President Obama has come up with a new plan to help homeowners who do not qualify for the rescue plan announced earlier this year. This plan will enable an owner to sell his property whose value is less than what his mortgage is worth. He can also transfer the ownership to the person who has lent the money. Foreclosures for sale will not happen in such a case.
Experts, however, find the measure lacking in details and said these are additional steps to help the housing market recover from the terrible blow. They observe that the real estate market will not recover unless lenders reduce the principal on home loans.
Research suggests that nearly 75 per cent of residents who bought homes owe more than what their houses are worth. South Florida is one area which leads in foreclosures. The crash in house prices have pushed the residents so deep into the muck that they will not benefit from the rescue plan. This plan stimulates refinancing by urging lenders to increase the loan-to-value proportion of mortgages to 105 per cent from 80 per cent.
Homeowners are now a frustrated lot. They are depressed because their home values are so less when compared to what they bought them for. Lenders, however, say that if banks reduce the principal on mortgages it would be difficult for people to get loans in the future. The lenders will be at risk. Alex Sanchez, head of the Florida Bankers Association.says the new plan will encourage both borrowers and lenders to pursue short sales. Property can also be transferred easily to lenders and foreclosures will come down.
In case of foreclosures, the credit score of borrowers takes a hit and they are not able to avail of loans. On the other hand, property transfers are less damaging to borrowers. Treasury Secretary Timothy Geithner said a quick sale will not do much of a financial damage and also protect the owners’ financial future.
While the government tries hard to revive the housing industry, foreclosures have become quite common in the US. In fact, this is a major problem in South Florida. In this state, Broward County noted the state’s third highest rate. In Palm Beach, the number of foreclosures increased by 44 per cent in a year. Since Obama announced his rescue plan, lenders have made 55,000 offers to modify loans. But the number of distressed homeowners is still large.
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In days gone bye bank induced foreclosures were practically unknown in Marion County but today these have become common. In 2008 the clerk of the Circuit Court listed 5,000 foreclosed properties – it being a jump of 117% from 2007 and a whopping spike of 400% from 2005.
About a year and a half ago the foreclosure crisis had begun to make its presence felt in this region. This is the first time that foreclosure aid programmes will benefit Marion residents. HUD is advancing loans to counties across America to repair and sell foreclosed houses to those with moderate to low income. This operation has been named Neighborhood Stabilization Program.
Marion County will be getting $6.3 million sometime in late January said the director of Community Services of the county, Cheryl Amey.
The objective is to purchase the foreclosed vacant units with the sanctioned money and make the necessary repairs before selling them. The money from the sale would be taken by the Community Service Department so as to reinvest it again into the next round of similar programmes of buying, renovating and selling. According to Amey the sanction of $6.3 million will enable the purchase and repair of 43 houses during the first round of operations. If any money is left over it will be returned to HUD.
As per conditions, Marion County has to utilize the funds within 18 months. After that it can start reinvesting in purchasing new foreclosed units. This can be done till July 2013 when the county will have to return the loan to the federal government. Amey explained, “This is like a long-term loan, interest-free. And the faster we can recycle these funds, the more houses we can do.”
The county has had to give details to HUD about the zones on which it will initially concentrate with the money from Neighborhood Stabilization Program. The conditions are that the region must have a minimum of 25 foreclosed vacant houses per every three square miles. Also these regions have to show a high percentage of sub-prime loan takers indicating future likelihood of foreclosures. The area would also have to be suitable for the settlement of those with moderate to low income.
Amey elaborated that the assistance was for those families whose income was not more than 120%of the average income of the county. It approximately calculated to $48,800 for a family consisting of four members.
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Foreclosures have stripped the city of Las Vegas, as gambling as not worked well for many residents. This Sin City is not an ordinary city but each one living here as made a deal to thrive. But the bursting of the bubble has reversed the coin and finally the city itself is losing out on the gamble. Many have tales of woe and failure to tell.
Lavana Jackson has six children and seventeen grandchildren. She is overcome with disbelief as foreclosures stalk the town and moans loudly “We’re feeling it. Oh, we’re feeling it.” She is sitting in her shop surrounded by T-shirts, innumerable coffee mugs, baseball caps, snow globes, novelty license plates and you name it. But there are no buyers. For the last seven years this stuff has brought her dollars in the north end of Las Vegas at the Convention Center Souvenirs. The upbeat resorts of the filthy rich are more south but here the customers are more rough and the hotels less costly catering to those who settle for lower minimum bets at the blackjack tables.
Few years ago there was frenetic building activity coping with rising demand. A new sleek Wynn Las Vegas worth $2.7 billion was opened in 2005. It set the ball rolling. MGM Mirage planned the setting up $9.2 billion project in CityCenter – it being the largest private sector enterprise ever planned. Donald Trump constructed a condominium tower taller than the previous one. Wynn opened another hotel. Names began to blur – The Cosmopolitan, The Fontainebleau, and The Plaza – all being billion dollar projects.
In front of the Convention Center Souvenirs one unit stands vacant and forlorn – the Boyd Gaming’s Echelon with a promise of 5,000 rooms stretched across six hotels. The complex was to be located in lush surroundings with the last word in luxury. The estimate was a humble $4.8 billion.
The half-century-old Stardust Casino was extended each year until one fine morning the credit market froze. In August the project was stopped and about 800 workers exited from the city.
Jackson feels angry looking at seven construction cranes caked with ice, looming over the skeletal remains of a giant construction venture. It brings to halt all the shoppers that come on foot. As business slumps she has cut down on work hours. With each passing day as the foreclosure crisis worsens her hopes rust with the idle cranes.
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It has only been a month since Steve Preston joined as the secretary of HUD. In his first important address he announced the HUD foreclosure prevention programme in Detroit. He had chosen Detroit – it being the vortex of the foreclosure crisis.
According to the plan, HUD will participate in the purchasing of bad loans from the lenders. He was speaking on 9th July at Detroit Economic Club. The programme will kick off from Detroit. Preston said usually when all the FHA steps have been exhausted then the lenders initiate foreclosure proceedings. After that they submit their claim to FHA. But under this new plan, resources will be created for lenders to be able to sell their bad mortgages before starting foreclosures, to HUD and another partner. The latter will purchase the loans at a heavy discount and then start working on them.
It is hoped that by stopping foreclosures the real estate market will get back on its rails at a critical point of time when the economy is on the brink of collapse. Experts opine that this year will witness about 2.5 million foreclosure postings. This compares badly with 1.5 million of 2007. On an average estimate 650,000 house prices have fallen around 4% to 17% across USA. Simultaneously lenders have shied away from sanctioning new loans. Their numbers are at their lowest since 2001-2002.
There are 40,000 units in the market in Oakland, Wayne, Macomb, Washtenaw and Livingston counties. There is a stock of unsold houses for 17 months – well above the national median of 9.6 months. Usually a six-month supply is considered to be the norm.
Preston underlined the shattering effect foreclosures are having on families. In many areas foreclosures were relatively more intense. In Michigan the challenge came from failing economy. Preston clarified that “sub-prime lending is not in and of itself a bad thing.” It has helped many own houses, which otherwise they would not have been able to do so. It was the erroneous application of the loan that has led to this dangerous situation.
Outstanding in the market are $1.3 trillion sub-prime loans. It calculates to 12% of the loan market. But it accounts for 50% of the foreclosures. Of the outstanding loans sub-prime represents 6% but over 40% of the foreclosures. Over one out of four of these loans are delinquent – lagging behind by more than 90 days.
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About a fifth of the houses that have gone into foreclosure in the Bay Area were bought by investors. Israel Medina is one among many who thought that investing in properties in this region would bring in fast rich dividends. Today 11 of his properties in North California has slipped into foreclosure within the short span of a year. From a real estate tycoon today he has become Mr. Nobody.
Analysts say that random investing is one of the causes of California leading in foreclosure figures. There are no tears for the real estate gamblers who during the housing boom bought houses at the snap of their fingers as if they were peanuts. When the market betrayed them foreclosures clamped down upon them.
In Bay Area 6,557 properties were foreclosed. One fifth belonged to investors. In this region 18 investors had five or more foreclosures to their names. The source of their purchasing power was no-questions-asked easy money from sub-prime loans.
While the investors are shrugging it off as bad speculation the neighbourhood is paying with pain. But not all are callous business personnel. A working class couple in Livermore bought four units in the hope that profits would steer through their children’s education expenses. Another woman, Rose Hodges, residing in Marin put in $1 million in four estates relying on the words of a construction agent that these could be fixed up and sold at a profit. She lost her money, her credit credentials as well as her own home. Rose had not initially acted impulsively. She had attended educative courses in real estate investment before diving in. There are many like Rose who had inherited money from their parents and wanted to make good use of it.
Most of the houses foreclosed today had been bought yesterday with negligible down payment. Some totally relied on loans while about 12% contributed towards a down payment. Only 10% of the borrowers paid out of their pockets the standard 20%. In this Bay Area 80% of the houses now under foreclosure, had been bought with loans taken during 2005 and 2006. Those with multiple foreclosures account for 80% of the total, 56 persons have 3, 13 have 4 and 18 have 5 foreclosures to grapple with.
The get-rich-overnight speculators flooded Las Vegas and Miami but the Bay Area was relatively free because of steep real estate prices.
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The Hennepin County Board has funds for groups who are counseling tenants about their rights and safety measures. The Board has primarily two aims – save renters from being thrown out and to stop empty houses from becoming vandalized. Initially $70,000 has been sanctioned for three non-profit counseling groups. Funds will also come in from the State’s Family Housing Fund – an organization committed to see that people have roof above their heads. Earlier this year $300,00 had been invested by the county to battle foreclosures. County Commissioner hopes that this will be of some help to ward off the looming danger.
Foreclosures in the County had shot up by 82% from 2005 to 2006. It is apprehended to go up by another 84% this year – 2007. Within September 4,100 houses have been included in the foreclosure listings in Hennepin County.
A group in the county has been studying the nature of these foreclosures and concludes that at least 43% owners did not reside in the houses. In Minneapolis 60% of the units were not owner-occupied. Many had been taken up by tenants. These renters did not know that as per the law they could continue to stay in the house during six months granted for redemption. The latter follows a foreclosure sale.
Jill Alverson, manager of a taxpayers servicing agency says that the main point is that the houses do not remain empty. She is also the chairperson of the foreclosure task force. The most dangerous are empty neighbourhoods. There is nothing that gives a more secure feeling than seeing children playing, oldies walking and the young shoveling the snow from the sidewalks.
The funds from the county will be diverted to HOME Line that is the legal aid society of Minneapolis and to Centro Legal. These bodies help tenants living in the suburbs of Minneapolis and Hispanic tenants respectively.
Denise Asper-Smith is a foreclosure prevention counselor attached to Community Action partnership of Hennepin County. One of her daunting tasks is to get house owners facing foreclosures to know that this is not the end of the road – there are other avenues of escape. But the task is easier said than done. The people are so frightened that they do not want to open the mail. She wants to break the ice by experimenting with informational postcards to families in Brooklyn Park.
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There is a saying that troubles do not come alone – they come in numbers. If the foreclosure slap is not bad enough it is followed by foreclosure fees and then tax demands. The New York Times reports that as more and more house owners default on their loan repayment schedule it is being suspected in legal circles that the lending companies prodding foreclosures are actually taking advantage of the borrowers hapless condition by burdening them with questionable fees. A legal expert from the University of Iowa, Katherine Porter has been scrutinizing mortgages. She is of the opinion that more than half chapter 13 bankruptcy suits mentioned fees that should never have been charged. The point is that families undergoing foreclosure are in such a traumatized state that they cannot think clearly and have no resources left to fight back. If they had the ability to spar foreclosures in a long legal battle they would not have succumbed to it!
IRS has further worsened matters by imposing taxes on the loan amount that is forgiven in foreclosure. This amount is taken to be income. The policy is absolutely insane.
The forthcoming years are going to be gloomy. About 20% of the sub-prime loans taken in 2006 will in all probability slip into foreclosure. The least that can be done is to see that the victims are not further victimized by wolfish lenders and hypocritical Uncle Sam.
The sub-prime mortgage plans were launched with the ostensible purpose of helping those without the credentials of availing of prime loans to get one and have a house of their own. This is the great American dream. Unfortunately greedy lenders, irresponsible and unwary borrowers and an indifferent government allowed matters to drift to such a situation that the entire country is rocking and ripples are being felt on the international scene. Initially teaser rates and no down payments attracted many to take loans. Lenders vied with each other to dole out loans tempted by high commissions and investment possibilities. The mortgages were made into packets to distant investors. The reasoning was that property prices could never fall. But when millions failed to meet increased interest rates and foreclosures sprouted up like mushrooms the entire socio-economic fabric began to shake. The borrowers are going down but they are dragging down with them the lenders and the government.
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The foreclosure has taken the country by storm. The story began with the introduction of the sub-prime loan to accommodate those who, due to bad credit history, could not avail of the prime loans. In the latter one must make a down payment and show proper source of income in proportion to the loan being taken. In the sub-prime the initial terms were extremely lenient. This led to many taking it. A housing boom exploded. But when the honeymoon period of grace expired and the floating rates began to double the borrowers failed in monthly payments. The lenders then served them with foreclosure notices.
In USA, the foreclosure process is not uniform in all the states. For instance in Georgia the lender can take over the house within a month. Here it is not even necessary to go through the court corridors. All that is required is an advertisement in the newspaper announcing the date of the forthcoming sale.
But in the Sunshine State the lenders have to file a lawsuit if they want to evict borrowers. The foreclosure process does not start operating effectively until the borrower has missed out on five consecutive payments, says legal expert Kingcade of Kingcade & Garcia of Miami. Thus statistics may not expose the real picture of the foreclosure crisis in Florida. It ranks second in the national foreclosure race but experts opine that the actual situation is worse.
People who are not paying due to various reasons are being sued in court by the lenders. From the date of filing the lawsuit it takes anything from 60 to 90 days to evict the occupants. The good thing for house owners here is that since the process goes through the courtroom, they have a fighting chance to reverse the odds. Kingcade explains that foreclosure lawsuits are not exceptional – these are just like any other of the type. If house owners appoint a lawyer and put up a fight the chances are that even if the result is negative they will be able to stay on for sometime more than otherwise. The borrower cannot be evicted until the court dispenses with the suit.
To cite an example, Kingcade mentions a client of his who continued to live 22 months since the initiation of foreclosure proceedings against him. In money terms it means 2 months without paying mortgage dues!
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For Atlanta the weather is bad – foreclosure clouds are threatening. Last month it took a 49% jump over last years numbers during the same time period. This is the largest month-to-month swing ever noted. There are 6,809 houses in 13 counties with a total value of $1,076,975,783 waiting for foreclosure auctions. The worst affected is Fulton county with 1,731 units facing foreclosures. Fayette and Forsyth County too saw big jumps this month. These public auctions will held on the premises of courthouses on the first Tuesday each month.
Most of those facing foreclosures are lagging behind few months in their payments. Many avoid auctions by filing bankruptcy, refinancing or directly selling the property before the auctions. The foreclosure process differs from one state to another. In Georgia it does not take much time as a judge or any other public official is not required to sign the sales.
It is the ARM’s with floating interest that is fanning the flames of foreclosures across Atlanta. They make up about half of the foreclosure notices this year. Prime mortgages, more or less, are steering clear of any blame. About one fourth of every house buyer in metropolitan regions of Atlanta has opted for sub-prime loans to purchase the house. The interest rate of the sub-prime loan is very steep and floating in comparison to the conventional loans. The latter restricts itself to those with good credit history and those who can afford a down payment. According to the national trend sub-prime loans are 10 times more likely to end up with foreclosures than the prime ones.
In this month’s foreclosure listings there were many construction loans. This points to the fact that developments could not take place. The developers were trapped into foreclosures – they could neither continue with the work and without ongoing work how could they pay off mortgage dues?
Foreclosures are closing in on victims in a viscous circle out which escape seems impossible. With too many units going into foreclosures the mortgage companies are beginning to feel a credit crunch. Money is not coming in. So they cannot loan out further money to new buyers. Without buyers the property market is falling. In a falling real estate climate the foreclosure victims cannot refinance because the units hardly have any equity left. So the primary call of the hour is market stabilization.
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In just two days 291 foreclosed houses are going to be hammered down in Boston exposing the depth of the foreclosure malaise in Massachusetts. Real Estate Disposition Corporation has been hired by Wall Street investors to do the job. The company has presided over similar large sales in California, Chicago and Minneapolis as well as in other places. Another Boston firm is of the opinion that things have just begun – there are still more to roll in. Auctioneer Manning held a mass foreclosure auction of 26 houses located in Massachusetts. Their owners or developers who were facing difficulties due to a falling housing market were selling most of them. Promoters of large condo units held repeated auctions of properties they could not sell. National Development announced that they would push through 30 unsold units of Skyline Condominiums in auctions in Medford.
The foreclosures are concentrated in Worcester, Hampden, Middlesex and Essex counties. In Essex County the locations are in Lawrence and Lowell. Many houses in Springfield and Worcester city are also in the fray. These cities had been centers of the housing boom. Buyers had snapped up sub-prime mortgages at that point of time but with increasing rates they can no longer afford to pay. The result is foreclosure.
The sub-prime mortgages were launched with the laudable purpose of helping marginalized people like minorities, immigrants and those with bad credit. Unfortunately the plan backfired. The Federal Reserve Bank of Boston has concluded that sub-prime mortgages are responsible for this foreclosure fiasco.
In those areas where there are large concentrations of foreclosed units the housing market price has been on a steady decline. Here, foreclosure auctions are considered to be the fastest and best way to sell because buyers cannot sit on the fence and are given a cut off date within which time to compete the process. Bidding decides the price. By swiftly disposing units in an auction the lender is spared the cost and hassles of maintaining foreclosed properties numbering some thousands.
Wall Street holds most of the properties that have lined up for November foreclosure auctions. The Wall Street investors had bought these units from original lenders who were now foreclosing.
Bidders at these foreclosure auctions are required to register and come with cashier’s cheques of $5,000. It is also expected that they will make a 5% down payment if chosen to be the wining bidder.
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