Posts Tagged ‘loans’

Bailouts will not solve foreclosure related crisis that has spun out of control, gobbling up property values, opines Center for Responsible Learning.

It feels that the government steps as announced by Paulson and the Fed does not go deep down into the root of the foreclosure-ridden problems. It is simply a bailout and nothing more. The lenders who are responsible for this terrible foreclosure fiasco are being pulled on to the lifeboat while the ship sinks. The bail out will not do anything to stop the foreclosure rot that has taken on epidemic proportions. Rather it will be instrumental in dragging down the economy further – after all the game is being played with taxpayer’s money.

An integrated and comprehensive plan should reach out towards the ordinary hardworking citizen. They are already feeling the brunt of the Wall Street misdemeanors. If this issue is not addressed then any plan will just be a carbon copy of another. Only this time more taxpayer’s money will be put at risk. The taxpayer is being forced to buy predatory and dangerous loans from lenders who behaved in the most reprehensible and irresponsible manner. Multi million dollars belonging to the people are being pushed in to prop up private financial bodies. Yet millions of families who have been pushed into the chasm of financial ruin will continue to cry and moan.

The steps should aim at stopping 6.5 million foreclosures scheduled to surface within the next few months and by checking the falling property values will something of substance be done. Only those measures that will directly prevent 46 million families from drowning will be considered worth the effort. Only then can the economy begin to push ahead. It is the people who are the economy. Bailing out financial bigwigs is not the same as helping the man in the street facing homelessness.

It is silly to believe that the government will be able to check the foreclosure menace by buying off troubled debts. Mortgages of dubitable value have been sold off as securities that are so highly complex that the mess cannot be untangled. The pieces of the jigsaw cannot be put back into place. It is beyond the capabilities of the government. These securities have been sold to countless investors dotted across the globe.

The regulators and lawmakers have to take up a positive role if they want to save the country.

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No matter what the pundits say the dramatic jump of foreclosures in June points to recession. Bush, Bernanke and Paulson know it but will not admit the truth. Foreclosure activity has reached record heights since the 1930’s Depression. The trio thinks that by ignoring facts and looking aside they can roll on till the November elections. The hard harsh fact is that America is in recession and the Bush government is trying its level best to cover the tracks. They refuse to go beyond admitting that the economy is slowing down. Periodically announcements are being made of the foreclosure cloud clearing allowing the economy to bounce back again. It all sounds like a cock and bull story.
There is no denying that millions are without jobs although Washington claims that the numbers are low. Billions of new dollars are being created to bail out the lender group including banks and brokers. Yet Washington says that money supply is at low ebb.
Washington’s statement about inflation seems to be blatantly erroneous. It says that inflation rate is 4.2% but one has to go to the market to find out first hand the reality of things. Each month the price of things are rising rapidly.
Adding insult to injury are foreclosure woes. The average family in the country owes $119,173 in loans (mortgages, credit cards, car loans etc.). The average saving rate is only 0.4%. There is no way these figures can be swept under the carpet.
The world is intently watching the plight of USA. Agence France-Presse from Europe reports, “A downward spiral for mortgage giants Fannie Mae and Freddie Mac was unabated” despite assurances from treasury secretary Henry Paulson. Fears centred around trillions of dollars in the housing system.
Bloomberg bluntly states foreclosure facts “The foreclosure problem is getting worse and will stay with us well into the next decade. Mark Zandi of Moody’s Economy commented that since the 1930 Depression foreclosure activity has never been as strong and intense as it is today. ReltyTrack predicts that before this year draws to an end there will be 1 million foreclosed houses taken over by the bank. It will amount to about one fourth or one third of all the houses for sale in the real estate market. Seizures by banks have tripled. The sharp drop in property value is forcing many people to succumb to foreclosures and lose the houses that are their homes.

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Most of the jumbo lenders have agreed to stipulate certain common guidelines to mitigate problems of foreclosure. The aim will be to highlight options and alternatives before proceeding with the same.

The plan however is voluntary without legal bindings. It was released by the Hope Now alliance – a federally baked group of lenders and mortgage servicers. The framework of action – the first of its kind – outlines what the lenders should do and what borrowers should expect regarding some key points of the foreclosure process. It takes into account the fact that many lenders do not have sufficient employees to handle the surge of complaints pouring in. Some lenders seem to be evasive about loan changes that would put a halt to foreclosures.

One of key headaches of foreclosures will be addressed. The frequent complaint is that the hot lines of lenders are always busy and little help is forthcoming from the employees. Either one has to hold on to the line for a long time otherwise the line is passed on to sometimes as five different extensions. Sarah Fouqart of Greenpath Debt Solutions who gets referrals from Hope Now has similar complaints. But with the new guidelines coming into force the lenders will either positively or negatively respond within 45 days of dispatching papers. Previously it took four to six weeks.

The line of approach will be individual specific. Some may be counseled to cut down on spending habits and go under the scan of an affordability-analysis that will survey all the pending debts. There is no one silver bullet for the myriad housing challenges. But by following set rules of action impact will be maximum and perceptible. This is the opinion of Robert K. Steel Treasury Department’s Under Secretary for domestic finance.

Other options are outlined – temporary halt of payments, reductions of interest rates for some time, as well as granting of federally backed loans to make up 12 months of delinquent installments.

Some were critical about difficult lenders being persuaded to follow guidelines. Attorney Mario Dosso is skeptical about new protection or rights about foreclosure victims. It is generally believed that no miracles will take place. Rather, while the talk goes on so too will foreclosures. This means mounting legal expenses and penalties.

Hope Now however is optimistic that these moves are signs about the sincerity of the mortgage industry to tackle positively the growing foreclosure crisis. Hope Now took off with the blessings of White House last year.

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The courtrooms in Bakersfield, California are jam-packed leaving standing space only. Auctioneer Sam Marshall says it is big business as the numbers roll in. Banks are desperate to reduce their inventory as they are weighed down with innumerable foreclosures. Foreclosure numbers are now breaking own records in the first quarter of the current year 2008, according Mortgage Bankers Association.

The house owners were initially hit by spiraling interest rates from sub-prim loans but now the menace is falling real estate prices that is making it impossible for either lenders or borrowers to sell the units and wiggle out of the foreclosure mess. For the borrowers there is no point in carrying on with a mortgage wherein the value of the house is less than the loan balance. So the latest tendency is to walk away leaving the keys with the lenders. Now these lenders are turning to auctions to relieve themselves of the load as vacant houses are creating problems and public as well as local government outrage.

The states that saw the highest number of new foreclosures are now seeing the greatest fall in the housing markets. Prices in Nevada, Florida and Arizona and California are down by 27%, 25% and 14% respectively.

The bust in the housing market is affecting many like Rick Boardman. When the housing sector was booming in 2000 Boardman took out his funds from stocks and put it into something real and solid like property. He was confident that this was good investment – something that would upbeat his lifestyle. He and his wife purchased 20 acres of invaluable property in Maryland, waterfront area. He constructed two units – he would sell one and with the profits build his own dream house to reside in. But with the sudden downturn in the market the dream has turned into the nightmare of not being able to pay for mortgage dues.

The real estate tumble down is now spreading its tentacles to the prime loan takers also. It is crossing economic frontiers to threaten fancy gated mansions and million dollar vacation houses. Foreclosures increased by an astronomical 90% from what it were the previous year. Foreclosures include all the stages of the judicial process from default notice to court auction and bank repossession. Some areas continue to be worse off than others. California foreclosure figures have jumped by 350% and it includes traditional loans as well and that too during the spring nest-building season.

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The increasing numbers of foreclosures, defaults and delinquencies have broken past records in the first quarter of 2008. The apprehension is that this trend will continue causing damage to the real estate market and the economy in general.

According to latest figures that proportion of loans that slipped into foreclosures increased by 0.99% through this quarter. It exceeded the previous record of 0.83 during the last quarter of 2007. The Mortgage Bankers Association noted that during this period more numbers of defaults and delinquencies have been recorded. The delinquency numbers jumped from 5.82% of the last quarter to 6.35% in the first quarter of the current year. The combined numbers of new foreclosures and late payments have beaten the last record of 1979.

Jay Brinkman of the Association analyzed that the fall in the real estate market has mired the situation and is today the biggest factor in the debacle. If the value of houses do not pick up then foreclosures are inevitable and will continue to rise in the forthcoming months.

Those who had weak credit history availed of the sub-prime loans. They are now the worst affected. Their loans are contributing to the increase in number. It was the sub-prime mortgages that initially triggered off the crisis. But the proportion of prime loans today has risen to 6.35%. In the last quarter it was 5.29%. Late payments jumped from 20.02% to 22.07%. The latter was the last record holding number. The Association has surveyed 45 million loans.

The trend that is being observed now is that foreclosures are now spreading its tentacles to those with prime conventional loans. The number of these loan going into foreclosure have increased from 0.41% in the last quarter of 2007 to 0.54% during the first quarter of the current year. Late payment numbers increase from 3.24% to 3.71%. In fact the compared to the ARM the number of prime borrowers going into foreclosure is higher. It jumped from 1.55% to 1.06%. The delinquency numbers jumped from 5.51% to 6.78%.

Brinkman stresses that the most important thing is to see that that real estate market returns to its level. The regions where new development had taken place are the worst hit. Problems are aggravated by unemployment, illness and divorce. Previously one could sell the house and get out of the net but today falling house prices is making that impossibility.

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In the first quarter of 2008, San Fernando Valley foreclosures skyrocketed to 201% in comparison to the previous year sending warning shivers that worse foreclosure days are ahead. Home prices took another pounding.

During the month of April there were 608 foreclosures as against 2002 in April of the previous year. There were 511 foreclosures in March. This is according to the Economic Research Centre of San Fernando Valley.

Foreclosures are galloping forward to break its own record of 1,854 made during the third quarter of 1996. That was the most recent time when the housing sector was in the doldrums according to Daniel Blake of California State University in Northridge. The signs point to the worsening record-breaking foreclosures.

With a surfeit in house numbers in the market the average price for a single-family unit fell to $505,000 marking 21% loss. However there is a small ray of hope – it is up by $5,000 from last month.

In April 2007 there were 663 default notices. But in this April of 2008 it shot up to 1,560 according to Andrew LaPage of DataQuick Information Systems. In April this year the sale figures were 964 units (new, old as well as condos). It is the lowest since DataQuick started tracking from 1988. From March this year there was a slight increase – the third running month. It was first month-to-month gain (March –April) from 2004. The findings from two other tracking sources show the same trend of increase in monthly sales gains. Perhaps the corner is being turned with more deals being picked up. Lenders having got their house in comparative order are not shutting out borrowers anymore.

As compared to Los Angeles, the valley fared comparatively better. In the county the sales fell by 31% from the previous year. There were 5,016 sale deals according to DataQuick. In all the six counties sales dropped by 19% with 15,615 deals. In the last 8 months this is the highest figure but the lowest ever recorded for April.

But there is a reluctance to be too optimistic. Statistics can be read in many ways. The year-over-year count is nothing to crow about. The financial markets are in turmoil with maxi and mini loans setting no parameters. It needs watching over several months before commenting. Perhaps the various preventive efforts are at last beginning to show results. Or perhaps it is just the River of Economics following its own predestined course.

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State Senator Frank Padavna (R- Bellerose) and City Councilperson James Gennaro (D-Fresh Meadows) have allowed political rivalry to delay foreclosure bills. Meanwhile foreclosures have the last laugh and march ahead. Gennaro is more concerned about unseating 18-term Padavan than anything else. He is stalling a bill that would put on hold foreclosures with shady backgrounds. The Assembly allowed its version of the bill to pass through on 7th May 2008 with a vote of 118/10. Gennaro blamed Padavan for the delay.

The moratorium on foreclosures will permit the court to delay ownership transfer in the case of a mortgage that had been contracted in an unorthodox manner. The delay can be as long as one year. Dismissing Gennaro’s comments as ‘sheer nonsense’ Padavan said that the bill is under consideration by the Governor who has his own suggestions. The Senate banking committee considered the pros and cons of the bill earlier this month. Padavan categorically stated, “We want to end up with something that becomes law, not just a lot of political posturing.” He was hopeful that the bill would be passed within few weeks.

Gennaro blasted out at his rival at a news conference he held with ACORN, the prominent housing advocacy organization. Gennaro’ term in the Council will end in 2009. Queens Village hosted the new conference in the house of 54-year-old Jocelyn Voltaire who had refinanced her house on 208th Street, twice. Her son had died for the country in the Iraq War in 2007. Now she is in financial trouble. She had taken loans to give her son the best education but now all that has gone up in smoke. Washington contacted her to say ‘sorry’ but that is not going to do any good to her. The bank does not want to talk to her. She has two other children aged 10 and 16 to care for. But the roof above their head is shaking.

Padavan, in his turn is accusing Gennaro of fiddling and using a serious issue for political mileage.

It is not just recently – in the past also the duo, Padavan and Gennaro have crossed swords. The recent instance was the naming of a school in Bellerose as Padavan. Another issue was over community notification regarding environmental review of school sites. While the bickering goes on, the interests of the people take the back seat.

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Foreclosures are the mere symptoms. The call of the hour is to dig for the root causes of foreclosures. Once that is found then the symptom can be uprooted – but not before. No solution will be effective if the remedial arrow is blindly thrown in the dark.

The usual run of thinking points to the sub-prime mortgages with floating interest. But despite the media rage about it, this is not the root cause. Some opine it is the change in real estate prices.

A Boston Globe article commenting on the increased number of foreclosures in Massachusetts said that this was due more to dropping house prices rather than the rising mortgage interest rates. The survey is based on the findings of the Federal Reserve Bank of Boston. Unaffordable loans do not directly cause foreclosures. During the economic slump of 2001 falling behind in mortgage payments was quite common but foreclosures were rare because the real estate continued to go up. Thus by selling the houses the people were able to escape foreclosure. Debts were repaid and there was enough left over to start life afresh without stains. The increase in house price acted also as an incentive for borrowers to try hard to become current in their mortgage payments. It was worth the while to keep the house. The house was a valuable asset and became even more so with each passing day. In the falling market the converse is true. Today the value of the house has gone down. So what is the point of struggling to keep it? Little wonder then that foreclosures are exploding. The report concluded that the rise and fall of housing prices play “a dominant role in generating foreclosures.”

The report points to the fact that the recent attempts by local and federal government to help the borrowers might prove to be ineffective.

Henry Paulson, the Treasury Secretary is attempting to freeze the monthly payments on mortgages by putting on hold the rise in interest. It does not show much in depth thinking because the primary cause of foreclosures is not addressed. It is declining equity that drives foreclosures and not the other way round. To take the bull by the horns it is time to find out what is causing this fall in real estate prices. It will need a lot of digging that will bring out many skeletons in the cupboards.

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