The economic recession had its first victim in a county in South Florida. Economic emergency has been declared in this county. The county whose economy was flying high through the housing boom a decade earlier has now crashed, thanks to the foreclosure crisis. In fact, houses across America are being foreclosed in great numbers. As banks are repossessing the homes, property values have crashed.
The situation is indeed grim. Now the county — St. Lucie – has taken an initiative to jump-start the local economy. It plans to come up with construction projects worth $25 million to $ 30 million that will use local labor. The county commission hopes that this will breathe new life into the troubled economy. The commission also expressed the view that there was not much cause for concern. The country is in the grip of an economic recession and declaration of emergency in a particular county does send distress signals but that should in no way, spoil the optimism of the board members.
The board officials are trying to save unemployed workers by giving them jobs in the construction industry. It has been laid down that the contractors who take up construction jobs must employ 75 per cent local labor.
The National Association of Counties observed that no other county in the country has ever taken such a step. Many bio-tech companies have set up shop here, yet the rate of unemployment has remained low – 12.8 per cent. This is the third highest unemployment rate in 67 counties in Florida. The rate is also much above the statewide figure of 9.7 per cent and the national figure of 8.5 per cent. Besides the construction industry, there have been job losses in hospitality, finance, government and even healthcare sectors.
St. Lucie rode high on the construction boom, grew fast, and fell equally fast when the recession set in. From 2000 to 2007, value of property shot through the roof and the population of the largest city, Port St. Lucie nearly became double. It touched a figure of 151,000. But when the economy crashed, everything came crashing down. Above 10,000 houses were foreclosed in 2008. Alarmingly this is thrice the number of homes lost to foreclosures in three hurricanes.
St Lucie county commissioners acknowledged that it would not be easy to impose the restrictions on contractors. Commissioner Chris Dzadovsky said it is important to employ people if the economy is to be saved.
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In this global age, foreclosures in distant USA are pulling down a new iron curtain in Europe.
The eleventh century Hungarian town of Mosonmagyarovar is prospering. This castle town is a case study of the impact of the foreclosure crisis on eastern as well as central Europe.
The seeping in of greed in capitalism in the two decades after the fall of communism globally is now causing the pulling down of a new iron curtain in Europe. This curtain that is slowly but surely falling into place comprises of economics unlike the old one that was mainly political in texture. The national boundaries being demarcated are almost the same as those that divided Europe during the last half century – rich western zone and the poorer, democracies of the eastern part of the continent.
Mosonmagyarovar is typical of the new crisis surfacing in Europe. The town has about 30,000 residents. There are sharp business dealings in retail, real estate and the conventional occupation of dentistry. It seems that the financial crisis is raging in another planet. French models of Citroen cars continue to be proudly showed off in shops. The eateries are full as are the bars – peaking on weekday fun and frolic. What is unique is that this town is like an island oasis marching ahead towards unchained capitalism following the American model. This window dressed prosperity is causing neighbouring Slovaks and Austrians to flock to this town to make the best of the collapse of the Hungarian currency – the forint.
In the parking slots of the super market Tesco of Mosonmagyarovar, most of the car owners are Slovaks who have made this 25 km drive from their capital Bratislava. They are even rushing in from far away Slovakia.
A small village, Rajka, on the Hungarian side of the boundary with Slovakia can be seen ruins of security apparatus that had been installed to control the movement of people during the stern communist regime. The signs are in Slovak language and not Hungarian. Hungarians cannot afford new houses considering the state of their economy. Slovaks are much better off after they gave up their currency and joined the Euro group of 15 better-off European Union states. They are snapping up real estate.
Austrians too in rich furs are picking up bargains. Vienna is only 84 km distant. They always came to Mosonmagyarovar for dental care – it having the highest concentration of dentists in the world.
Foreclosures For Sale by Top States
The foreclosure crisis has weakened the dollar to such an extent that ahead of the G20 summit in London in April this year, China has suggested that it should be replaced and no longer be considered as the reserve currency of the world.
China has openly given the call for a new global financial system having a new currency. It will be akin to the Special Drawing Rights of IMF as its anchor. China also wants to take away the focus from UK – the country that is hosting the summit. The British Prime Minister wants to make use of this opportunity to launch a new system (Bretton Woods) that would take over the existing order, which is clearly crumbling.
There is no doubt that USA is far from happy with all this talk and maneuvers. So far its dollar was the undisputed reserve currency of the world. In reply to China’s suggestion about a new currency Obama said, “I don’t believe that there’s a need for a global currency. The reason the dollar is strong right now is because investors consider the United States the strongest economy in the world with the most stable political system in the world.”
The Treasury secretary Timothy Geithner and the chairperson of the Federal Reserve Ben Bernanke took the same stand. At a Congressional hearing upon being queried by the Republican Michele Bachmann (Minnesota) if they would “categorically renounce the United States moving away from the dollar and going to a global currency”, both replied in the affirmative.
It is clear that USA would try its best to stop the moving away of the dollar from being the international reserve. But how far it will stop the trend is a moot question. Already the world has started to ask awkward questions especially after Geithner admitted that the US government lacks the authority to take over those sick banks that pose continuous threats to the entire economy. Geithener also agreed that the entire financial system of USA is fragile and needs urgent overhauling.
This poses the question – if America cannot put its own house in order how can it give an assurance to the world and safeguard the stability of its dollar? When the financial system stumbles generally the currency collapses. Currently all the jumbo banks of USA are in troubled waters. There is the increasing threat of widespread insolvency. The Federal Reserve Board has kept them running on a life support system.
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There is a double problem – solving the financial crisis of today and to take preventive measures to avoid a similar situation tomorrow. Thus to avoid a rerun of the foreclosure crisis financial regulations are going to be tightened by the government.
The new Obama government outlined in details its comprehensive plans to thoroughly overhaul the financial regulatory infrastructure. From henceforth hedge funds and traders in out-of-the-ordinary financial instruments would come under strict supervision by the government. It is these freewheeling players of Wall Street that are mainly responsible for the financial crisis the nation is currently undergoing.
No other previous Treasury secretary like the present incumbent, Timothy F. Geithner has faced such a grim scenario and has been so much focused on. Geithner outlined the details of the plan to the Financial Services Committee. He got a noticeably mixed reception. He stressed that the changes were essential to fix a system that had become flawed in the course of time. Its shortcomings had become exposed by the present crisis.
In his introductory sentence Geithner gave the call for “comprehensive reform – not modest repairs at the margin, but new rules of the game.” He described the scenario as “very complex, very consequential, very difficult.” He highlighted the necessity of getting on with these changes as quickly as possible.
The plan included the setting up of one sole agency “with responsibility for systemic stability over the major institutions and critical payment and settlement systems and activities”. Talking on the matter Geithner opined, “Financial products and institutions should be regulated for the economic function they provide and the risks they present, not the legal form they take. We can’t allow institutions to cherry pick among competing regulators, and shift risk to where it faces the lowest standards and constraints.”
He did not specify the details of how all this would be enforced and made workable but said that this would be known within few weeks.
Barney Frank (Democrat – Massachusetts) the chairperson of the committee said that the government needs more alternatives than allow another firm like Lehman Brother to fail, or permit the injection of taxpayer’s money into companies that are thought to be too big to fail like AIG.
The Republicans reacted in a lukewarm manner. Its representative Spencer T. Bachus from Alabama who is a ranking minority member stated that a plan that allows the government to subsidize the cost of “resolving” collapsing institutions is “unacceptable”. However the hoped more hearings would be arranged for discussion of the matter.
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There is a heated ongoing debate about whether the bankruptcy factor in a bill will contain or further mire the foreclosure crisis. It has led to rifts within the Democrats.
Prentiss Cox a law professor of Minnesota University noted, “The bankruptcy plan would be the only solution to date that forces the lenders to do what needs to be done: Recognize the reality of the losses already incurred in the home — the loan collateral — and then unilaterally take the loss.” He also observed, “It will force lenders to make changes that they otherwise should have been doing, and give them an incentive to work with any homeowner on a modification under the Obama plan if at all possible.”
Bankers however are seeing it from a different angle. Joe Witt of Minnesota Bankers Association said that the plan newly introduced by the Obama government would give incentives to the lenders to modify their soured mortgages and hopes to go forward in solving the problem. But by allowing borrowers to a modified agreement through the court is not fair on lenders who have been trying to take correct steps. The bankruptcy judges could ask for deep slices in the principal amount due to the banks – much more than what should be prudent. This will leave the lenders with no other alternative but to pass along the cost to future borrowers.
Tom Kelly, a conservative and a senior fellow of Center of the American Experiment is one of the think tanks of Minneapolis. He opines that by interfering the recovery of the real estate market would be delayed. He calculated that ten years of the housing bubble caused the price of house to rise to 35% beyond the point where they should have rested in relation to income levels. Kelly said, “That needs to be resolved. Everything the government does to prop up prices prolongs the economic pain.”
The House of Representatives gave the green signal to the legislation on 5th March by a vote of 234/191. Kind was the only Democrat to cross party lines and vote against the bill.
After introduction the bill was greatly watered down. Borrowers trying to modify mortgages through bankruptcy courts would have to first try to contact their lenders or servicers for voluntary modification. This attempt would have to be supported by proof. The bill would apply to only the existing mortgages and not to any new loans being processed.
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In a recent report the National Consumer Law Center has focused on the point that anachronistic laws are actually aggravating the foreclosure crisis.
There has been a flood of writings about the causes behind the foreclosure disaster but not much notice has been given to the fact that there is another grave reason that has led to the multiplying of the foreclosure crisis – leading to loss of houses and all the savings. The outdated laws of various states have provided for little or no protection either to the hapless foreclosure victims or tenants living in foreclosed houses. The NCLC has citied many examples to showcase their argument.
The ‘Fast Track’ foreclosure procedure is prevalent in 30 states and Columbia district. The lenders can skirt the courts and act directly to take away the units and auction off the houses. This prevents the homeowners from seeking just protection – their situation often being worse than the tenants. Furthermore it burdens house owners with the onus of finding a judge to review the claims of the lender so as to halt the foreclosure.
In Columbia district and 33 states there is no necessity for the homeowner being personally handed over a foreclosure notice or related legal papers that kicks off the foreclosure case.
Except for the states of California and Connecticut, the lenders can jump directly into foreclosure without there being any stipulation laid down by the state for prior mediation talks.
In 29 states last minute payments are liable to be ignored. There is no rule that if the borrower comes forward with the required amount including all dues and penalty charges, just prior to the sale of the house the lender is bound to accept the same.
In all the states but Massachusetts, Pennsylvania and New Jersey the lender can immediately charge default fees if the mortgage holder feels that the borrower has been defaulting. This piling up of imaginative dues makes it impossible for the borrower to cut through the net.
Even after the house has been auctioned and sold off in 36 states and Columbia District the lenders are free to follow the course of ‘deficiency judgment’ against the borrower. By this step the lender tries to recover the gap between the loan amount and the amount taken from the sale of the house. In 15 states these claims can be followed up and the borrower hounded without any conditions. In other 21 states there is the façade of some conditions tagged to this relentless pursuit of borrowers who have lost everything.
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Initially the working class Americans were being blamed for the foreclosure crisis. Since then eyes have opened but even then many critics continue to blame the working class.
During the couple of years when frenetic lending dominated the scene the financial institutions coming under the regulatory control of CRA were responsible for less than 25% of the mortgage loans during that period.
The mortgage vista during those years was dominated by firms that couldn’t care less whether the borrowers were able to repay the loan or not. They pocketed a neat fee with every mortgage contract – that was all they were interested in. The greedy lot also knew that if and when the mortgages turned sour it were none of their concern. The Wall Street moneybags made bundles and packets of those mortgages and sold these complicated financial instruments to investors across the globe. These “Masters of the Universe” also were not bothered if the mortgages were paid back or not. They made ladles of money each time slices of these bundles were sold to investors in far off places like Iceland, Dubai, China etc. To top it all, their secretive computers whispered to them that the new derivatives or as the financial tools were named, were for all practical purposes free from any risk.
It cannot be denied that there were foolish buyers. Stories abound similar to the one about the teller in the bank with a yearly income of $23,000 who contracted a $216,000 mortgage without making any down payment or undergoing income verification. The teller did not even get a telephonic enquiry from the lender. Today the conscientious taxpayer is angry about bailing out the teller – and for good reasons.
However the approach that Obama is taking is not for the grossly irresponsible borrower. It only tries to reduce the payment of mortgage monthly dues for those borrowers who are qualified for this help. It will bring down the amount to something that is practical and viable.
In a chain reaction the fate of the Wall Street financial houses and the carmakers in Detroit is linked with that of the man in the streets. This had made it imperative to grant billions to them – a step that has already been taken, albeit without clear accountability. But the mistake is not going to be repeated. With luck the programme might sail through and plug the foreclosure leak to benefit all.
Bank Foreclosures by Top States
When it became clear the Hope Now had no hopes for the future many Democrats in the Congress began to clobber together ideas about government-brokered plans. They were fed with ideas from the banking industry. There were the Credit-Suisee-Plan and the Bank-of-America plan that would make way for the borrowers to refinance with the loans being guaranteed by the FHA. There were many powwows and gradually the anti-foreclosure clauses were slowly tipping in favour of the industry. The Republicans insisted on a language that was pro-banking industry before they would support the bill.
The provisions stated high up-front fees and a commitment that the government would be paid 50% of any future increase in the value of the property. All this put off borrowers. To make matters worse the bank’s participation was to be entirely voluntary sans any pressure for cooperation.
The Congress gave the green signal to Hope for Homeowners. It was part of a more comprehensive measure that imposed restrictions on Fannie Mae and Freddie Mac. The Mortgage Bankers Association celebrated the occasion with raised wine cups. It was hoped that that Hope for Homeowners would put off most of the borrowers. Preston the former secretary of HUD that oversees FHA admitted to this in so many words. He said, “We knew it was likely to have limited appeal.” George Miller of American Securitization Forum termed the programme as “useless” with its cumbersome details. Apparently the main objective was only to rein to Fannie Mae and Freddie Mac.
The dawn of 2009 brought in new hopes for better days. Citigroup came around with a begging bowl asking for a second round of help from the Treasury. It broke away from its rivals and decided to support the bankruptcy clause.
From 2007 Senator Dick Durbin had failed to award authority to bankruptcy judges the right to alter mortgage terms. He again began to press his point and was hopeful because the mood had changed – Citi was groveling, the public was loud in their outcry against the banks and there was a charged atmosphere of hope with Obama about to take charge.
But fate dictated otherwise. The banking lobby came down with full force getting Republican support and the ‘cramdown’ clause was eased out throwing cold water on the most vital point that would have gone a long way in solving the foreclosure crisis.
Bank Foreclosures by Top States
Despite rumblings to the contrary it is undeniable that Obama has started off well in dealing with the foreclosure crisis – this being of overwhelming primary importance to the new administration.
He has not wielded a magic stick and solved the crisis with a single silver bullet. It is nearly three weeks since he was crowned but meanwhile Wall Street has again stumbled. Obama is being accused of being a socialist by the rightists while the leftists complain that he is too conservative. Both say he lacks experience and is naïve.
The truth has to be sifted. The dust has settled on the dizzy glitz of the inauguration. The pendulum in Washington is now swinging to the opposite direction as realities are cropping up. There is a mood of disappointment.
But after taking all things into consideration it seems Obama has made a flying start. The options are there of his faltering but within the first two weeks he signed two important bills. One legalized equality of pay between the genders. The second stretched health care facilities to include four million children that had so far remained outside its coverage. Obama has also got the approval of the Congress for $800 billion package to stimulate the economy. In American history this is a record-breaking measure.
The process was far from graceful. The Republics were out to trip and test him. But more or less Obama got what he had targeted. Even the most fanatical Republicans realized they could not ignore the clear message sent out by the people on 4th November at their own risk.
Outwardly Obama’s measures show him up to be a pragmatist with his feet firmly on the ground. He has rejected extreme views and given priority to reason and common sense. Thus the left are angry for his failing to conduct a witch-hunt of the transgressors of the past regime. Obama has given more importance to the future than to the raking up of the past.
The way the bill was passed clearly showed that bipartisanism could never work. It was a crude awakening. Not a single Republican vote was got in the House. Only three Republicans gave the support in the Senate.
The incident of Tom Daschle was unfortunate for Obama and he admitted his mistake instead of covering up tracks. Moreover in no uncertain terms he warned of continued recession.
Washington Bank Foreclosures by Top Cities
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It is not just America but the global economy seems to be attacked by a growing cancer and no doctors knows of any remedy. One bad cell is leading to another segment falling ill. If a balm is applied to one side the gangrene surfaces in another.
The foreclosure crisis in America is making the leaders think on lines of protectionism. First the villain was sub-prime mortgage then it became securitized debts. This was followed by credit freeze and collapse of the stock market leading to global hiccups. The latest trend is that the crisis is spreading to touch the vital organ known as Free Trade. But the surfacing of protectionism if allowed to grow unchecked will kill the economy that we now know of. But it seems inevitable because each country wants to save itself first. The only solution is that the leaders should consult with each other so as to limit the damage as far as possible.
Since the bitter days of 1930, all the leaders have been warning against and wary of protectionism. But that did not deter them in reality from constructing trade barriers against each other that ultimately led to another World War.
Again there are murmurs of protectionism. The tide is rising and it is doubtful if the leaders will be able to stop it despite knowing of the pitfalls.
There are various kinds of protection that can be enforced. For instance in the G-20 summit India and Russia agreed to fight it but in November 2008 tariffs were raised on soybeans and cars respectively. This did not however lead to earth shaking results.
Another type of protectionism is about non-tariff barriers like anti-dumping duties. The latter is taking on serious proportions as the investigations regarding anti-dumping have lately increased rapidly in number.
In another show of protectionism the governments are propping up crumbling firms. Typical examples are of America and France subsidizing automobile and aviation industries respectively. Simultaneously they have taken on a step motherly attitude towards foreign companies because the subsidies are only for the national units. The USA government helped Ford and Chrysler but not Toyota or BMW. The latter also have jumbo problems and employ a large number of workers.
Another mantra that is being raised is “buy national”. The latest packages being endorsed to stimulate the falling economy of America encourages and makes it mandatory that steel, cement and other essential stuff be bought from domestic producers although the rate and quality of the foreign ones may be more competitive.
Bank Foreclosures by Top States
