The sun is covered with thick foreclosure clouds in the Sunshine State considering it is one of the top rankers in this dubious race. Florida registered the third highest number of lender repossessions (the lenders mostly being the banks). The state is the fourth as regards year-to-date foreclosures with the number rising to 36,393. It is an increase of 156% from the figure it showed during the same period in the previous year – 14,203. Florida is also leading the country in pre-foreclosure filings in November going up to 33,194. This is calculated to be 194% jump from what it was during November 2006 – 11,278.
In the field of year-to-date pre-foreclosure filings per capita the Sunshine State ranked as high as second. There were 34 listings per 1000 units – an increase of 141% from what it was during the same period in 2006. The state as a whole registered 214,694 pre-foreclosure listings – a rise of 140% from 89,335 that had been filed during the first eleven months of the previous year.
Across the country about 1.1 million houses entered into foreclosure this year – a rise of 93% from 559,750 listings in the previous year during the same time. Roughly banks repossessed 526,936 properties during the first 11 months of this year. This calculates to six out of every 1,000 houses in US. It is jump by 41% from 2006.
The online groups tracking data have been at their job meticulously. This is all the more important because the government does not have any machinery geared to do the comprehensive job. It requires to be noted that the figures may at times be confusing with one house being counted more than once. This is because the foreclosure is counted as one step but in reality this judicial process involves many stages. One house may have multiple mortgages against it.
The question arises why should the golden sunny state of Florida be harangued by foreclosures. It is a paradise on earth. The very fact that it was a paradise caused housing prices to be at a premium and this in turn attracted many speculators and investors. The easy money being practically thrown around by the sub-mortgage loans were availed of to invest in large-scale speculation. All were confident that real estate prices could never come down. But the irony of fate is that this is exactly what is happening.
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The telltale signs of foreclosure slaps are everywhere – lesser books in San Jose libraries, overgrown city parks, untrimmed tress on Santa Clara County commons and you name it. There is not money coming into the kitty of the local authorities. State budgets too are under pressure. With home values going down and lesser number of sales from where will the taxes come?
San Jose Budget Director, Larry Lisenbee just does not know what to do – from where to get funds for the action zone. This year there has been an 18% decline on sale of houses in the county and consequently a fall in transfer taxes and its related finances. Lisenbee’s calculations in supplemental tax revenues for the year is short by 5%. Supplemental property tax is imposed when a property exchanges hands to make up for the difference between assessment valuations from date of original purchase to present purchase.
The Budget Director for Santa Clara County, Leslie Crowell complains that she is facing a 9% decline for the next year fiscal budget that starts from 1st July 2008. The combined value of the property gone into foreclosure in Santa Clara County is enormous.
The second and third quarter of this year saw property worth about $506 million being foreclosed in California. During the same period in 2006 the property valuation of foreclosed units was $78 million – marking 549% rise.
While foreclosures are on the rise the number of houses being sold are slowing down. Only 181 houses have been sold this year from auctions held in courtrooms. The lenders, mainly the banks, repossessed the others.
On an average the bank’s opening price at the auctions was $91,000 less than what the previous foreclosed owner had paid to purchase it. But even with these huge discounts there were few takers of the offer.
The assessor of the county begins to reassess the value by the current yardstick once it is taken over by the banks or lenders. Invariably the value is less than the previous one and consequently the tax is also much lower than the previous figure. The tax that is thus collected is spent on various heads – 45% being allocated to schools, 18% to county government, 14% to cities, 10% to redevelopment groups, 7% to colleges and special districts are given 6%. Each slot is going to suffer.
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Lawsuits have been file against two firms who cheated house owners facing foreclosure notices by Attorney General of Minnesota, Lori Swanson. These firms – Foreclosure Assistance Solutions of Florida and two sister companies in Nevada – American Housing Authority and American Housing Financial are accused of unlawfully pocketing $1,200 to $1,400 in the name of posing as rescuers. But no assistance was provided. The companies took advantage of the traumatized condition of the borrowers.
In 2004 a state law had been enforced which prohibits foreclosure rescuers from charging any fee until the goods have been delivered – that is stopping or postponing of the foreclosure. The companies in question are facing similar charges in Ohio, Illinois and Texas.
The companies did not respond to a note left by The Associated Press for Foreclosure Assistance Solutions. The contentions of the victims are that they had to pay fees from the very start of the talks. After that nobody picks up the phone at the other end.
Donna Berge is one such sufferer. She got letters by post from American Housing Authority offering foreclosure assistance. The Berge couple had fallen in their payments because of sudden illness and had come up against a blank wall when they tried to contact the lender. Each call was taken by a different person who passed on the buck to another. At this point of despair any sort of help was welcome. Unfortunately after having paid the rescuer $1,395 she found dead silence from their side. Desperately she demanded a refund of the fees but the company evaded the issue by putting the blame on them for providing inaccurate information. The Berge story however came to a happy close. They could keep the house by drawing from the husband’s retirement fund. After she took up the cudgels against the scammers had to cough up the $1,395.
Unfortunately another victim, Steven Paquette of Andover has yet to get back $1,200 paid to Foreclosure Assistance Solutions. The company has not responded to repeated written reminders. Paquette was lucky to get the help of his parents to manage the mortgage. It was most unfortunate that he got cheated of the hard earned money he was earning to repay his parents.
Attorney General Swanson sent out a general message asking all those in foreclosures trouble to seek the help of her office. Alternatively they should contact those organizations that did not charge any fee.
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According to the Federal Reserve Bank of Boston the main reason behind the rise of foreclosure numbers is not the mortgage sector but the slumping of the real estate market. This view is in contradiction to the general opinion that unaffordable loans are at the root of the debacle. In support of this new angle the economic reverse gear of 2001 is cited, when sub-prime lending was common, people fell behind in payments and yet foreclosures did not dominate the scene. This was because the price of houses continued to rise. The houses were sold off and loans repaid. The research added that during that time borrowers struggling with payments somehow clung on in the hope that prices would rise further and they would be able to make some profit. Today the scene is different. With prices falling the borrowers have no incentive to try and make ends meet. Rather if the mercury dipped further then the price of the house would not cover even the loaned amount. Thus it is housing that is the deciding factor.
This report will take the wind out of the sails of all the efforts being made by local and federal officials. Henry Paulson is trying to make effective a deal to delay the hike in ARM’s. In Massachusetts schemes have started enabling borrowers to modify loans. The plans are not taking off with a zoom largely because many are unable to qualify for the minimum conditions.
These steps do not interest those who are concerned with the falling real estate market. There is this opinion gaining ground that it is this factor that will tell on the number of foreclosures. Boston Fed president Rosengran placed this view during a speech. However he endorsed the efforts of the government to help the foreclosure victims.
Sub-prime borrowers are six times more likely to slip into foreclosure than the traditional. With interests ready to reset for higher notches foreclosures will sharply increase. If the house price is steady then the borrowers can move into another category of loan smoothly. The Federal report found that New England residents are suitable candidates for loan modification because they have good credit and their houses are worth more than the loaned amount.
Of late the number of sub-prime lenders have diminished. 8 out of 10 companies issuing such loans have stopped doing so.
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With falling real estate prices it becomes difficult to sell off the property and pay off dues because the value of the house is now less than the loaned amount. Even in such a tight corner the borrower has certain options.
The borrower can continue with monthly payments and wait for the cloud to clear. With time the price of property is sure to rise again – may be after five years or fifteen years.
The situation is not so straight for those who cannot afford the present mortgage. On top of it the rates of interest are rising – almost doubling. Refinancing is the answer but with the slump in property market it may prove to be impossible.
So when one can neither continue to make monthly payments or refinance another option is to go for a short sale. This is known as deed in lieu. The borrower gives the deed of the house to the lender and thereby the foreclosure chapter closes. There is the possibility that the lender might continue to chase the borrower in court claiming financial loss. It means that the lender is within rights to say that only part of the loan has been repaid by handing over the deed but the main issue of pending due remain. Usually the matter is negotiated before the actual handing over the deed – a gentleman’s agreement in which the lender is glad to get back a good part of the amount by way of the property. Pressing foreclosure requires time, energy and money on the part of the lender. With so many hanging around and weighing down the lender this seems to be the best way out for the lender also. It is needless to say that lenders are far from happy with agreeing to deed in lieu of foreclosure. The lender is not a landlord. He wants the money and not bricks and mortar. A house means hassles. It has to be repaired, maintained, tax dues met and then marketed. To lenders houses pose problems.
Short sale is another option open to the borrower. The lender allows the borrower to sell the house and then accepts the proceeds as total clearance of the loan. The lender is spared the marketing and the lender comes clear without the stigma of foreclosure. However before stepping in to do anything an agreement with the lender is vital to avoid future complications.
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Although initially in Massachusetts, foreclosure deed numbers declined and the auction figures did not increase, the petitions have risen. A deed is a document that proves ownership and is used to transfer the property. A petition is a formal request made to a court or public agency asking them to do something. The filing of a petition is the first step in the foreclosure process. This indicates that foreclosures continue to be a festering sore in the local economy. Warren Group from Boston and publisher of Banker & Tradesman is also provider of real estate details of New England. The overview is from their report covering the months of September and August this year.
The final step in the foreclosure process is deeds. It increased by 143.8%. Last year the number was 276. This year it is 673. In August it made a bigger jump to 1,018. Foreclosure announcements increased by 57.3%. In September 2006 it was 599 but this year it rose to 1,214. Beyond August petition data is not as yet available.
The Warren Group has been collecting statistics from 2005. The month of August this year saw the highest number with 3,115 petitions. It was rise of 75.5% from August 2006 and 25.3% from July 2007. However the point of interest is that foreclosure deeds are slowing down most probably because lenders are not too keen to allow the hammer to fall. Perhaps they are listening to Governor Deval Patrick’s plea about going slow. Whatever the cause the results give cause for hope.
The foreclosure crisis with its jumbo numbers has affected all and it is to the interests of lenders to go slowly. The sub-prime loans were doled out like peanuts to all and sundry goaded by commissions and investment possibilities. Nobody bargained that so many houses would crumble like ninepins. This led to plugging of incoming income from monthly mortgage payments. There developed a cash crunch. The lenders found them stuck with worthless property as value began to fall. Criminal activity ripped the houses of whatever equity was left. With thousands becoming homeless the authorities became alarmed. Tax coffers began to sound empty and the police was not equipped to tackle problems of deserted neighbourhoods. The law too is finding loopholes to catch the lenders. Taking all this into consideration it is too the interest of the lenders to play cool.
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More than 850 houses in Santa Barbara and San Luis Obispo Counties are sitting on the pre-foreclosure stage. 260 houses are bracketed for auction sales. There are 760 houses, which are on REO, or bank owned sales list. The potential buyers came on a tourist bus to see some of the bank-owned units after taking advice from experts. Many feel this is the opportune time to invest in a house on the Central Coast region.
On Saturday, Dick Keenan, a real estate agent took around 30 would-be buyers on a conducted tour of foreclosed houses. In the case of bank-owned properties there is no question of hurting sentiments and playing with emotion. The talk is strictly confined to dollars and cents. The foreclosure is a legal process that includes many steps. In the first stage the borrower defaults on making consecutive payments and becomes delinquent. The lender or the trustee then issues a foreclosure notice. A date is set for auction within which time the borrower is given time to clear the dues or come to some sort of an understanding with the lender. If the unit is sold off at the auction then the lender gets back the loaned amount and taxes together with other dues are cleared. If unsold the property then reverts to the bank and becomes REO. The buyer of an REO is not burdened with any dues and moreover gets a chance to inspect these vacant units. One has not come across such a buying opportunity since the last decade. Then the housing climate was hot but now it is cold and half dead. Houses are just not moving as before says Brian Henninger of Paso Robles who signed up for these tours to see for himself the offers.
Keenan says the banks are making extremely low offers. They cannot afford to sit on idle properties. It makes one cautious and speculate that perhaps the market is going to further slide. It is a buyer’s market while sellers are crying themselves hoarse for someone to take their wares.
Foreclosures are continuing unabated. California reported one house foreclosure for every 88 houses. Nationwide the activity in foreclosures doubled from what it was in the previous year. Mortgage companies are getting ready for more reports of default as the interest rate on sub-prime mortgages gets ready for another spurt of rising.
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The waves are falling inland but hitting the Seacoast regions. There has been a 100% increase nationally during the third quarter of this year in comparison to what it was in 2006. The rich zones are able to hold the real estate price line. This enables borrowers to refinance or find other escape routes from the mess. The main pillar of strength is the equity of the house. This means the value of the house is more than the loaned amount. There is as yet no accurate counting of numbers.
But in the Seacoast area the foreclosure waves are rising and advancing. Therefore how long will the interior remain unaffected? Already the writing is on the wall. The number of foreclosure listings in Rockingham County in September is 33 as compared to 19 during the same month last year.
In New Hampshire from January to September this year the trend is at par with the national figures. This year it is 1,381 compared to 653 in the previous year.
The sub-prime market is held responsible for this catastrophe. With another 2 million sub-prime mortgages about to reset foreclosure seems inevitable in the near future. Throughout 2008 this tendency of rising waves will continue.
Banks have become alarmed at the sheer number of foreclosures. They are tightening lending rules but that is meaningless to those who are already in the fire. For those who are planning to buy their first house with a loan the going is rough because loans will be hard to get. It was far easier to get an advance last year. Although prices of real estate have considerably fallen sales are not picking up because without loans from where will the buyers get money? It has become a vicious circle.
Across the country 446,726 houses were involved in some sort of foreclosure activity or the other during the last quarter of this year. It means a rise of 100.1% from 2006. The current ratio nationally is 1:196. During this same time 223,233 properties were in the fray.
None has escaped the dragnet of foreclosure woes. The write offs and losses of lending institutions have run into billions with more to come yet. To add insult to injury the dollar is at a record all time low giving an unequivocal warning that there are moreimportant issues other than Iraq.
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The Lake County Foreclosure Prevention Task Force comprising of county officials, bankers and advocates is geared up to address the foreclosure issue. The first meeting was held in Painesville. The target is to work out a plan of action with future goals to help foreclosure victims. This task force will also link the efforts of private and public bodies engaged in assistance. County Commissioner Try and Kidd the Executive Director of Fair Housing Resource Centre of Painesville led the meeting.
The focus was on the fact that many were as yet unaware of the seriousness of the foreclosure problem.
Other counties have already started to take similar steps and being encouraged to do so. The issue is not just about predatory lending but how it has hit many who have lost jobs or bought more than they could digest. Many were enticed into low rate mortgages that soon began to increase within two years or so. Some of the loans clearly should not have been made because the loaned amount was far in excess of the value of the property. Many of these house loans were taken to buy other items over and above the house. But debts are catching up with this sort of irresponsible borrowing coupled with sudden bad luck like ill health, job loss or divorce.
The task force intends to financial educate the people to avoid risky loans and then to show what to do if foreclosure closes in on them. The task force also expects the lending parties to work in tandem with them because the foreclosure is affecting all. There are millions going into foreclosure leading to a socio-economic problem. With repayments coming to a halt there is a cash crunch. The fall of property prices does not make it profitable to take on units. There are no new loans to be advanced and therefore no buyers. Abandoned houses are leading to rise in crime rate and dispossessed angry people bode ill for all those in the corridors of government. The first thing is not to delay and worsen matters. The people will have to be told that they have a genuine place to turn to for help. There is a hot line ready. US Department of Housing and Urban Development funds the Fair House Resource Center. Many programmes are being launched to find out avenues of escape.
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Ranking Bush administrative personnel together with executives from mortgage firm Countrywide Financial Corporation was to have testified on Friday 2nd September. The law is trying to envisage ways out of this foreclosure crisis to give relief to all concerned.
At 10 am the House Financial Services Committee was scheduled to hear Robert Steel the Undersecretary of Domestic Finance, Treasury Department, Brian Montgomery the Assistant Secretary of Housing and Urban Development who also is the head of the Federal Housing Administration and Sandor Samuels, Executive Managing Director of the aforesaid largest mortgage lender in USA. Other speakers were to have been Tom Miller, Attorney General of Iowa, Ken Wade, Chief Executive of a community organization – NeighborWorks America, Bruce Marks, Chief Executive of another community welfare group – Neighborhood Assistance Corporation of America, Bill Longbrake, senior policy advisor of an industry group dealing with housing – Financial Services Roundtable.
The hearing is a follow up on the pressure being put on the mortgage sector by the government echoing the sentiments of the people, to be more proactive in their efforts to stop eviction of borrowers from their houses.
Last month the Bush administration set up Hope Now – a coalition of industry groups, to help those whose mortgage rates are about to reset at a higher rate. The group comprises of Bank of America Corporation, Citigroup Inc as well as J.P. Morgan Chase & Co. The first move will be to send letters this month to more than 200,000 borrowers who will in all probability go under default because of this rise.
On 18th September a House of Representatives passed a bill that would permit FHA, that is a government agency, to back refinanced loans for delinquent borrowers belonging to the middle and low-income bracket. This will be the first mortgage-related legislation to make a debut. The legislation initiated by Barney Frank (D- Mass) aimed at increasing the limit of FHA-insured mortgages to $500,000 from its present cap of $362,000. The bill was stalled in the Senate.
The chapter does not close here – in the coming two years another 2 million families might lose their houses. In October alone a staggering loan worth about $50 billion mortgages falls under the reset cloud. The idea is to make refinancing easier on lenient terms but the doubt remains if the incentive is strong enough for borrowers to take this step.
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