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The Future of Residential Foreclosures

Julie Parker — Tue, 17 Nov 2009 13:04:04 +0000

There are indications that home sales are picking up together with prices but the foreclosure numbers continue to march apace. Rick Sharga of RealtyTrac that tracks foreclosures was interviewed by Barbara Kiviat of Times regarding the future of residential foreclosures.

Taking an analogy from baseball Sharga opined that right now the foreclosure situation in the country is in the middle of 6th inning. It will not peak till 2010 and will not be down to normal till 2013. Already 2.3 million houses in the last one year are in some stage of foreclosure – it being equal to that of the previous year. 7 million families are defaulting or in foreclosure. There is no doubt that trouble is fast brewing.
Under normal circumstances most of the defaulting house owners find some way to cure the loans. But currently the numbers are far from promising. Over 50% of the houses that are entering foreclosure end up being repossessed by the lenders. However a good number are still managing to skip foreclosure either by modification of loans or short sales.

Foreclosure activity has gone up six times since what it was four years previously. The system is not geared to tackle such huge numbers. There are also other complications. The servicers are causing delay. They are seeing to it that the borrowers do not qualify or HAMP (Home Affordable Modification Program). The servicers gain more from foreclosure whereas neither the lenders nor investors apart from borrowers gain from it.

The federally sponsored and financed programme of HAMP has met with initial success. The target of trial modifications has been met with. It is good news. But the programme is not ready to meet the onrush of the next rush of foreclosures that is poised to break. The programme is failing where prevention of foreclosure is concerned.

The current wave of foreclosures is being triggered by unemployment. Without a steady income it is not possible for borrowers to be current on their mortgages and neither do they qualify for relief measures. Inevitably the borrowers succumb to foreclosure. Secondly whole swaths of ARM loans are ready to set. This will kick off more foreclosures. Most the borrowers will become underwater with the value of the property being less than the loan value. The only way these can be saved will be if cuts are made in the principal – something the lenders are not willing to do.

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Land Banks Could be the Answer to Foreclosure Woes of Detroit

Julie Parker — Tue, 17 Nov 2009 12:13:14 +0000

The auction of foreclosed units appeared to present an even grimmer scenario than initially noted. In Wayne County 9,000 REOs were put up for auction recently. 80% of these failed to attract any bidder although the minimum bid was allowed to be $500.

It is nothing new that Detroit and Cleveland are cursed for some time with foreclosures. But the incident at the Detroit auction has been an eye opener to the intensity of the problem.

The auction was far from smooth. Speculators from out of the town plucked the cream properties like the ones located in Boston-Edison region. The locals were not allowed to register for these bids. This has led to a scandal.

It is one of the important reasons why local communities are clamouring for land banks. It is a public venture that permits a community to acquire without any hassle foreclosed properties lying vacant and abandoned. These they clean and put into use. This move puts a stop to out of the state speculators from playing around while the local officials remain helpless bystanders.

But the process of getting a land bank in place can be a lengthy and complicated process. Flint and Michigan have given the lead in the movement termed ‘Shrinking Cities’. The abandoned localities of the city are cordoned off and the land is permitted to go back to Mother Nature. The idea is great if the communities can achieve it. But for this the local authorities need the land bank or some other toll by which they can exercise control over the empty foreclosed houses as well as land. If not a situation like the Detroit auction will take place when outsiders with funds and expertise will outbid any member of the locality – whether groups of individual investors who are sincere about bringing back the health of the region by rebuilding it. But the speculators are only interested in real estate games.

Joseph Schilling, an urban planning expert from Virginia Tech said, “We do a pretty good job in this country of recycling cans and plastic bottles. But we do an awful job of recycling and reusing vacant properties.”

It is imperative for the national housing policy to be more aggressive towards disallowing outside speculation and encouraging local involvement. If this is not done supported by financial involvement the situation will continue not only to slide but to blow up again into a full crisis. It is a moot question as to why the administration is still tardy about making such moves.

Foreclosures are Not Just Figures and Charts but Something Personal and Real

Julie Parker — Fri, 13 Nov 2009 13:24:04 +0000

Foreclosures are not just cold impersonal figures and charts but something personal and real – the stuff that go to make novels.

One such couple in California in the past few months had lost everything – motorcar, boat, house, their cell phones and even their dogs. Their teenage sons were too traumatized to talk about it. Especially moving is the story of Juan Rodriguez.
Juan Rodriquez was brief and to the point in his sorrow – he said he wanted to die in the place where he was born. Juan with some others had set up camp in a wooded area near Sacramento. The number of residents of the camp had increased in tune with the spike in foreclosures. Now an agitation is taking shape to get space sanctioned by the city where they can survive without being harassed by the authorities. Oprah Winfrey’s television show has focused on their plight.

One could read the hard times of Sacramento looking at the thin stretched face of Juan limping along on a cane fighting terminal cancer without a proper roof above his head. In the dim camp people fought for sandwiches and bread while courts ruled foreclosures. There were beggars everywhere. Many think stealing is a better option than begging. Juan lives in his motor home. All his earnings go to sprucing it up so that he can somehow earn few dollars but then too the problem is who will pay him in this neighbourhood?
All around Juan are people who look more like rats than human. After dusk they slip into the woods. Juan sighed that people are afraid of death but here he and the others are afraid to live. The only thing positive about Juan’s life is that nobody is waiting for him – he has no family. His closest mate is Tiger a Chihuahua.

These people cannot be wished away. Camps without any facilities or cooperation from the authorities are mushrooming along the railway tracks or any open spaces. It is a matter of climbing down the ladder. The upper class and middle class have climbed down niches but those on the lowest rung are out in the open wandering and wandering. America is fast beginning to look like the second world if things are not tackled on a war footing. The housing shelters are full to capacity and funds are at an all time low making future prospects bleak for Juan and his tribe.

Pro-Foreclosure Bill Supporters Gather Before the State House in Bay State

Julie Parker — Wed, 04 Nov 2009 17:12:08 +0000

The housing advocates and homeowners battling foreclosure crowded before the State House recently to show their support for many bills that are aimed at slowing the pace of foreclosures and ensuring more equitable treatment towards the house owners and the tenants

There was a strong crowd at the hearing before the Joint Committee comprising of law makers, house owners, renters and community groups. There were also present lawyers dealing with real estate, owners of small properties and representatives from the lending industry.

Sen. Harriette Chandler (Democrat/Chandler) said “Under current state law, tenants can be evicted without just cause—leaving our most vulnerable residents on perilous ground.” Chandler was one of the main initiators of the bills trying to give protection to the tenants staying in foreclosed houses. They were being thrown out without any proper reason.

Gladys Vega of Chelsea who is community campaigner blaming the predators for this situation said, “You have to do something to help the tenants in foreclosed properties. I was proud that we were staying stable. Things were better for tenants. But it has gone downhill because tenants have to leave the properties.”

Proposals in the bills are being made for putting into operation foreclosure mediation by which the owners would have the right to talk directly with the lenders. Further there would be six months hold on foreclosures for the allowing of time to discuss and put into effect modification. Another proposal was the passing of an act that would necessitate the sanction of the court before proceeding with the foreclosure process.

Those speaking on behalf of the bill for judicial foreclosure quoted the recent ruling given by Justice Long in Massachusetts Land Court that had led to the invalidation of two foreclosures in Springfield. The judge had said that it was not clear at the time of filing the foreclosure who was the owner of the loan. This decision has the potential to put thousan

Despite Incentives Offered to Servicers Foreclosures Continue

Julie Parker — Wed, 04 Nov 2009 14:53:35 +0000

Despite incentives offered to servicers regarding modification, foreclosures that could have been avoided continue. According to recent reports the banks are not extending relief to the harassed borrowers.

According to National Consumer Law Center of NCLC, servicers of the mortgages comprising of many big banks, are opting for foreclosures because it is more profitable than going for loan modification. The latter however would benefit the investors and the house owners.

The report (Why Servicers Foreclose, When They Should Modify, and Other Puzzles of Servicer Behavior) exposes that unlike the investors and the house owners the servicers do not lose any money by opting for foreclosure. On the other hand they actually gain from doing so.

Diane E. Thompson an attorney o NCLC said, “The country is in the midst of a foreclosure crisis of unprecedented proportions. Millions of families have lost their homes and millions more are expected to lose their homes in the next few years. With home values plummeting and layoffs common, homeowners are crumbling under the weight of mortgages that were at best only marginally affordable when made. One common sense solution to the foreclosure crisis is to modify the loan terms in more instances. Foreclosures are a costly ordeal for the homeowner, the lender, and the community. Yet they continue to outstrip loan modifications because servicers have no incentive to help borrowers stay in their homes.”

The servicers are none other than important banks or financial firms that collect the mortgage payments and administer the loans. They played a vital role in the prevailing foreclosure mayhem since the original lenders resorted to selling the loans to various investors. The latter rely on the servicers to function with the day to day business of collecting dues and related matters.

The house owners who are trying to modify their unmanageable loans generally deal with these servicers. It is next to impossible to find out the last holder of the mortgage as the loans have been parceled and sliced before being sold to global investors. The servicers play hard to get because it goes against their financial interests to modify the loans.

These financial incentives tend to make the servicers overlook the interests of the house owner. For example the servicers do not want to reduce either the principal or the interest rate. For them repayment plans and forbearance settlements are more profitable. The net result of following such a line is disastrous for the house owners as well as the nation.

Foreclosure Victims Deserve to be Heard in Court

Julie Parker — Tue, 03 Nov 2009 17:34:08 +0000

There are no signs of the foreclosure problem fading. Across the country about 940,000 houses are in some stage of foreclosure during the third quarter of 2009. Either it is a default or auction notification or the house is taken over by the lender. In New York State the filings shot up by 11% in the third quarter compared to the previous quarter.

Inside this crisis there is another crisis about which few are aware of. Right across USA those with low income are in trouble because they cannot avail of legal help. This is leaving them to be exposed to be victimized once more.

If action is taken now, this can be avoided. A recent report from Brennan Center for Justice shows that in New York State as many as 84% of the defendants from Queens who had contracted sub-prime mortgages and are now facing foreclosure, are going ahead without legal help. In Staten Island and Nassau the proportion is 91% and 92% respectively.

The financial collapse did not take place because of lack of legal help for the needy but it has magnified it. Many foreclosures could have been avoided if the poor had been given legal assistance. In fact their ignorance was one of the main reasons why they were easily made to swallow the toxic loans initially.

The law of economics cannot be blamed for this problem. People are unaware about the restrictions placed on Legal Services Corp., by the federal government, during the middle of the 90’s. Availability of federal funds came to be restricted and a ban was placed on class action suit. Consequently the lawyers funded federally lacked the right to challenge rampant illegal operations except on a very tardy basis taking up each case one by one.

These limitations are telling on the counseling for the poor who are already hampered by lack of funds to meet the increasing demand for help. The inequality that this has created is galling. The lawyers representing the lenders are armed with a full arsenal of tools to chase the house owners while the latter have no other alternative but to brave it out alone. Even if the poor manage to put up a lawyer the latter’s hands are tied by federal restrictions.

The panacea is simple – allotment of more funds for legal help to start with to be followed by the Congress stepping in to remove legal restrictions.

Do the Servicers of Mortgage Give Preference to Foreclosures?

Julie Parker — Tue, 03 Nov 2009 12:24:31 +0000

When the foreclosure crisis made its debut experts in personal finance put pressure on the homeowners to open communications with their lender if they defaulted. The house owners were made to believe that the lenders would do their best to skirt foreclosure. But now the experts are not sure and singing a different tune.

The borrowers who have gone through a maze of formalities to try and modify their loans are not sure that this line of thinking was correct. Jason of San Diego was one of them. He bemoaned to ConsumerAffairs.com, “I have gone through the modification process but have been denied, although no clear explanation was provided. I have been seeking assistance and guidance from quite a few bank representatives and have only received rude, misguided information.”

In 2008 hundreds of complaints have been received by ConsumerAffairs.com. The general complaint was that those who had opted for loan modification and adhered to all the instructions found that their papers disappeared into a black hole. Maria of Sussex (New Jersey) said, “I faxed papers repeated times and was told that I need to fax more or that they never received them so they can start a modification. I made payments and they never credited my account. Now they calls in October 2009 and they tell me that they stopped the modification because I never faxed out the papers. Is this a joke?”

The story is a repeat everywhere irrespective of who the servicer is. Consumers start walking down the road hopeful of modification but they come up against a blank wall of inefficiency combined with total indifference erected at the end by the mortgage firm. Another sufferer is Regina of Whitefish Bay (Wisconsin). She said, “We sent all information requested by certified mail. As the others have described, we have had to make contact. They do not respond. The usual answer is ‘Whoever told you that is wrong.’ I actually have a tape of one of their agents stating ‘I can’t be responsible for what someone else told you.’ Should not they be required to respond in writing? Is this not a government funded program?”

In March 2009 the Treasury under the Obama government started a loan modification programme to give incentives to the servicers so that they modify the loans in trouble so as to prevent foreclosure. But the speed was so slow and frustrating that it has not had any noticeable impact. Foreclosures are continuing apace as before.

Some reports are suggesting that despite the incentives the servicers gain more from foreclosures than from modification. Servicers, unlike lenders do not have money at stake in the mortgage loans.

Goldman is an Oasis of Success in the Middle of the Foreclosure Desert

Julie Parker — Thu, 29 Oct 2009 16:12:10 +0000

Last Thursday, 16th October, Goldman announced that it would pay out $200 million to its charitable unit. The amount calculates to 6% of its profits during the third quarter or equivalent to its earnings for 6 days. Goldman now has the unusual task of explaining to the rest of the country sucked dry by the blowing sands of foreclosures, its success story.

Wall Street is agog with rumours that Goldman might dole out even more dollars to its charitable funds – perhaps nearly $1 billion while trying to appease the critical public. The chairman and chief executive of Goldman, Lloyd Blankfein has gone to the length of urging bankers to keep a low profile and not become conspicuous by ostentatious spending.

Goldman is also mulling over bringing changes to few of its compensation related operations. The executives get a large amount of their compensation in the form of stocks. But similar to the thinking being adopted by other banks it is now weighing the options of increasing the share of all the employees, allowing for deferred payments and including clauses that would allow the bank to snatch back some bonus if business goes awry. Blankfein sketched these plans while delivering a talk in Germany in September. Wall Street sat up to this speech.

The chief financial officer of Goldman, David A. Viniar however was on the defensive against such criticism. He said it was unfair considering that in another period this same country and its media would have hailed the firm with laurels for its outstanding success story. He argued, “We are very focused on what is going on in the world. We are focused on the economic climate. We are focused on what is going on with other people.” He reiterated that the company had fulfilled its duties towards the staff and to retain them the employees have to be kept happy. He felt Goldman was unfairly targeted on the bonus issued. He explained, “Yes, I think that is too big a focus.I would prefer people to be focused on the success of our business, how well we’re doing, and how well our people are performing.”

Doubts are being raised as whether the tarnished image of Goldman will clear up after this incident. Goldman however is toeing the usual Wall Street line of rewarding bankers and traders who have been able to mint money – there is nothing new in what it has done by giving out these huge bonuses.

Professor Michael Useem of University of Pennsylvania said, “They do it because they can. But strategic thinking requires that you think not only about trading but also about reputation and where the bank stands in the court of public opinion.”

Housing Counselors Waging War Against Foreclosures

Julie Parker — Wed, 28 Oct 2009 13:05:11 +0000

Most of the borrowers are at a loss how to tackle the impending problem but the housing counselors are there with unsheathed swords waging a war against foreclosures. They have first hand knowledge of the various federal government plans involving $75 billion. The plans are there but the borrowers need to be navigated and for this the counselors, certified by HUD, are there on a non-profit basis.

Faith Schwartz of Hope Now said of the counselors that they “are really on the front lines advocating for the buyers.” She added, “This world has changed. It used to be sub-prime borrowers, and now the problem is an economic problem with delinquencies in prime.”

Carol Robinson of HomeFree USA begins work from 8 a.m. and often continues to well after sunset. She either directly meets the concerned persons or contacts them over the phone and sometimes by e-mails. The harrowing tales of woe of the clients seem to haunt her. She browses through the obituaries and write ups to see if any body she had interacted with have made news or if anything untoward had happened to them.

Many fail to keep their house. Marcia Griffin of HomeFree said it is better for the clients to know the harsh truth. She said, “As a non-profit, we can give you options. Sometimes we have to sit with you and say, ‘there’s no way.’” She tries to keep the office environment as comfort giving as possible so that the stress can be somewhat alleviated. The chairs are soft blue coloured. There are fig trees standing on clay urns. A brick wall stands exposed while scented flickering candles exude scents. She had taken the help of a Feng Shui expert to bring about this effect.

Robinson explains to her clients that banks are not compelled to make modifications. Hence they have to explain to the lenders that by doing so they gain through modifying the loan instead of proceeding with foreclosures. Lately lenders have become more amenable to this line of thinking. The banks have increased their staff strength and trained them to become more familiar with the government programmes.

There are signs everywhere in Robinson’s office that their efforts are paying off. Cards have been stuck on to a black cabinet with messages reading “thank you very much for your help during our ordeal” or “your thoughtfulness knows no end.” Another card read, “Your thoughtfulness knows no end.” One client gifted her a blue angel made of paper

Foreclosures are Compelling Evictees to Seek Shelter

Julie Parker — Wed, 28 Oct 2009 12:06:04 +0000

Those who once proudly lived in their own homes with self-respect are now turning to seek refuge in cars, with friends, relations and in public shelters.

One of the victims is Sheri West. The first night she spent inside her sedan. It was parked in the driveway of her previous house piled with her goods. On the second night she camped with a friend. In this way it continued for over a year – no mean achievement for a great-grandmother. Somehow she survived on couches and front seat of her car clutching on to meagre possessions but not giving up her few potted plants.

This autumn all her options had been exhausted. Once upon a time she had been the owner of home that looked after the homeless. Now she has become one of them enlisting herself in one such shelter. She bemoaned, “I had a house for homeless people. Now, I’m homeless.”

The number of homeless Americans is increasing. More are ending up in shelters according to the findings of social service agencies and a report released by a group of housing advocates.

Three years ago foreclosures had not been an important factor in affecting homeless numbers. But the social services agencies note that of those they have helped in the last year, 10% have been foreclosure evictees. The report has been released by Foreclosure to Homelessness 2009. It is a survey conducted by National Coalition for the Homeless and half a dozen advocacy groups.

15% of new homeless folks came from the foreclosure category in the Midwest. It was indicative of high unemployment. Ohio unemployment rate touched 10.8% in last August. The prime cause has been wrong lending to those who did not have the ability to repay.

West now lives in a shelter meant for only women and children. It is being run by West Side Catholic Center in Cleveland. In 2007 foreclosures were not responsible for the arrival of any new seeker. This year already 4 foreclosure evictees have had to be accommodated. The same trend has been observed in shelters located at California, Michigan and Florida where a poisonous chemistry of foreclosure combining with unemployment has caused untold damage.

Most of the foreclosure evictees in shelters are renters in the low income bracket. Their landlords have been foreclosed upon leaving them suddenly stranded without notice and savings. Recently there has been a marked increase in previous landlords turning up at shelters.