The Federal Housing Finance Agency said it will sell off in auctions clusters of houses. Investors were invited to bid. To be eligible to apply there are some conditions – proof of financial capability, experience and willingness to keep “certain information” regarding the programme confidential.

Edward J. DeMarco of FHFA (acting director) said, “This is an important step toward increasing private investment in foreclosed properties to maximize value and stabilize communities”.

From the peak of the housing boom the prices of residential units by dropped by 33%. It has resulted in 11 million mortgage holders gasping underwater with the value of their loan due being more than the worth of their houses Recently the Federal Reserve Board referred to the condition of the real estate market as “distressed”.

The recent addition to the foreclosure prevention programmes is aimed that giving a fillip to the housing segment that has now entered its fourth year marking high foreclosures and weak sales.

The speaker of the house John Boehner came down the latest proposals of Obama as being another one of the same kind. He said, “How many times have we done this? I don’t know why anyone would think that this next idea is going to work”. He said that the previous efforts did not succeed but only delayed the cleaning up of the market.

The latest programme of Obama aimed at streamlining financing, if it gets the green signal from the Congress, would result in making the new mortgage contracts less costly; documentation and paper work would also be reduced. Tax returns and appraisals would not be necessary. The White House document on this noted, “A lender need only confirm that the borrower is employed”. The programme could be availed of by those who were current on their existing mortgages with allowances being made for only one delinquency lapse in the last 6 months. Those unemployed would also be eligible if they satisfy other credit conditions.

The plan would result in homeowners saving about $3,000 annually.

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Kamala Harris, the attorney general of Californiaand Eric Schneiderman, the attorney general of New Yorkhave been loudest in pressing for changes to the accord; they had not joined the accord of 6^th February. Over 40 states participated, said Tom Miller the attorney general ofIowa and the lead figure in the settlement talks.

Law professor Ken Scott ofStanfordUniversitysaid “Adding more numbers probably improves the political dimension of the settlement from the standpoint of the attorneys general. If you can say there were only a handful of diehards that didn’t sign on, that give you some political protection”.

Nearly 16 months previously all the states had teamed up to pursue investigations against foreclosure abuses of the mega banks. Since them officials at the state and federal level together with the Department of Justice negotiated conditions relating to the proposed settlement adding up to $25 billion.

Martha Coakley the attorney general of Massachusettsand Pam Bondi the attorney general of Florid till 7^th February had not joined in; Nevada and Delaware too had not come forth till 6^th February.

Bondi’s spokesperson Jenn Meale said that the attorney general “remains engaged in the settlement discussions in order to ensure that Floridians receive their fair share in any agreement and that bank mortgage servicers are held accountable”.

Tom Miller said that officials of the federal and state governments were continuing with discussions about the suggested deal and what the terms with the banks would be. He said, “This enables us to move forward into the very final stages of remaining work”. Miller did not say anything about which of the states had joined in and which states remained outside

Three mega banks, Bank of America, JP Morgan Chase and Wells Fargo involved in this settlement made eleventh hour demand that New York withdraw the claims it had filed against them on 3^rd February – it being part of the settlement. This move by the three of the banks raised problems in persuading Schneiderman to give his support to the deal. New York A.G. is suing the banks for their involvement with MERS.

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The legislators are thinking of many steps for helping the troubled house owners like her. Although they agree that the house owners are in trouble they are not united about remedial measures and this means tough going in the Legislature this current year.

Speaking to a committee of the state Senate Real said good hard working people like her husband and herself were exposed to this and wished there were laws running that would have “stopped this from happening”. Apart from her there were six other house owners describing their sad experiences while trying to modify loans and save their homes from foreclosure.

There are two bills likely to be put up for vote soon.

One of them, Senate Bill 1552, would mandate lenders to meet house owners face to face in the presence of a professional mediators before any foreclosure action could be taken. The ultimate goal was avoidance of foreclosure. The bill has been drafted along similar laws prevailing inWashington,NevadaandCalifornia.

Lawyer representing Northwest Credit Union Association said, “It’s the policy and the practice of lenders to work with borrowers as much as possible. No one –  the lender, the borrower – wants a foreclosure to happen. Everyone loses what that happens”.

Another bill – Senate Bill 1564, would make illegal the “dual track’ system wherein lenders foreclose while simultaneously continuing with modification. In some instances the house owners would get the right to claim damages by filing lawsuit under Unlawful Trade Practices Act.

The supporters of the bill think that if the bills became law the lenders would be compelled to cooperate with the borrowers to make terms of mortgage affordable and foreclosures would also slow down.

The opponents do not want introduction of more rules on the financial entities – specifically the smaller banks. It would ultimately lead to them being swallowed by the mega ones.

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To add insult to injury during his tour ofNevada, Mitt Romney said that the idea was not good to “try to sop the foreclosure process. Let it run its course and hit the bottom”.

Recently Rep. Ron Paul (Texas) came forward with a string of deductions and tax credits to those who were first nest builders and also for buyers who had experienced foreclosures. He thinks this would be an effective way to give a fillip to the housing market.

Newt Gingrich said if he won he would repeal the Wall Street Reform and Consumer Protection Act of Dodd-Frank. Gingrich was confident that “overnight it will be easier to get a housing loan”.

Recently President Obama has suggested a plan to help those with negative equity. It would enable them to become current on their mortgages that would lead to savings of $3,000 per year on an average. The plan would be financed with bank tax that the House, led by the Republicans has little interest in supporting. In a speech Obama admitted, “I’ll be honest, the programmes that we put forward haven’t worked at the scale that we hoped. Not as many people have taken advantage of it as we wanted”.

Experts think that the Republicans have hardly spoken on the housing crisis inNevadafor political expediency. Professor David Damore ofUniversityofNevadaatLas Vegassaid, “They’re not going to want to propose something that would involve more government intervention. But it’s kind of hard not to have the government involved in a situation likeNevada”.

Southern Nevada’s Legal Aid Center has been holding talks in a class room of the law school of the university to acquaint the troubled homeowners with the in and out of the mortgage issue. The Center claims that three fourths of those who have attended these talks have been able to continue to stay in their houses, at least for some time.

The latest problem is that those who had got their loans modified in 2009 were re-defaulting.

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The same economic picture is noticeable in bothFloridaandMichigan– devastation by unemployment and foreclosures. This will inevitably influence the thousands of voters for the forthcoming Republican primary.

The two Republicans at the front of the race, Mitt Romney and Newt Gingrich are focusing on the after effects of the recession as they canvass inFlorida.Floridahas a diverse population – it being the most populous. The same issues are dominatingMichigan.

Romney seems to way ahead but Gingrich will cling on till the convention. Last week Gingrich, formerly speaker of the House, got endorsement from Herman Cain – once a White House hopeful. Gingrich will be accompanied by the son of Ronald Regan, Michael Reagan, while campaigning.

Romney however has not stopped his attacks on Gingrich for his links with Freddie Mac, one of the chief architects of the foreclosure crisis. Romney said that his has been the reason for Gingrich’s “failure to connect” with the voters.

MichiganandFloridahave set up schedules for early primaries. The reason was partly because of the Republican Party wishing the economic issues to be addressed. Both the states have the same problems relating to Social Security, Medicare and revival of tourism.  Housing and the economy tops their lists.

Professor Susan MacManus (University of SouthFlorida) a graduate fromUniversityofMichigansaid that inFloridaforeclosures have been caused to some extent because of job outsourcing and exiting of migrants. The tax base has been eroded because of surfeit in empty houses.

InFlorida, Gingrich and Romney and also Rick Santorum and Ron Paul are slugging it out but none can avoid talking about unemployment and foreclosures. The prescriptions suggested are the same – reduced taxes, less involvement by government, and repeal of regulations like that of the Dodd Frank reform laws. They think these are cobbling mortgage industry and putting brakes on lending by the local banks.

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Foreclosures are causing a string of code-violations spreading from one building to another. The houses located within 250’ of a foreclosed unit see on an average an increase of 14% in code violations (Class C). The problems related to lead paint, hot-water and heating as codified by Housing Preservation and Development Department. Harold Shultz of HPDD said, “In single-family neighbourhoods, you see empty homes and swimming pools filled with algae, in a way that you don’t see them in multifamily neighbourhoods”.

The effect on apartment buildings can be gauged by the fewer repairs being undertaken by landlords and a relative increase in violations of housing code, pointed out Shultz.

InNew York Citythe problem although widespread, is concentrated inManhattan(north), Bronx (central and west) andBrooklyn(central).

Some years previously a minimum of 1,300 multi-family units in the city were either in or threatened by foreclosure, observed the council. Many are still navigating through the foreclosure maze.

The icon of troubled multi-family housing became ten apartment buildings inBronx. Milbank Real Estate was the owner. Code violations of these buildings shot up by thousands according to the tenants. The firm could not be contacted for comments.

During this period the neighbouring units also suffered with increases in physical and financial problems. Sixteen surrounding buildings were affected as per University Neighborhood Housing Program based in northwestBronxdealing with affordable housing.

Proving that one is linked with the other is difficult but there has been an increase in code violations surrounding a foreclosed unit. Most of these buildings are located in neighbourhoods inhabited by the low-income group. At the time of the recession, rents dropped drastically and landlords have pulled away from undertaking any investments. There are other factors at play –  stepped up inspections by housing department during this period.

Abby Jo Sigal of Citizens Housing & Planning Council andEnterprisesaid it is increase in vigilance that has led to noting of increase in code violation numbers Eric Bederman of Housing Preservation and Development Department ( spokesperson) that his department had increased its efforts for enforcement of regulations in the buildings carrying high risks. He said, “Buildings in severe physical distress, whether in foreclosure or not, can act as an undermining force in neighbourhoods that have historically struggled to maintain their housing stock”.

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What will they do with these vacant units?

Responding to the SOS from FHFA the Center for American Progress has suggested a forceful idea – make the lenders that are backed by the government to lease these out. The programme is named Rehab-to-Rent or R2R wants FHA as well as Freddie Mac and Fannie Mae to sell these houses to investors who will take on the task of repairing and then renting them out.

The three agencies own nearly half of all the houses in foreclosure in the market counting to about 230,000. The programme, if carried out properly, should have a big impact on the market. The idea however is nothing new.

From last December Bank of America had begun to circulate this plan of renting out foreclosed houses to the previous owner-cum-occupants giving them the option of buying these.

Both plans will help those localities that have been worst hit by the foreclosure crisis; the minority dominated areas with people in the low-income group have been worst affected.

The plans seem simple since right now there is a big demand for rented units. Former house owners are trying to downsize. The challenge is to convince Fannie Mae, Freddie Mac and FHA about the feasibility of the loan; without immediate short-term results they could hesitate to implement it and be tempted to sell off to investors who bid the highest.

CAP argues that the lenders should try to bring stability to the housing market and see that taxpayer’s are benefited by keeping off ‘For Sale’ signs from abandoned properties. If the market is again deluged with foreclosed units it would cause further tumbling of prices – especially in those areas that have already been battered. CAP opined that R2R programmes would be most required in the cities where the rental demand is strong; here there are a good number of foreclosed units.

Californian cities were prominent on the list. CAP commented, “It’s no surprise … to see three Californian cities listed on the ‘priority’ list.Californiahas one of the highest per-capita foreclosure rates in the nation and has been one of the largest drops in home prices”.

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Generally foreclosures are looked at from the supply and price angle. More foreclosures push down prices and create negative equity; dropping home prices cause more foreclosures to roll in. It is apparently a vicious cycle that is fed by shadow-supply. The story seems to have no end in sight.

In the market system of capitalism all the vicious cycles ultimately reach an end. Ironically today this cycle can be broken only by the hot response of the investors as well as the regular purchasers of distressed houses.

Of the total number of residential sales during the third quarter of last year one fifth came from the distressed category. In the second quarter of 2011 and third quarter of 2010 it was 22% and 30% respectively.

The drop in the market of foreclosed homes is party explained because of many hurdles set up preventing swift processing of foreclosures. But despite this “foreclosure sales continue to represent a historical high percentage of all sales” noted RealtyTrac. The shrinking share of foreclosure could also be attributed to fall in delinquencies in home mortgages. The drop has been fairly rapid inCaliforniaas per the findings of Mortgage Bankers Association.

InCaliforniaof the total sales 44% came from the foreclosed group during the third quarter of last year. The foreclosure process is one of the quickest inCaliforniaand thus temporary hurdles do not have much of an impact like it may be in a state likeFlorida.

The demand for foreclosed houses is strong and this is stabilizing the price of foreclosed units on an average. It had climbed by 1% from the second quarter and less by 3% from 2010 third quarter. The discounts offered inCalifornia, on an average were 34% but undue importance should not be given to the figure because it is related to the condition of the properties.

Nevertheless the drop in delinquencies in house mortgages and increase in demand for foreclosed houses may be taken as signs that the end is nearing – shadows and all.

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The face behind the image rebuilding operations is Anne Finucane. She handles problems relating to the reputation of the bank and not about legal decisions or banking. When she got the feel that the public were annoyed towards banking she approached the Brian Moyniahn (CEO) to erase fees from overdrafts during a certain period. Following introduction of regulation other banks trod the same path but not so strongly. Last autumn however Finucane and her bank stumbled by introducing plans for imposition of monthly fees of $5 on clients using debit card for buying. It battered the public image of the bank at a critical point of time and the bank hastily withdrew this plan.

Last December former president Bill Clinton raised the issue of the foreclosure crisis at a private meeting. He had words of praise for the efforts of BofA to make affordable terms of mortgage for some of the troubled house owners; he referred to the persisting foreclosure crisis as a choking chain round the neck of America. He said, “We’ve got to do something to clean these books up, and to do it in a hurry, in my opinion. I still think that’s the single most important thing we could do to loosen everyone up, go back to a free-market, full-employment economy and have the normal transactions occurring again”.

Finucane agreed totally with him. Although in early life she did not show any penchant for banking in 1995 she took up a post with Fleet Financial – its head in corporate matters as well as marketing. She soon realized how risky irresponsible lending could turn out to be. The risky and costly house loans that Fleet had pushed in the south, ultimately led to regulators ofGeorgiasuing Fleet charging it for predatory lending. To settle the suit Fleet had to pay over $100 million.

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Photo by Wiertz Sébastien

Review of foreclosure cases as ordered by the regulators in 2011 will take many months longer than previously estimated according to documents submitted with the banking regulators of the feds. These delays will also cause postponement of compensation for those house owners who have been harmed by wrong foreclosure operations.

The reviews are covering the foreclosure activities undertaken during 2009 and also 2010 by 14 of America’s biggest servicers; the latter deals with nearly 65% of all the mortgages of the country. As per orders given last April by federal regulators these entities were expected to review the cases covering the above mentioned time period.

The reviews were to be done by independent agencies. The deadline for them was to complete the work by this January. These reviewing agencies were engaged by the servicers themselves.

It now seems that review of the foreclosure cases of Bank of America cannot be completed until next November as per a note that the consultant of BofA submitted with the Office of the Comptroller of the Currency. Bank of America is the biggest mortgage servicer in the country. Its consultant is Promontory Financial Group.

The consulting agency of JPMorgan Chase is Deloitte & Touche. The latter also hinted that it may require more or less the same time as per the letter it has submitted. For other servicers it is the same picture – the time schedule for review has been extended.

Last April the details, the scope and complexities of the cases were not fully gauged said Bryan Hubbard, spokesperson of OCC. Hubbard reiterated that the important point is to see that the reviews are fair and absolutely thorough rather than speedy. He said, “We need to make sure this is done right”.

Some of the hired agencies may complete earlier than the others. Some may even complete ahead of the time limit they have chalked out in their letters while others could take up even more time, commented Hubbard.

The OCC added that the house owners should be compensated even before completion of the reviews. There are 4 million cases qualified for these reviews. The consultants will not comb through all but sample some to find out the errors pertaining to illegal foreclosures and charging of unjust exorbitant fees.

Those house owners who were subjected to foreclosure on their primary homes by any one of these 14 servicers during 2009 and 2010 would be qualified for reviews. OCC informed that any person asking for a review by 30th April would be considered.

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