Posts Tagged ‘Foreclosure Crisis’

The local and state governments will be gathering down for the budget session for the fiscal years 2008-09. But they are in a tizzy and huddling together over the newsbreak that foreclosures will soon seep into the smaller communities. This will worsen the situation with another 1.4 million houses being caught in the foreclosure net. Real estate prices are expected to fall further.

The worst affected are Florida and California – the two states that lapped in the luxury of escalating housing prices during the boom. The Associated Press reports that the Global Insight, an economic consulting firm, had compiled a study for the US Conference of Mayors that held a meeting in Detroit last week. The focus was on the foreclosure crisis and its related problems of crime and misery in the locality. The foreclosure net is spreading to include the general economy, according to some of the mayors. It is telling on the social fabric by breaking the backbone of society – the families.

Global Insight apprehends that property values will dip by $1.2 trillion in the coming year. California will account for half the figure. Here prices will go down by 16% whereas in the rest the drop will be by 7%.

The problem is from the drinking of a witch’s brew consisting of lending to high-risk borrowers in the sub-prime mortgage category. Now the poison is beginning to work and spreading like toxic fumes over all who made and took the drink and hapless bystanders also. With interests doubling, the borrowers just cannot manage. The inevitable result is foreclosure.

Politicians and lenders are in a scramble to help borrowers – in an attempt to save their own skins. ACORN – Association of Community Organizations for Reform Now is a consumer advocacy group operating across the county. It has recommended three suggestions to the mayors. Firstly to make the lenders agree to a 30 year fixed rate loan by modifying the existing loan so as to make the loan affordable to the borrowers. Secondly to finance counseling so that vulnerable families can be assisted and thirdly to call a moratorium on ongoing foreclosures.

Given the present scenario it is to everybody’s interest to halt the dreaded forward march of foreclosures. That includes the federal government, as overzealous lenders have been primarily responsible for this catastrophe. However the communities should be cautious about any tax-payer-subsidized plans.

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The statistics in Washington, Sacramento and the Inland Empire is grim with one out of 43 residences stained with foreclosure. Officials are scrambling with funds, legal steps and plans to help the house owners stay in their homes and snub predatory lending methods leading to foreclosures. But the clock is ticking.

Speaker Nunez is pressing for a special Legislative session to deal with the increasing foreclosure crisis. Democrats have joined in proposing remedial packages. Washington remained concerned with the national fall out. Paulson, the Treasury Secretary conferred with bank representatives and lenders to find out ways to keep interest rates at bay. He wants more positive action that shows quick results. At-risk borrowers need to be identified quickly.

Governor Schwarzenegger of California saw to the sanctioning of a $1.2 million education awareness programme to help both lenders and borrowers wiggle out of the stigma of foreclosures. The forthcoming four to six years will see thousands of California’s residents threatened by a scheduled jump in interest rates.

The government fears that if foreclosures are allowed to go unchecked there will be a further slump in the real estate market causing increasing loss – a vicious circle of no return. So the plan has to be such that people can stay in their own homes and yet the mortgage industry will continue to be active and healthy.

One idea is to encourage lenders to continue with the low ‘teaser’ rates for some more time. It will allow the market to get back on its rails and consequently the borrower will get a chance to refinance with the house price stabilizing. Then it will be a smooth entry from the floating into the fixed prime mortgage zone before defaults start off. Schwarzenegger had made similar suggestions after talking with four lending giants in California. California tops the offenders in the foreclosure crisis with a ratio of 1:88.

The stumbling blocks the new plans are coming up with is that the traumatized borrowers are reluctant to even talk to the lenders although the latter have sent out signals that they are willing to be amenable. In more than half the foreclosure cases the loan officials have failed to reach the borrowers. But soon it will be too late.

In Sacramento the Democrats have funded $10 million for counseling purposes. Bans will be imposed on bonus incentives for agents and also on penalty charges.

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Foreclosures have devastated house owners together with entire neighbourhoods. Now it is time for the tax department to feel the hard pinch. The treasury offices across the country are getting ready for the river of taxes to run dry.

Innumerable houses in Cleveland have been damaged by vandalism, fires and the weather to a point of no return. The lenders will now just walk away. Treasurer Rokakis of Cuyahoga County apprehends that the day is not far when the lenders will call on them saying that they just can’t fund demolition of the units and are going away. This trend will pick up in other places where foreclosures have teamed up with job losses to make the situation murkier.

The figures about vanishing taxes are already rolling in. Sun belt cities are top rankers in the foreclosure crisis. Here a conference of mayors forecast that there would be a reduction of $3 billion in property taxes in 2008. Cities had begun to count their dollars in advance relying on a continued growth. Now there is going to be a scramble to close the yawning gaps in revenue collection and expenditure.

The situation will not improve even if lenders manage to sell off some estates. The new owners will demand a revision of valuation of these damaged houses. Taxes will have to be lowered. Even the house owners not caught in the foreclosure net will demand re-assessment because of changed circumstances affecting the entire neighbourhood.
Rokakis claimed that already 14,000 requests for re-valuation have been noted in 2007. Next year the number is sure to rise to anything between 20,000 and 25,000.
The money coming from fees charged from property sale transactions is also going to slow down. The number of sale deeds has dropped by 40%. This has negatively impacted on state transfer fees as well as deed, mortgage and registration charges. All this will tell on the city governments. Anything touching the state trickles down to the local levels.

On the other hand cost of communal services continue to rise with the increase in demand for help. The small town of Shaker Heights in Ohio will spend $500,000 in the current year to maintain abandoned houses. Cleveland Heights will fund $75,000 only to keep gardens trimmed. Three years ago $6,000 had been sufficient. All the thanks for this topsy-turvy picture goes to the foreclosure crisis.

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Ted Strickland, the Governor of Ohio has strongly appealed to non-profit community organizations to sort out the muddle in the foreclosure crisis. His speech was the focus in the annual conference of Ohio’s Community Development Corporation held in Quaker Square at Crown Plaza Hotel at the end of the week. The organization has always been working at the grass roots level in the entire locality. It is their experience and knowledge that is best suited to chalk out a plan of action, said Strickland. Right now the community desperately needs help. These bodies committed to the development of the community are non-profit groups have their base in the locality. They reach out to the low and medium income group.

The conference started on Tuesday and included in its programme workshops on affordable housing projects, lending on payday, rapacious lending practices, prevention of foreclosure and also safety measures for the entire neighbourhood and locality. Strickland underlined the fact that the present crisis has never before happened and therefore SOS teams at all levels of the administration must immediately gear up for prompt and effective action. The exploits must filter down to each blade of grass that has been pressed under by the foreclosure steamroller. It must start from the federal level and then climb down to all the lower branches and points.

Earlier in September the Ohio Foreclosure Prevention Task Force made 27 suggestions meant for borrowers, lenders and consumer counseling groups. The call was given to government self-help teams and local bodies asking them for their intervention. The lenders and loan service providers were told to find out viable avenues of escape without harming anybody.

Governor Strickland’s administration has set up an office for urban development and its related infrastructure. The purpose is to directly link the state government with mayors, members of the city council and city planners. This would lead to more cohesive action. The office would be able to point out to the state government the specific gray areas relating to promoting jobs and improvement in the overall infrastructure. Strickland was very categorical and forthright in his speech saying the revitalizing is not just pushing on the old to chug along but is about creating an atmosphere where the people will want to stay and continue to live lighting the fires of their homes and hearts.

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Michigan ranked 6th in the country with 15,565 foreclosure in some stage of foreclosure or the other. It showed an 11% rise above July figures and a 126% high jump from the month of August in the previous year. The numbers tagged to Michigan are inclusive of 3,534 units that went into delinquency, 6,572 that received notices for trustee sale and 5,459 that had already been taken over by the bank.

In Wayne County the foreclosure versus household ratio is 1:87. It ranks 4th in the country. The highest is in Modesto, California with 1:79 during August. The five top rankers are Nevada, California, Florida, Georgia and Ohio.

What is causing grave anxiety is that these figures are just the tip of the iceberg. In the near future more foreclosure activity is expected when a sizable number of sub-prime mortgage loans will reset the interest rates.

The sub-prime debacle is a clear case of a dream that has turned into the reality of a nightmare. The scheme was launched to help those with weak credit to be able to avail of house loans and live under their own roof. But predatory lending on the part of lenders and greed on that of the borrowers made things go awry. After the honeymoon period of low monthly repayment plans when the rates began to adjust to higher figures the borrowers found it impossible to make ends meet. It most of the cases the rise was more than double. One by one the houses fell into foreclosure.
There are many factors behind the inability to pay increased rates. Firstly many had invested in housing units being sure that property prices could never fall.

Thus they expected a neat profit. But the opposite happened and there was not enough equity left to clear dues leave alone profits. Secondly initially the value of the houses had been inflated to expedite the process of a handsome loan. But with time the balloon burst and the real price showed up. Thirdly the income of the borrowers was not always correct and this led to the inevitable. Added to these was the usual cycle of death, disease and calamity of unemployment that might well overtake any family anytime. All these factors contributed to the landslide that is showing no signs of slowing down despite help from Washington.

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Stockton has the dubious distinction of ranking first in the foreclosure race with 8000 foreclosures this year. Stockton has a population of about 300,000. One in every 27 houses has slipped into foreclosure. The highest concentration is in Weston Ranch region of Stockton. The figures have been released ACORN, a non-profit organization. The inhabitants belong to the middle-income category for whom it was a bolt from the blue.
People dreaming about house ownership had been lured into the sub-prime mortgage by predatory lenders. The costs of the houses were inflated to expedite loan procedures. Many walked into the trap with the sure hope that real estate prices could never fall but would only rise.

The Weston Ranch streets are dotted with sale signboards standing on overgrown gardens. The victims have just disappeared leaving food on their tables. The remaining neighbours are infected with this gloom of auctions taking place all around. People are getting a double beating. Moving out of his own foreclosed house one person became tenant in another house. But soon the second place of shelter too was gobbled up by foreclosure.

Agents dealing in short sales and rentals are doing brisk business. This is a positive way out for harassed owners to save some credit and avoid the stigma of foreclosure. By an arrangement between the lender and the borrower the house is sold off at a price, which will bring in less the amount than what is owed. Rental business has gone up with people shying away from buying properties. Right now there are very few buyers. Properties are sleeping three times longer than it did last year. The average price has plummeted by 10%. Right now there are 350 houses waiting in the line to be sold. At the present pace it will take another five years for this to happen. The general prediction is that the weather will not clear till 2010.

A spokesperson of a Stockton non-profit organization opines that at the root of the matter is ignorance of the buyer about mortgage and other matters related to property. The borrowers must be educated about the law and the terms of the agreement to avoid pitfalls. Being forearmed is to be forewarned! The goal is to try to help the weaker section to have a roof of their own. But the thrust is on the point of affordability.

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Borrowers took loans to buy a house and make it into a homeBut unwittingly they got into a financial snarl which is compelling thousands and thousands to abandon their hearth and home. It is a foreclosure crisis of jumbo proportions.

The sub-prime loans were an outrage – an insult to those with weak credit. Today it is not confined to the point from which it started but is spreading like a virus to infect other kinds of mortgages. This is the opinion of a renowned mortgage banker’s association. Last June the foreclosure notices rose to 0.65% - 0.58% jump over the first quarter of this year. Three consecutive quarters have thus performed a hat trick!

One lawyer has come forward to help 30-year-old Mendez who is a victim of multiple sclerosis and is partially blind. In May 2006, when she first got into trouble many lenders came forward to help her financially. One of these brokers from South California asked her to sign certain papers and somehow persuaded a reluctant Mendez to do so. Few days later the original lender contacted her and Mendez decided to opt for the latter.

The South California person did not object and she took the money from the prime lender and went about repairing her small house. Few months later default notices began to come. It was a grand confusion with everyone assuring her that she was being taken care of. Too late she realized that two loans had been foisted on her! Now she did not know who to pay what. Nobody could be contacted. She is now lagging behind.

The person from South California could not be contacted. The other lender, New Century who is facing criminal charges for accounts error in securities has filed for bankruptcy in April. Mendez’s lawyer filed a suit in Marin Superior Court to halt the sale of her house. It claims damages from both the lenders for willful cheating and fraud. The Judge granted a restraining order stopping the sale of Mendez’s house. Unfortunately Mendez could not produce a bond to secure the bond. Therefore the order had to be vacated. The lawyer is now confused about the next step. The insurance agent of Mendez is trying to interest another lender to take over the mortgage and somebody else to provide the security bond. Mendez keeps on hoping and praying.

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Marengo based Linden Lumber business concern has been able to avoid the crisis of foreclosure by arranging for and repaying a debt of $5 million. This was stated by Federal Land Bank last Friday. The representative of the bank said that a new settlement has been arrived at regarding repayment of the $5 million dues. Linden Lumber, founded in 1955 is one of the largest companies in Marengo employing a large number of people. It operates one of the key industries. Of late the company has been financially stumbling. 150 employees were laid off and two prime sections closed down about three years ago.

Upon this negotiation depended the fate of 425 jobholders in an economically backward region. As per previous schedule foreclosure sale was to be held on Friday. The bank was reluctant to divulge the details of the confidential agreement. The company’s agents and spokespersons could not be contacted for their remarks and comments.

The agreement follows an approval issued by the Marengo County Commission on 24th August 2007 that allowed public funds to the tune of $5 million to $7 million to be used to save a sinking concern from drowning. The welfare and livelihood of many were tied to its fate and hence the concern and remedy. It is the first time that Marengo County has put into force its wide lending discretionary powers which Alabama Counties enjoy. This is as per an amendment made to the constitution of the state in 2006.

Woody Dining, the acting attorney of Marengo County said that it would take many weeks for the fund to be actually released; it might even be months. There were stipulations and strings attached regarding the meeting of certain requirements by the company. However the very fact that funds have been sanctioned meant that Linden Lumber had sufficient negotiating power to enforce a satisfactory agreement.

Although there had been unanimous voting in the meeting on 24th August in favour of bailing out Linden Lumber nevertheless the whole episode was not without criticism. There were many who disliked the idea of using public funds to help a private company. Most spoke in favour taking into account the broader perspectives but a vociferous minority opposed the move saying that the policy was bad and would set up a questionable precedent that would not bode well for the future.

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