbornly not doing so. Neither do they want to initiate any changes in the house. One house on Brighton Drive, which had been bought in 2004 for $430,000, was being offered for $419,000; most probably that would have to cut down to $399,000. This is the general trend and not an exception. The main factor that is affecting the market is escalating interest rate. The entire Bay area is affected. Most probably this is because here the house owners lack long-term experience or cash reserves to tide over the crisis. In other places like Silicon Valley the picture is not so grim because the people have the income and store to tackle the problem.

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