Posts Tagged ‘mortgage’

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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The long arms of foreclosures have spread its tentacles to embrace Bears Stearns into the drama taking place. Foreclosures are reaching out globally – a plague of a curse.

In Brazil the stock markets crashed as fear spread about an international credit catastrophe akin to that which humbled Bears Stearns. Likewise in Europe and Asia fear left its mark on the bourses – all having its roots in the foreclosure drama played out in mighty America.

On 21st March 2008 the Federal Reserve’s dramatic measures reassured the investment community by bailing out Bear Stearns. The latter is one of Walls Street’s giant banks with a history going back 85 years.

The Federal Reserve granted JP Morgan Chase a credit of $30 billion to allow it to buy its one time rival, Bears Stearns. Due to problems arising from the foreclosure tsunami lashing the housing market, Bears Stearns was on the verge of collapse. It had incurred huge losses in the mortgage market. JP Morgan offered Bears Stearns peanuts - $2 per share amounting to $236 million. It raises eyebrows because on that Friday, shares were being sold for $30. The property itself, housing the headquarters of the bank is valued at $1 billion.

Bears Stearns had no alternative but to accept the offer. On Friday it faced major liquidity problems with investors willy-nilly withdrawing money. The bank ran short of cash. The only way it could keep running was to allow to be sold. But the deal cleans out the wealth of the shareholders and whether they will approve of it is a big question.

Against the foreclosure background customers are becoming shaky. The customers of Bears Stearns will automatically become that of JP Morgan Chase. Individually they will not have to bestir themselves.

Apart from having its own assets Bears Stearns works as’counterparty’. This means it acts as a middleman for transactions involving billions of dollars. It includes retirement funds of working people. Smaller banks as well as ‘hedge funds’ could trade in stocks and securities through Bears Stearns. The role of ‘hedge funds’ in the foreclosure crisis is not unknown to anyone studying the situation closely.

Another word making the rounds in this foreclosure crisis is ‘bankruptcy’. If Bears Stearns had been allowed to go bankrupt a long legal process would have been triggered off freezing money of thousands – from retirees to giant hedge fund holders.

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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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A foreclosure tsunami is raging over the country. The adjustable rate mortgages are spiking, jobs are vanishing, prices are rising and real estate is falling. All have combined to make it impossible for mortgage holders to continue with monthly payments. But they need not despair.
Housing experts and counselors have many suggestions up their sleeves. One can come to an understanding with the lender, credit counselors can be contacted, efforts can be made to sell the house, the bank can be given possession of the house or one can simply walk away without paying the mortgage dues. For a traumatized house owner facing foreclosure and eviction these suggestions are confusing – difficult to cut through the thicket of tips and advices. Some of the advice comes from unreliable dangerous sources. So the best is to keep cool and realize that this is not the end of the world.
The first thing is not to be an ostrich and bury problems below the sand but to face it. Letters and notices from the lender need to be opened promptly. Shutting down communication lines will only worsen matters. If lenders do not get any response from the borrowers then they are left with no alternative but to file foreclosures.
The lender is not the bogey as is usually made out to be. Given the present scenario they are far from keen to pursue the path of foreclosure. It is a time, money and energy consuming judicial process. While it is running the lender does not get any payments. At the end of it the lender is saddled with one of the countless units that are difficult to sell. Thus lenders are willing to negotiate – especially with those who have just started to lag behind in mortgage payments. The lender might lower the rate, extend the span of time of the loan or allow the borrower some time to catch up with the missed payments in installments. Mark Zandi of Moody’s Economy.com strongly urges that the borrower should contact the mortgage servicer without delay. Copies of all the correspondence should be carefully filed and kept.
Sometimes wonders do happen and lenders might be willing to negotiate even with those who are far behind in their payment schedules.
With mortgages mounting nothing can be predicted about what attitude the lenders will take. It is best to approach them with a positive plan and not just state that payments cannot be made.

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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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With the housing crisis being uppermost in the minds of vote seekers the presidential candidates views on foreclosures are of great importance.

In North Las Vegas, Democratic candidate Barrack Obama hit out at Republican John McCain for his link with the foreclosure related mess made by the Bush administration. McCain was derided for being “out of touch with the struggles of working people”. Obama in the middle of three-day campaign in the battle ground states of the west, focused on the travails of families in Las Vegas struggling with foreclosure threats. The limping economy arising out of the millions of foreclosure became the main theme of his address.

Obama knocked on the doors of a single-storey stucco house occupied by Felicitas Rosel who worked as a maid and her husband Francisco Cano who was a porter. Both worked in a casino. They had bought this house – the first time they owned a home – about three years ago with the help of a sub-prime adjustable rate mortgage. But with the rising interest rate they are now facing foreclosure. Obama, the senator from Illinois, showed grave concern saying that all across Las Vegas as well as Nevada foreclosures have become “a serious problem”. He opines that that had the banks been better regulated this situation would not have arisen.

Later Obama while talking to his supporters in a college in south Nevada reference was made to what McCain had said about not understanding economics as much as he should have. He also criticized McCain for by passing the foreclosure crisis. Obama also mocked McCain in regard to a private fund raising programme in which Bush was present. There were instructions that there were to be no cameras or reporters because McCain did not want be caught hand in hand with a President whose polices have failed. It would have tantamounted to saying that for another four years the same policies would continue if McCain won the presidential crown.

Tucker Bounds the spokesperson of McCain however contended that previously McCain had offered a solution to the foreclosure crisis and pointed to advertisements that highlight his determination “to fight foreclosures”. Bounds said that Obama was making a misinformed political attack on McCain. Obama does not have much of solution to offer except playing around with $50 billion of taxpayer’s money with no surety that will not fall into the hands of speculators and no-gooders.

Clinton also lashed out at the failed policy of the Republicans.

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Foreclosures in Florida continue to zoom higher and higher. The only good news is that Arizona has overtaken Florida in foreclosure numbers. Today the Sunshine State ranks 4th in the national foreclosure race according to RealtyTrac.

Florida had 35,264 foreclosure postings in April 2008. This was an increase of 16.6% from March 2008 and 146% from what it was a year ago in the same month of April. In the nation this number is the second highest trailing behind California. The foreclosure rate is 1:242.

Across the country, foreclosures increased by 4% from March of this year and 65% from April 2007. The properties affected numbered 243,000. This is the highest number since January 2005. It calculates to 2% of all the houses in USA being in foreclosure and these are crowding into the real estate markets causing more supply of houses than demand. The worst affected states are California, Florida, Nevada and Arizona. Property taxes are falling causing loss in revenue. Municipality budgets are at high risk. Things have reached an extreme point for Vallejo in California compelling it to file bankruptcy. It has the sixth highest foreclosure rate in the country.

Of the top 10 metropolitan regions Florida and California are responsible for 9 of the worst offenders. But there are variations. Tampa-St. Petersburg region is not amongst the top ten. The listed Florida metros are Cape Coral-Fort Myers (no.5), Port St. Lucie-Fort Pierce (no.9) and Fort Lauderdale (no.10). ReatlyTrac released these numbers.

Foreclosures.com has released a different set of numbers. According to it 44,825 houses were foreclosed in April. This was an increase of 2.4% from March and 22% from the January 2008. During the first four months of this year Florida noted 162,316 postings – it being the highest in the country. In Hillsborough County between March and April the foreclosure number remained flat but it was a hike of 46% from the start of this year. In Pinnellas County the increase is by 12% from March 2008 but has decreased by 8.1% from January 2008.

The blame is being put on the sub-prime floating rates when loans were easily doled out without asking questions about income. The valuations of houses were also falsely inflated to slice out bigger loan amounts. With money flowing in there was a housing boom and people snapped up properties not only for residential purposes but also for investment and speculation. This led to the bubble bursting – those states being worst affected where there had been the most building activity.

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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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