With the passage of time since the bursting forth of the foreclosure crisis it seems evident that one of the prime reasons behind it has been lack of education among ordinary Americans. It made it easy for predatory lenders to prey on the gullible.
The story of the economic success of America has always been linked with education. The 19th century had witnessed America take the lead in universal primary education.
The other countries then began to emulate her. In the early part of the 20th century took place the “high school revolution” that took America to another high level. The post World War II saw America holding an unchallenged position in higher education.
All that has now become history. The rise of education in USA has been mainly the blooming of public education. But the last three decades has seen a change in attitudes. Politics has come to be ruled by the idea that any sort of spending by the government is a waste of taxpayer’s money. With education being one of the biggest sections of public expenditure it has invariably suffered because of this outlook.
Slowly, albeit surely, its effects began to be felt on the educational field – it was a steady erosion of America’s unchallenged position. The crisis is showing that now the worsening is picking up speed following the penny-wise-pound-foolish policies being adopted by Washington in the name of “fiscal responsibility.”
Recently suddenly there is flurry of focusing on the decline of American position in the top universities of the country. But the reporting has failed to note the related decline in ordinary mundane matters. America has been slowly relinquishing its lead as educators of the young to other progressing countries.
It is not easy to wipe out the image most people have of American being the haven for college learning – it being unique in so far as higher education is made available to the population in general. The image was at one time true and real. But compared to other countries fewer number of Americans will cross the graduation threshold. Statistics shows that the rate of college graduation has fallen slightly behind the rate of other advanced countries.
Sans the crisis the rate was falling. The crisis has further expedited the speed of fall. With slim pockets it is difficult for more and more Americans to send their children to college.
Despite various measures the foreclosure modification plans are not taking off and the delay is causing pain to the housing sector and the entire economy. It has led to hot debates. Many are of the opinion that is better to allow the foreclosures to happen immediately rather than postpone the inevitable.
Since the numbers run into millions everybody is feeling a bit shaky and thinking that the pain will be lessened if it is allowed to drag on for many years nursing a hope that by that time recovery will automatically happen.
It seems that the last course is being followed – come what may.
The process of foreclosing is taking much longer than previously for many reasons. Efforts are on to modify loans, there is a shortage of staff with the loan servicers and bankruptcy filings have shot up. Another reason is that lenders are not foreclosing because they are reasoning that the housing market will pick up in near future and their losses will be lessened. In those states where the judicial process is followed, foreclosures now run on for 19 months to 29 months.
In other states the time stretches from 11 months to 17 months. Ivy Zelman of Zelman & Associates said that while modification will be of help to some of the borrowers but in most of the cases it will tantamount to “kicking the can down the road.”
There are some who are not in a gloomy mood. One of them is Glenn Boyd of Barclays Capital. Analyzing the previous trend he brought down his estimated calculations about the number of foreclosures that would enter the market with economic improvement. He now thinks that the inventory of residential units held by the lenders will reach it peak in the second quarter of 2010 to touch 900,000.
Hitherto he had calculated the peak figure to be 1.15 million in the middle of the following year. However he thinks that prices of homes will drop by another 6% approximately before reaching the bottom in the first three months of 2010.
Henry Fishkind is an economist based in Orlando. He thinks that banks are holding back the inventory because it is to their interest not to flood the markets. Regulators are quiet on this matter helping them. It means the pain will be dragged on for years. This will cause less sudden disruption to the housing sector.
Psychiatrists are ruing the fact that enough focus has not been given to the impact of the home concept on the psyche. The foreclosure crisis is imposing itself on the dreams and nightmares of Americans.
Sussana Cohen is not hesitant to admit that she took the dreams to guide her to bid for her new home. She said, “I’m not shy about the fact that I let my dreams influence my behavior. The times in my life that I have discounted a dream because I felt, ‘Oh, that’s just a dream,’ it comes back to bite me. But that’s sort of my internal struggle: trying to figure out which of these dreams do I allow myself to believe in.”
While she was negotiating over a sale she had a dream about being pricked by a needle. The following day she heard from her agent that there was a second offer on the foreclosed house. Ultimately the deal did not materialize not because of her dreams but because of the players in the game, who purposefully delayed matters and she lost her chance.
Dreams have been given great importance in nearly all the ancient cultures. In modern times it has been shrugged off. But a recent study published this March noted that nowadays people are giving more importance to the information they get in dreams than before. The study has been conducted by Michael I Norton and Carey Morewedge of Harvard and Carnegie.
1,000 people of USA, India and South Korea were included in the survey. Some of them were engineering students from MIT. Most of the participants had faith that dreams held more significant information about this world than came to their minds while awake. In general the dreams had established their likes and dislikes, their beliefs and non-beliefs regarding the subjects they encountered in their dreams.
The survey was conducted against the background of a long time debate between dream psychologists and scientists about whether dreams were a sputtering of random impulses by the brain fed by worries and facts or whether they were evocative barometers measuring emotions together with indicative pointers to insights and intuition against the background of conflicts in real life.
Lately the stream of study connected with dreams is being given more recognition. More importance is being given to the interpretation of the dreamer than that of the analyst.
The regulators as well as the imprudent behaviour of the executives are equally to blame for the cascading bank failures happening today against the backdrop of the foreclosure crisis. This has led to FDIC
The ANB Bank of Arkansas suddenly started granting high risky loans to construction developers. It was a jump of 300% from 2004 to 2005 containing half of all the loans it sanctioned. Then things went awry and the bank was plunged into losses. Its delinquency numbers were double that of the national average. But instead of plugging the hole the banks top regulator, the Office of the Comptroller of the Currency (OCC) encouraged the activities of the bank management by rewarding it with the best safety rating!
Debra Jackson the CEO of ANB said “You can get into a comfort zone by looking at the rating from our primary regulator that says everything’s okay.” Jackson has been working with the bank from 1994 when the bank started until it collapsed in 2005. It was seized by FDIC in 2008 May. The Inspector General reported, “If OCC had more aggressively and sooner. ANB might have acted earlier or differently to address its problems.”
There are many other instances of the failure of regulators compelling FDIC to step in. In a minimum of six banks that have been checked by the Inspector General of the Treasury and in seven others looked over by the Inspector General of FDIC the regulators were either inefficient or intentionally appeared to be so as the management pulled down the banks in an orgy of destruction. The Inspector General of the Federal Reserve is conducting its own survey on a minimum of three entities that had collapsed under its regulation.
In two extreme cases the Treasury found “inappropriate” back logging of capital that led to “misleading financial reporting.” The Office of Thrift Supervision cooperated with the management to depict capital that was more than what they had in their books. Thus they were made to look more financially solid than what they really were, reported the Treasury. This permitted the banks to continue with their daily business even though the drop in capital levels would have reduced their rating and cut off their availability to some of the deposits.
Phillip Wellons of Harvard Law School and former director of a programme dealing with international finance said, “Why assume that such supervisory failures apply only to these banks?” We do not know what would be found if the regulatory curtain were lifted on all banks.”
The housing and financial crisis has led to a lot of rethinking. Adam Smith with his hands-off theory and Keynes with his hands-on theory are on either side of the court facing the foreclosure net.
Emma Rothschild, the noted historian has noted that Smith has used the phrase “invisible hand” only once in his classic treatise The Wealth of Nations. Recently Bantam has published another edition of the famous book with an introduction by economist Alan Krueger of Princeton. Currently Krueger is the top economist in the Treasury – the latter being the prime moving force in solving the foreclosure crisis. The principles of Keynes are now dominating Washington thoughts.
However Washington has not gone against Smith. In fact Smith is being used as a guide to steer the Obama administration to give a new look to the American economy. Smith is there – albeit lurking unnamed in some of the most scholarly thought provoking books penned during the early months of the Great Recession.
The guiding force in thinking is how the market-based infrastructure can benefit from the principles of Smith without suffering the downsides.
In the post World War II decades the followers of Keynes who had entered the line of thinking in Washington thought that they had found the perfect answer to the problem. They were confident that by mixing in right proportions a formula containing interest rates, regulation and spending the business circles would be tamed and unemployment controlled.
Commenting on this Paul Krugman (Nobel Laureate) commented in ‘The Return of Depression Economics and the Crisis of 2008’ - “This was hubris.” The technocrats over calculated how many jobs they would be able to create without provoking inflation; this is exactly what they did – aggravated inflation.
It was their failures together with the bigger bungling of socialist economies prepared the ground for the rise of laissez faire thought. Most of Asia shifted to a market based infrastructure showcasing grand improvements in the living conditions. Krugman wrote, “Capitalism could with considerable justification claim the credit.”
These successes produced their own extremes. The laissez faire principles were elevated to the status of a dogmatic religious scripture. The high priest was Alan Greenspan.
Robert Barbera an economist from Wall Street noted that Greenspan and some others failed to grasp the fact that market capitalism was undoubtedly the best but it was not the perfect flawless economic system.
Commercial foreclosures are skyrocketing and what is being seen is only the tip of the iceberg in the valley. In Maricopa County over 2,000 commercial properties received foreclosure notices since the beginning of this year. The loans are worth $6.3 billion. In contrast with the usual numbers this number is causing intense worry. In the past decade there have been practically no commercial foreclosures.
The problem has started with the decline in the real estate market and lack of refinancing alternatives. This has caused those who have taken loans on commercial properties to default. Due to lack of jobs industrial and ware house estates are fast slipping into foreclosures. During the second quarter of 2009 over 1 million sq ft of industrial and ware house space that had previously been occupied is now lying vacant.
Bret Isbel, a broker dealing with commercial real estate has been keeping count of the sales in the county. The issue of a sale notice can take many months. The notice numbers have been steady hovering from 300 to 400 since the beginning of this year. But the foreclosure process to be completed takes a lot of time.
In Arizona the lender has two options while dealing with a defaulting borrower. There is the foreclosure court process or the trustee sale method. The latter is faster and less costly but the lender has to forego certain legal rights. Isbel said that there are no signs of the foreclosures tapering off – rather it is picking up speed. He opined, “We’re at the tip of the iceberg, there’s no doubt. It’s just a question of how big it is underneath.”
The prime problem for those who develop commercial properties is that they have to be consistent in their loan payments whether they get proper rent or not. During these recession days it is proving to be difficult to find renters who pay high rent. Each day the demand for commercial space is dropping with business climate getting darker.
The federal government has come forward to help residential foreclosure victims by allowing for workouts with lenders. But no scheme has yet been started to help those facing commercial foreclosures; neither is there any talk going on about it in the near future.
Generally the lenders in the commercial sector are not modifying loans. Meanwhile the rental rates of commercial properties have fallen by as much as 75% in some of the regions. In June there were 50 commercial foreclosures in Maricopa County with the value of the property involved being $54 million.
With foreclosures gaining ground many companies are surfacing that promise help to foreclosure victims but these are mere empty assurances; the goods are not delivered.
Evelyn Perry has been one of the unfortunate victims. She was worried about her mortgage when an advertisement on the television caught her attention. Peoples First Financial of California promised help to its clients to prevent foreclosures by talking with the lenders. Accordingly Perry contacted the firm and got talked into giving them $3,000 as fees for getting the job done. For her at that point of time, it was a lot of money but she felt confident that they would be able to get her out of the mess. But they did nothing.
Unfortunately there are thousands and thousands of borrowers who are desperate. Thy have turned to these firms that work for profit – make promises that they never keep. The bulk of these firms are con companies who pocket fees and do not perform.
R. Scott Palmer the chief of the task force tackling mortgage fraud in Florida said, “It’s one of the most despicable crimes you can commit. It’s taking the last penny a consumer has and on top of that they lose their house and their credit.”
These con firms use clever strategy like making their names sound like government bodies. The mails have the appearance of being official documents coming from the lenders or the law. By the time the borrower finds out that something is wrong the illegal the matter has gone out of hand and no real deals can be worked out with the lenders or banks.
The problem has become endemic. It has now become one of the top priority jobs of the administration to focus on. In July the Federal Trade Commission started a law enforcement operation taking into its ambit 189 actions conducted by 25 federal as well as state agencies. Frank Dorman of FTC said, “People in every state are falling for these schemes.”
The office of Consumers Affairs of the Governor in Georgia is handling 11 such cases related to so-called rescue firms. Three are criminal and 8 civil cases are involved said Bill Cloud speaking on behalf of the agency. Cloud said, “Over the past year, it’s truly become a top, if not the top priority of our office, because of the severity of the problem.” Cloud declined to name the companies being investigated.
Foreclosures, unemployment and bankruptcies – the trio that indicates the economic stress show that it has a mixed effect in Washington.
In the autumn of 2008 when there was talk of job losses in the campus of Microsoft, Rod Learmonth thought it was only rumour. Even as the national economy began to dangerously splutter the company remained proud that since the past 34 years there had been no mass layoff thanks to its cash balances to cushion any foul weather. Learmonth as one of its full time managers felt safe and cocooned.
Early in 2009 the talk began to circulate again. It turned into reality when Learmonth got laid off as the recession tearing across the nation made its presence felt in Washington State.
From January 2009 the unemployment rate in about all the counties began to worsen at a sharp pace increasing to be at par with the average of the nation. Bankruptcies and foreclosures too started to make the rounds as per the findings of The Associated Press Economic Stress Map. The index is based on three types of data to measure the economic stress or health of a particular area. Taken into account are foreclosures, bankruptcies and unemployment numbers. Each county is then allotted a certain stress number.
The recession kicked off late in 2007. As it gathered speed the peak point of it reaching the states was November 2008. But Washington State remained immune till about early 2009. Perhaps this was because of the diverse economy of Seattle area. It hosted giants like Microsoft, Starbucks, Boeing and other giant prospering companies. But coffee sales were down as were airlines purchases and computers.
In the fading days of 2008 there were announcements that these companies were resorting to layoffs. It was the first blinking light of warning. Southwest and northeast Washington had already been infected but now the virus entered the core of the state.
The analysis by AP indicated that some of the counties had high number of bankruptcies even before the recession had debuted. It showed that the economic problem had deeper roots than thought of.
The jobless rate of Washington (9.1%) was the highest since 1984 according to a recent survey by Economic and Revenue Forecast Council. It noted that employment was anemic in construction, manufacturing (non-aerospace) and services. The worst affected counties were Clark, Cowlitz and Snohomish with high stress numbers.
Is it better to stay in a rented space or buy a home with slightly more money? This is a choice confronting Americans and many are opting for the latter. With foreclosures becoming a common feature of the American real estate scenario and home values plunging, many are opting to buy their own home rather than choosing to stay in a rented flat.
Take for instance, musician Aaron Carter. He was paying a rent of $615 for an apartment, when he came across a home in Phoenix that was double the space and the mortgage amount for this was $760. What was more interesting the mortgage was tax-deductible. Naturally the couple opted for the latter.
Twenty year oldCarter says that with home values plunging and the government offering tax incentives, it is definitely lucrative to buy a home than before. And Cartier is not alone. For many Americans this is the perfect time to buy a home than earlier. Home values have dipped and interest rates are at a never before low. According to an analysis by the Associated Press, the divide between the mortgage payment of a home and the rent has come down from $777 in a month to $221 in the last three years.
This can put an end to the turmoil in the housing market as renters picks up foreclosed decadent homes. In regions like Atlanta, Cleveland, St. Louis and Indianapolis the gap has come down to $100 in a month. Home rates are expected to spiral down even faster which means the gap will become narrower in no time.
In metros like Las Vegas, Phoenix, Florida and California, where home prices have gone down by 40 per cent, sales have picked up because first-time buyers are picking up the low –priced properties.
Foreclosed homes in some of these cities are attracting the attention of the buyers. Some are even drawing more than one bid. Buyers, it seems, have multiple options to choose from. Jere Ross an Air Force personnel has bought a four-bedroom apartment at $86,500 instead of staying in a rented space. The monthly mortgage that he is paying is $110 less than what he had paid as rent. Ross said that there was a time when he was throwing away all the money on rent. Now instead he owns an apartment with something less than that. That should come as good news for many of America’s harassed homeowners.
In its strident fight against foreclosures, ACORN continues to defend borrowers. One of the victims was Tosha Alberty. She returned from work to her home in West Oakland to find that it had been taken away by foreclosure. She had been living here since 2005. Many like her have been slapped by foreclosure because of having inked sub-prime mortgages. Alberty had struggled for two years with a heavy monthly amount of $2,800. But when that reset by another $1,000 it became impossible for her to continue.
Alberty’s lender was First Franklin Home Loan of San Jose. She contacted them for modification of the loan but a representative said that she did not qualify for the same because she was being able to remain current. She then stopped making payments but even then assistance was denied. Her house was then foreclosed upon.There are many other borrowers of First Franklin Home Loan complaining of similar high handed behaviour The Company had specialized in sub-prime mortgages.
A survey was conducted in 2008 by California Reinvestment Coalition (CRC) on assistance programmes being given to troubled borrowers. Specific questions were asked about which of the mortgage service companies were the most non-cooperative. The name of First Franklin Home Loan came up many times according to Kevin Stein of CRC.
Numerous complaints have been received by The Better Business Bureau against First Franklin during the previous two years. Federal court docket searching also revealed that First Franklin and its associated company Home Loan Services are the defendants in as many 40 legal suits that have been filed against them. The latest one was filed on 17th July in the federal district court of Fresno.
First Franklin is bound to help the struggling homeowners as it is listed as one of the ten loan servicers that had signed an agreement in the autumn of 2007 with Governor Arnold Schwarzeneger – California Subprime Loan Agreement. According to the terms those borrowers who were at risk of default if rates were increased, would get assistance; they could even be permitted to continue with the old rate if they remained current. But in reality many like Alberty were denied help. When contacted, First Franklin refused to make any comments.
Alberty took up the matter with ACORN and joined its group named Home Defenders. Its vice president Martha Daniel said, “We fight for people to stay families, and to stay in their homes.” ACORN has warded off foreclosures in many instances and has been holding aggressive rallies to press their points.
