The ripple effect of foreclosures is telling all around. The city revenues have dropped, crime has increased and so too has homelessness. There are vacant properties everywhere according to a survey conducted by the local elected officials. Two thirds of the latter reported to the National League of Cities that since the previous year all the cities recorded sharp increases in foreclosures. The survey was conducted in the form a questionnaire online via e-mail. Drop in revenues and the problem of urban vacant units was reported by a third of the officials. More than a fifth of the respondents stressed on the rising number of homeless people who are in dire need for temporary shelters on an emergency basis. Their numbers have sharply increased since the previous year.
The drop in local government revenue collection comes at a time when more services are required bemoans Cynthia McCollum of the National League of Cities. She is also councilperson from Madison. She elucidated that people are stealing and criminal activity is increasing because of these foreclosures. But the city authorities do not have sufficient funds to put more cops on the roads and streets.
The members of the League are meeting congress lawmakers in Washington DC to discuss federal funding for local measures. Dominating the talks will the problems of foreclosures. James Mitchell, councilperson from Charlotte said that the great American dream of owning a house has become a nightmare of foreclosures for the cities and towns. Mitchell is also the head of the National Black Caucus of local elected officials. Vacant foreclosed houses attract crime and health problems. In the neighbourhood of Peachtree Hills as many as 115 of 123 houses are in foreclosure, said Mitchell. There are only 12 families left behind but they cannot sell their houses because the value of their houses has dipped to absurd low levels. “It’s starting to be a symbol of what we don’t to happen to Charlotte.”
Most of those who were lured into the pit of sub-prime mortgages were Afro-Americans, people coming from the lower and middle-income group, single parents, senior citizens and other minority groups.
One of the worst hit areas is Riverside in California. It is the heart of the Inland Empire. During the boom people rushed here to buy houses. Now the flow is reverse. Most of the boom was in the east where foreclosures are now dominating the scene.
The see saw of foreclosure sales is causing it to rise in Battle Creek by 13% while on the national scene it goes down to an increase of only 2% in May 2008.
However the increase in sales is not without a price. Most of these are as a result of agreements reached between lenders and borrowers and not a spontaneous movement in the market. It can be termed as bargain-based. Nevertheless whatever the origins – it is good news for the market that has been wobbly for the past two years. Local real estate brokers welcomed the news. The president of Battle Creek Association of Realtors, Matt Davis said, “We’re positive on the future, and we hope we’re on the bottom bouncing back up.”
In May 118 houses were sold in comparison to 104 in May of 2007. Davis pointed to this as indicative of the future. The winter figures had been cold and bleak with long nights of cold and snow. But spring has broken the thaw and sales are blooming, quipped David.
Looking at the year-by-year number realtor Joy Brown commented that although sales have picked up the houses are fetching a much lower price – going down below $20,000. The sales of low-end house have doubled. In 2007 there were 21 sales but this year already 139 units have been sold. Most of these are from the foreclosure category of houses. One person had actually bought a foreclosed house with a credit card – she informed.
There was much activity around the sale of the house of Duane Rich. Brown of Prudential Preferred Realtors was poring over paper work regarding the foreclosure listing. It was posted for $179,900. It will be on the market for 75 days before the actual sale. That is the usual time houses within this price bracket are taking to sell this year, says Brown juggling his figures. Brown shows that counting by year to date, the sales figures are down from 758 in 2007 to 665 this year.
Brenda McPherson, a realtor with Remax Perrett Associates Inc is seeing good signs since she placed two units in the market in May and within a week was able to dispose of them. This seesaw happens in cyclical order. Buyers and sellers market cannot exist at the same point of time. The seller’s side right now is down. The sellers must learn how to trim up the appearances and amenities of the units to attract buyers.
Foreclosures are reaching out beyond the lower income bracket to throw out the middle class on to the streets. The middle class has now joined the desultory group of hapless people who live in their cars and mobile units. This is happening right across the country. The situation is worsening with the increase in foreclosures. Professionals are now not living in four bed-roomed sprawls but on four wheels.
Rising to the situation New Beginnings of Santa Barbara has started a Safe Parking Programme trying to provide some sort of refuge for those who have nothing but their cars to huddle under.
The story of Guy Trevor is similar to many others. He worked as an interior designer but the mortgage crisis resulted in his losing his job. Without there being interiors to decorate there could not be any employment for him and others like him. The result was that after selling his furniture and parking his belongings in a storage unit he has no alternative but to live in his car. New Beginnings has arranged for 12-gated parking spaces in Santa Barbara for this new brand of nomads.
The tranquil beaches of Santa Barbara County are today beginning to rage with foreclosure tides rushing in to gobble up houses. So far this year there has been 800 foreclosures with May alone accounting for 150 of these. Each month foreclosure auctions are held in the precincts of Santa Barbara Courthouse. Considering the health of the economy it is not surprising that so many from the middle-class have joined the ranks of the homeless.
Barbara Harvey too lost her job and subsequently her house to foreclosure. Her job as a loan processor was connected with the real estate market. With mortgage companies tightening their strings there are hardly any loans to process. Barbara, now 67, spends the night with her three dogs in her car in a women-only car park run by the agency.
The number of people sleeping in cars has risen sharply causing Los Angeles city officials to clamp down on it. It is illegal to keep a car on the streets at night – here and elsewhere across the country. Fines were slapped and when this did not deter the penalties were increased from $50 to $100.
For the working and lower middle class, the car is the first halt before becoming a full fledged homeless.
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According to reports coming in from surveys, it is the minorities who are worst hit by foreclosures. Today many of the sub-prime mortgage lenders have downed shutters. But this was their own doing – they dug their own graves by targeting the minority communities to make them rise to the bait of the dubious loans. With crumbling real estate prices, along with the borrowers these lenders too are being wiped out.
The loans of these companies made up 20% of all the loans given to the minorities or in localities dominated by the minorities as compared to 4% sanctioned in all white regions. This is according to a survey conducted by policy research and advocacy groups. In clear language it is stated by Sarrra Nifici of Neighborhood Economic Development Advocacy Project, New York that “These high risk lenders were targeting their loans to particular neighborhoods – to communities of color.”
The lenders were sure that considering the weak income of the group, sooner than later they would be in charge of the property and sell it keeping a high profit. The borrowers, because of their weak economic status, saw this as their only chance to realize the great American dream of owning a house. They too reasoned that with escalating house prices within a few years they would be able to repay the mortgage. Nifici explained that when one walks into a sub-prime office there is no incentive for the client to be steered elsewhere. Thus sub-prime seems to be the only option – the option that ultimately led to the foreclosure crisis.
The survey studied the regions covered by 35 high-risk lenders who were very busy in 2006. Later they went bankrupt or were shut down or sold in 2007 as the bubble burst. The main offenders were New Century Mortgage, WMC Mortgage, Fremont Investment & Loan as well as Argent Mortgage. The focus of the survey was on loans given to minorities in the urban zones markets covering areas in New York, Chicago, Los Angeles, Cleveland, Boston, Rochester and Charlotte and NY. In seven of these urban pockets the dubious loans give out by these questionable lenders to minority neighbourhoods, were three times higher as compared to the white localities.
Many of those with low incomes or tarnished credit records were offered teaser rates that reset abnormally later on. It made it impossible for borrowers to carry on later and foreclosures became inevitable.
New York House Foreclosures by Top Counties
So far foreclosures have predated on the lower and middle income but now its insatiable appetite is making it break economic ladders and reaching for the top rungs – the rich and fancy group. Stories about foreclosures becoming fashionable and in vogue in higher income regions are becoming quite common. Exotic mortgages taken by celebrities have been feeding the gossip pages for quite some time but now it has become matter of talk for the general newspapers and media. The upper middle classes are also forfeiting their house to foreclosures. Some are putting up a fight while many are losing their houses.
Many of the foreclosure victims are pointing to many reasons that are beyond their control leading to their foreclosure woes. The main reason is the mortgages melt down, the credit squeeze and increases in the adjustable rate mortgages. This in turn has led to a tumble in the real estate market. To make matters worse has come the increase in fuel and food prices leading to financial stress. It is the perfect cocktail of woes to create the economic storm. But there is more to it than apparently meets the eye.
Analysts opine that foreclosures are not a connected merely to low income and bad credit. CNNMoney.com reported on 5thJune 2008,”more than one million homes re now in foreclosure.” This is the highest record noted. In Newsday a headline shrieked “Foreclosures Taking Hamptons By Surprise” peeping into the havoc wrecked by foreclosures in the inner chambers of the high-income group. One unit on Westhampton Beach, snapped up in the foreclosure tornado is a house that has been mortgaged for $1,100,000 and has a market value of $572,700. Another house in Clover Grass Court of Westhampton has a market value rated at $848,000 but the amount owed to the creditor is $1,270,500. It is the falling real estate market that has been telling on these borrowers. They owe much more than the house is worth. Frequent drawing out of equity has made further complicated matters. Simply put – the borrowers have lived beyond their means.
More stories are pouring in of middle and upper class foreclosure victims descending down the ladder. Some have become homeless. Hitherto they had used houses like ATM cards and frequently milked it of its equity. That foreclosures should follow is but inevitable. There was overconfidence that property prices could never fall. Yet that is exactly what has happened.
New York House Foreclosures by Top Counties
McCain outlined his plans for battling foreclosures in the Inland region while attending a fund raising programme at Riverside Convention Center.
McCain is the Republican nominee for the presidential elections. His plans would allow besieged house owners to exchange their unwieldy loans for more manageable ones that would be in tune with the current market value of the properties involved. He acknowledged that this area has been one of the hardest hit by the foreclosure tsunami on top of its woes with the general economic slow down. He is optimistic that his plan, if executed, would help thousands of foreclosure victims. He was speaking to newspersons after the fund raising event and added, “There has got to be some kind of floor so we can start seeing a way out of this housing crisis.”
Riverside together with San Bernardino ranked fifth in the foreclosure positions during May this year among the top metropolitan regions. In Riverside there were 9,024 foreclosure filings in May and in San Bernardino County there were 6,903 foreclosure postings. The numbers include all the different stages of foreclosure from default to auction notice and repossession.
A couple of months ago McCain had released his plan but he had come in for a lot of criticism as the plan would put a lot of constraints on the borrowers. Only those who had taken non-traditional loans after 2005 and who were credit-worthy would qualify for the loans that would be backed by the Federal Housing Administration (FHA). Non-traditional loans are those in which the borrower pays only the interest and in which down payment has either been waived or is negligible. But when the honeymoon bonhomie period is over the inevitable happens – monthly payments begin to double or treble.
There were many at the fund raising event, like Jamil Dada, an investment manager who welcomed McCain’s plan hoping that will bring stability to an economy that is being dragged down by the housing crisis. But there were protesters also. A dozen or so got together accusing McCain of failing to offer solutions that will address the problem of foreclosures engulfing the struggling working class who are in any case cowed down by rising food and fuel prices. Among the protesters were members of National Alliance for Human Rights, supporters of Obama and Rep. Ron Paul together with some students.
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There is a strong opinion making the rounds that HUD is largely responsible for the ensuing foreclosure crisis. In 2004 a warning had been given out that borrowers were being weighed down with sub-prime mortgages that they could ill afford to bear. HUD was too eager to accommodate underprivileged sections into houses of their own. They encouraged two government supported mortgage firms, Freddie Mac and Fannie Mae to buy more of these affordable loans that had been made to borrowers. It was backdated thinking to believe that this measure would benefit the public and foster housing for all. Today the mistake is being admitted by housing experts and some congress leaders. It is this mistake that has opened the floodgates of the present foreclosure crisis.
It was not checked and re-checked whether the borrower was in a position to repay the loan. Between 2004 and 2006 Freddie Mac and Fannie Mae bought $434 billion securities that were backed by sub-prime loans. This created a background for others to follow suit. Sub-prime loans had targeted the weaker section of society who came to be overburdened with higher interests in comparison to the traditional ones.
Unable to pay, today about 3 million to 4 million have lost or will lose the houses that are their homes. Those who were supposed to benefit from HUD are some of the worst affected foreclosure victims – the rate of default being three times more than other borrowers. Meanwhile HUD remains indifferent to their fate. “It was just irresponsible,” comments Michael Barr of Michigan University. In the coming July session it is expected that Congress will strip HUD of its regulating power over Fannie and Freddie and hand it over another stronger body.
The duo – Freddie and Fannie finance nearly 40% of the mortgages of the entire country. The outstanding debt is $5.3 trillion. Private shareholders own these but being chartered by the Congress it is free from state and local taxes. About $6.5 billion is subsidized annually by the feds so that they can loan money more cheaply than others who want to invest. In exchange they are expected to attend to public interests like seeing to affordable houses.
HUD refutes these allegations that they had encouraged predatory lending overlooking income standards. Their intentions were clean and above board but they never imagined that this would be the catastrophic outcome. But HUD has become the icon of sub-prime lending.
Bank Foreclosures by Top States
Plans are afoot endorsed by Birmingham City Council to sue mortgage companies for wrongful lending practices. Lawyer Dagney Johnson Walker will be representing the city in this regard.
Walker commented that the sub-prime mortgage activity that has led to this foreclosure crisis has affected all – lenders, borrowers as well as the government and the local communities. The lowering of property values has aggravated matters. Walker said that the city exists for the purpose of protecting its residents and that means the city has a wide range of responsibilities to attend to. The loss of each house becomes a load for Birmingham and a blight to the locality. The houses that are not in foreclosure suffer because of the general fall in property prices. Abandoned units create other problems for the city authorities.
The proposal for suing mortgage companies got the support of councilwoman Miriam Witherspoon who is a committee member. A meeting was held in the Central Alabama Fair Housing Center. The agency has been tracking cases of predatory lending in the mortgage industry. Witherspoon feels that this move will be beneficial not only for the citizens of Birmingham but to residents of all other cities in the country who have been similarly victimized by the foreclosure crisis.
Research is still being done regarding the lawsuit and the names of the particular companies to be charge sheeted. The court will expect damages to be exacted although the specific figure has not been arrived at yet. Walker expects payment from the judgment or settlement. She will get 50% if the city wins. But if the city fails then Walker does not get paid anything.
Baltimore and Cleveland as well as few other cities have launched similar legal actions. Birmingham would be the first southern city to follow suit. Apart from asking for monetary damages the mortgage firms would be expected to change their sub-prime lending policies. To this effect the court would be moved to issue injunction orders. The idea is not only to prevent future loss but also to realize damages already done. Birmingham will be raising its voice to join the cry of those who are pointing to the injustice done by this type of lending focusing on certain localities. Details are still being worked out. It seems the ball of action will not start rolling till the end of June.
A hot scam by a Maryland couple hit foreclosure headline news. The Feds indicted a couple from Prince Georges County for being involved in a foreclosure related scam amounting to $35 million. Donning the rescue mask they cheated lenders and borrowers alike to create the largest scam in the history of Maryland.
The pair, 40-year-old Joy Jackson and her husband 38-year-old Kurt Fordham were arrested in North Carolina on 12th June 2008 on 21 counts for money laundering and mail fraud. They hailed from Fort Washington. Six others were co-accused. They used the money to feed a lavish lifestyle punctuated with luxury cars, travel, jewellery, houses, fur coats and travel. Mention is also made of their wedding at Mayflower Hotel where the menu included lobsters, shrimp and Cristal Champagne. The wedding bill ran up to $80,000 acknowledged Jackson.
The court thinks this is a very important case – the first of its type and an eye-opener. Attorney Rosenstein elaborated that the Metropolitan Money Store, of which Jackson was the president, was the front-runner of the fraud operations. House owners facing foreclosures were targeted. Straw buyers would be set up. Owners were told that they could continue to live in the houses that were their homes to enable them to buy it back a year later. Meanwhile Metropolitan would borrow as much as possible against the equity of the unit, ensuring that the original borrowers did not have the remotest chance of getting out of the mess and buying back the house.
The case showed up the urgency of introducing legal and regulatory changes at the state level to stop repeat performances of similar cases. So far there have been many cases but none so big as this one. The secretary of Maryland Department of Labour, Licensing and Regulation described this case as a “poster child”.
The charges carry a maximum punishment of 30 years imprisonment, and $1 million fine each. The credits of the ‘straw buyers’ were falsely bolstered so that they could qualify for availing of mortgages amounting to $10,000.
One of those who had taken so-called help from Metropolitan is 63 years old Angele Reid. She bemoaned that Jackson had jeopardized Reid’s life so that she, Jackson, could lead a merry life. Bitterly she adds, “I just hope they are put away for a long time so they can’t do it to someone else.”
Maryland Bank Foreclosures by Top Cities
The worst foreclosure crisis is raging over the country since the Great Depression of the 30’s. It has called for drastic and fundamental shakeup in the mortgage industry. In California the crisis at present is at its worst but the changes being brokered are too slow to address the magnitude of the problem.
Last winter amidst much hullabaloo a bevy of bills was introduced aimed at regulating mortgage houses including bankers, brokers as well as servicers. Lending practice laws were to be tightened. Some of the bills have seen the light of day but others have got caught in opposition and lobbying. The combination of mortgage bankers, brokers and realtors are a force to contend with and cannot be easily overcome. They strongly urged modification of many clauses in the bills that went counter to their interests. Their argument is that California cannot regulate itself out of this foreclosure mess. The net result of these skirmishes is that the residents of California will find it difficult to qualify for mortgages in the future. Dustin Hobbs spokesperson of California Mortgage Bankers Association comments that the government does have a role to play but it should not be such that will “scare away capital.”
While all this is going on, the foreclosure crisis is going from bad to worse in California. Last week records were made. There was a 6.35% increase in all the loans that were lagging behind 30 days during the first quarter of this year. In 2007 it was 5.82%. The foreclosure rate is one of the worst in the country – 1:20.
The naked numbers have awakened a sense of urgency in lawmakers keeping in mind the political stakes involved – especially in Sacramento. A major showdown is expected on 18th June, when the Senate Banking, Finance and Insurance Committee, of the State, will hear at least 10 mortgage-centred bills. Falling real estate markets have made California the epicenter of the foreclosure storm.
If the bills are passed then California will win the distinction of being a pathfinder in tightening mortgage controls. Prospective borrowers will be meticulously screened before qualifying for loans. Steep penalties will be imposed for lenders who make it difficult for borrowers to refinance and or impose high interest rates that keep floating up. Economic ills are also being attacked so as to improve the employment climate of the state.
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