The foreclosure game is not remaining confined within the playing courts of lenders and borrowers – it has spilled over the centre stage with a snowballing effect. With real estate markets at an all time low the tax revenues are suffering, empty houses have led to a rise in crime and an increase in vagrants prowling around.
Recently 211 local officials were surveyed online by the National League of Cities. About two thirds of them said that in their localities there has been a rise in number of foreclosures during the past year. A third said that revenue had dropped while there had been a rise in abandoned properties leading to crime. Cynthia McCollum, the president of the National League of Cities as well as councilwoman in Madison comments that while revenues have gone down the need for services have gone up. Foreclosures have led to stealing and vandalism. Money is required to put more cops on the street. More than a fifth of the interviewed officials said that during the past year there has been a sharp need for temporary emergency shelters. The monthly meeting of the League was dominated by the foreclosure issue. Washington is also focusing on the urgent task of getting federal funds for local endeavours.
A councilman from Charlotte, James Mitchell says that the American dream of owning houses has turned into a nightmare in the cities. He is the head of the National Black Caucus of Local Elected Officials. Vandals are honing in on foreclosed abandoned houses and the numbers of calls to the police have gone up. Peachtree Hills is one of the many localities where new houses had come up but today out of 123 houses 115 are in foreclosure, said Mitchell. Only a dozen residents are left because they cannot find proper buyers for their properties because of depreciation. Charlotte stands apart as a constant reminder to all that this should not be allowed to happen.
The majority of the owners were Afro-Americans who were lured in by nil down payments on houses that were apparently going cheap. The survey reads that most of those affected by foreclosures were families with modest income, single parents, senior citizens and coloured. Foreclosures are affecting even those cities that have so far been spared its intensity.
One of the worst hit regions is Riverside in California which had recently seen frenetic housing activity.
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The previous year saw recording breaking foreclosures but this year will mark the turning point. In Harris, Montgomery and Fort Bend Counties the foreclosure postings jumped 21% from 2006. But the first two months of this year have shown a slight slowing down of the pace. However this trend is not uniform across the nation and hence predictions cannot be made on firm ground.
Rising number of divorces and increasing number of medical bills are also held responsible for the raging foreclosure crisis apart from the accusing finger pointing to the sub-prime fiasco as being the prime culprit. Borrowers were peddled loans they could hardly manage within a couple of years. Another reason are the innumerable number of mortgage frauds. Harris County officials in tandem with the FBI launched operations last year to nab the culprits.
Lenders hard pressed by increasing number of foreclosed houses weighing them down and public outcry coupled with pressure from the government are trying to work out solutions with borrowers so as to check the foreclosure tide. It is this that has given rise to hopes that the numbers will decrease from the second half of the current year. Barton Smith, of Houston University’s Institute for Regional Forecasting opines that rate cuts will not have much of an impact. In 1990 it had worked but today the rates are already so low that a further fall will lead to another fall in house prices. It is apprehended that real estate will continue to slide through this year. In Houston this trend might continue into the first few months of 2009 but it will be less than the rest of the nation.
The new subdivisions fringing Beltway were the centres of most of the 2007 foreclosures. Lax lending standards are being blamed for this. The shady documents during the time of the mortgage show the value of the land avoiding that of the building. But later when the tax man came collecting then the bills jumped to real figures and there is a hue and cry. The borrower was not prepared with the sudden dip into his pocket. When defaults creep in, the houses enter the rental market. Other bargains are snapped up by investors who are now finding the opportunity for profits in the rising demand for rented accommodation. There is no guarantee how long this summer is going to last.
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The year 2007 saw a record breaking rise in foreclosures. It is apprehended that the numbers will continue to pick up speed. Lately there is pressure on the federal government to take a more positive role in the national foreclosure crisis.
Alarming figures released by the Mortgage Bankers Association caused stocks to nose dive. Another contributory factor was the news that some investors were stumbling in their bank repayment schedules. The Mortgage Bankers surveyed 46 million first mortgages – nearly 85% of all house loans. Of the loans scrutinized approximately 3.6 million were either in or about to enter the foreclosure zone.
Foreclosures rose all over the country but the concentration was mainly in jumbo states like Florida and California. These two are responsible for 21% of all the mortgages but for 30% of the foreclosures. Closely following are Nevada, Arizona, Michigan and Ohio with high foreclosure figures.
According to data provided by The Federal Reserve the net worth of American houses fell by $532.9 billion or by 3.6% in the fourth quarter of 2007. Plummeting of real estate values was responsible for a third of the total decline figures.
The Federal Chairperson Bernanke asked lenders to take a more prominent role in reducing the principal on delinquent loans and to adjust them. His other suggestion was that the FHA should come forward to guarantee more loans. The FHA announced that in 20 counties the limits on mortgages supported by Fannie Mae and Freddie Mac would rise to $729,750. The House Financial Services Committee also plans to announce their proposal for refinancing thousands of mortgages and sanction new loan insurance from FHA. Bush is opposing a suggestion that some of houses may be bought by the federal government. Rosenberg , the president of the Federal Reserve of Boston, said that mortgage lenders and borrowers would benefit if a more aggressive plan was initiated that would reduce fees and foreclosure delays. Investors could be offered a share of the profits for house sale. Rosengren observed that an effort being chalked out by the Boston Fed with six banks had received more than 1,000 queries. 50 loan applications had been submitted but only a dozen had got the green light.
However even if the corridors of power moved quickly it would take some time to execute recovery schemes. Then again many troubled borrowers facing foreclosures might not be able to qualify for it.
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Foreclosures hit a record last year and this has had a snowballing effect on the employment picture in the economy. Many have become jobless with the real estate market plummeting to all time low levels. The Mortgage Banker’s Association stated that the delinquency numbers, have reached all time high numbers since 1985. The numbers of jobless are also the highest since the last two and a half years. The story is also gloomy for retailers – people are not buying as of before. At the epicenter of the problem is the housing crisis.
The National Association of Realtors provided data that indicated that pending contracts to purchased previously owned houses have not been cancelled. There is skepticism as to whether this means slowing of foreclosures. Mike Larson, real estate analyst of Weiss Research in Jupiter, Florida says that the housing market is stuck in the mud, with too many houses being listed for sale and too few buyers. The economy looks gloomy. His comments as regards the steps being taken to tackle the foreclosure problem is not too optimistic. He opines that ‘The Federal Reserve is trying to light a fire under housing demand’ by resorting to rate cuts. It seems that this situation will continue till 2009.
Seeking safer outlets the investors shifted its focus on US government securities – the prices of which steadily have begun to rise. Stocks are down with Dow Jones industrial average off by more than 100 points recently. The chief economist of Deutsche Bank in New York says that there has been a major shift towards quality. The Federal Reserve data showed that on 6th March 2008, the net wealth of the households in the country fell for the first time since the last five years during the first quarter of 2007. This was because of fall in value of real estate holdings and related stocks, thanks to foreclosures.
Last week saw new applications of jobless benefits tumble by 24,000 – it being much lower than the expected 351,000. But even then the number stood the highest since Katrina attack of 2005. The number on the jobless rolls rose to 2.83 million – showing that workers are finding a harder time to get employed. Only 25,000 jobs were added to the list – a poor showing considering the demand. The unemployment rate is up by 5.0% from 4.9%.
For this foreclosure crisis the sub-prime is held responsible.
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The State Senate Committee approved three new legal proposals aimed at restraining the high rise of foreclosure numbers. Legislators however continue to sort out differences in details. The approval by the committee is a signal that the lawmakers of Georgia are serious in their basic intentions as regards foreclosures. Senate Bill 531 generated the maximum amount of discussion before getting approved. The bill stated that the name of the owner of the house in foreclosure must be mentioned in the public records.
So far there have been multiple mortgages on a single unit. Finally it is sold in bundles to countless investors. The net result is that the lawyers representing the house owners trying to save them from foreclosures cannot locate the name of the original debt holder. Howard Rothbloom an attorney dealing with bankruptcies opines that ‘Lenders shouldn’t be allowed to lurk in the shadows of a foreclosure case.’ Speaking for the lenders attorney John Aldridge argues that the identity problem has been solved by the lenders authorizing third party loan servicing agencies to work directly with the borrowers and come to amicable settlements, if required.
Approval was also given to Bill 519 by senators who extend foreclosure notice clause from 15 to 30 days.
An altered version of Senate Bill 465 was also voted for. It provided for the extension of the foreclosure notice time span for the ARM’s to 90 days.
The bills must also get the green signal from Senate Rules Committee to be ready for the final full vote on the floor of the Senate.
Foreclosures have been rolling across the country at phenomenal speed with no signs of abatement despite various palliatives measures. All the steps taken so far at federal, state, local levels in tandem with communities have not been able to go to the root of the problem. The problem seems to have been postponed rather than solved as if awaiting the outcome of the Presidential elections.
Foreclosures are affections all sections of the society and the economy. Lenders have not been spared. They are facing an acute cash crunch desperately weighed down by innumerable houses that are not bringing in money but rather taking out funds. The government taxes are down in tune with the falling real estate market. The neighbourhoods are badly affected with abandoned houses posing problems related to health and security. Politicians are a worried lot as ripples cross the oceans.
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While the country continues to reel under foreclosures the government is trying to find solutions to the problem. The Bush team gave the green signal to keep on hold foreclosures for 30 days. Senator Hillary Clinton suggested 90 days moratorium but in New York state two legislators are pushing through a reprieve for a whole year. James F. Brennan a Democrat from Brooklyn and Frank Padavan a Republican from Queens have taken the initiative by introducing it in December 2007. If pushed through the residents will be able to stay in the houses that are their homes for a whole year utilizing this time to work out viable alternatives with the lenders. No such extreme measure has been taken since the 1930’s during the time of the Great Depression. In 1933 Governor Herbert H Lehman imposed a hold for about a year on foreclosures that were current as regards taxes and interest. The ban was renewed annually till 1949. The Bill has been generating positive reactions. 60 Assembly members have already given their signatures said representatives of ACORN. The latter community organization boasts of more than 60,000 members across the country.
Bertha Lewis of New York ACORN strongly opines that it must be admitted that there is a crisis and that something should be done to alleviate it. Brannan contented that there is nothing wrong in giving time to people in foreclosure trouble so as to work out a workable solution mutually satisfactory to borrower and lender.
Neiman, the superintendent of banks in New York said that they would review the proposal. The Mortgage Bankers Association commented that suspension of payments for some time can be a tool but not a permanent solution. Each loan needs to be addressed individually, said Robbins the chairman of the association after civil rights groups last year pressed for a six month hold on foreclosures.
The apprehension is that a long moratorium will discourage bankers in New York from extending loan facilities to those who stumble in their repayments. However the Bill has received support from both Democrats and Republicans. Padavan says this ‘common-sense solution’ is the call of the hour.
In New York City foreclosure filings have doubled in the last few years – going up from 3,461 in 2004 to 8,263 in 2007 according to reliable analysis from New York University. The situation is particularly bad in Jamaica and Hollis parts of Queens where foreclosures have trebled.
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Governor Timothy M. Kaine (D) took the initiative to introduce in the General Assembly regulations against high risk mortgages in an attempt to stem the tide of foreclosures. In the next two years thousands are at risk of losing their houses. The aim is to give them a grace period to grapple with the problem and try and find out some alternatives. It is hoped that proper counseling and time will show results and the foreclosure numbers might be halted. Kaine is hoping that the General Assembly will approve of it before it adjourns on 8th March. The Governor of Maryland Martin O’Malley (D) took similar steps about a week ago.
The legislation will rule that lenders engaged in high-risk mortgages will have to give a 10 days notice to the borrowers about change of interest rates. The lender will also have to connect the borrowers with three counseling agencies and also grant 30 days grace period before proceeding with foreclosures. The proposed legislation has the support of many banking lenders as well as representatives of the consumers.
According to reports from a mortgage firm the number of foreclosures jumped by 57% in January 2008 from what it was in the same month a year ago. Another organization, The Center for Responsible Lending opines that before the mortgage wave exhausts itself out as many as 62,174 houses will be swallowed up by Virginia Foreclosures. Virginia has the highest rate of foreclosures in the country. In some cases the borrowers can lose their houses in as short a time as 30 days after having missed a payment. Credit counseling can avert the imminent danger. In fact about 70% of those who opt for mortgage counseling have been able to keep their houses. It is encouraging to note that the governor himself has realized the gravity of the situation. Last year Kaine had set up a task force – Virginian Foreclosure Task Force, consisting of representative from the industries, consumers, policy personnel and researches. The first recommendation of this task force has led to the tabulating of the bill in the General Assembly. Other recommendations are coming forth from the group.
The accusing finger points to the aggressive peddling of risky sub-prime loans with teaser rates that has led to the foreclosure crisis of today. It is imperative that borrowers are protected for sake of the general socio-economic health of the society.
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Since the Great Depression America has not seen such high vacancy rates. In the next two years about 2 million mortgages will be in default. In some areas the malaise is more intense than others. The worst casualties are Florida, California and Nevada. The accusing finger points to the sub-prime mortgage that in turn led to a housing boom.
The middle and lower income groups are bearing the brunt of the foreclosure waves. The Rust Belt cities with weak economies have been the most vulnerable. Here the population numbers are on the decline. Wayne County, Michigan including Detroit is led the foreclosure figure in 2007. Cleveland has been dubbed the ‘sub-prime capital of US. Here as many as one out of ten houses is lying deserted and empty. Slavic Village in Cleveland was once inhabited by tight knit Polish and Czech immigrants. Today with hundreds of abandoned houses entire streets have been taken over by criminals busy stripping the houses of whatever is left.
The greatest danger is that this infection will inevitably spread. With the houses worth far less than the loans there is slump in the real estate market which will pull down credit markets and the general economy. The problem right now is that even a slight rise in foreclosures is causing panic and abandonment bringing down with it the value of property in the adjoining regions and emptying tax kitties of the local authorities. Police, schools, civic maintenance services and the like are badly affected.
Some cities like Chicago and Boston have tried to build firewalls anticipating doomsday even before it came knocking. Impending defaulters were being identified and offered help by local community groups backed by the government to stave off foreclosures. Hotlines have been set up and local lenders have joined hands to stem the tide that affects all.
But the call of the hour is federal support to bolster up the real estate market. A plan has been proposed by the Center for American Progress and Enterprise Community Partners that seems viable. The map is to create a fund – Great American Dream Neighbourhood Stabilization or GARDNS. It will provide money for quick sale of houses to those qualified families with low income on reasonable terms. If such a buyer cannot be located there and then, the house would be rented out with preference being given to a scheme known as rent-to-own.
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At the foreclosure auction held at Gloucester County Court House on Tuesday, Meadow Financial – a lending firm from Washington D.C., bought a seafood plant situated on Aberdeen Creek for $350,000.
The rundown plant stands on about one acre. Three years ago Meadow Financial had lent $380,000 at 18% to Clifton Odell Boyd Jr. of Georgia, for purchasing the business from former Gloucester Supervisor George Sterling. The deal came to a close on 8th July 2004 without any repayments being made. Boyd subsequently came to be accused and convicted of fraud in Gloucester County circuit court. Sterling passed away in August 2005.
Gloucester Seafood – a part of the estate of Sterling was turned over to Hale Delavan, a businessman from Norfolk. Delavan had initially said that he was not going to bid for the property. Gloucester Seafood has been running in another place on Ditchbank Road but it is uncertain if it is still in operation, as Delavan could not be contacted. At the foreclosure auction Meadow Financial was the highest bidder.
The lawyer appointed to handle the foreclosure was James Towarnicky from Fairfax. Just before noon he read out the foreclosure notice. Not more than five people had assembled at the court premises to attend to the auction. Of these one was Mark Sterling – one of the two sons of George Sterling. Towarnicky threw the question about anybody wanting to buy the property. Harry Corr of Gloucester offered $ 10,000. But Towarnicky said that the lender was bidding $350,000 by means of a written bid. After the auction Towarnicky went on a tour of the building in question. When he was asked what Meadow Financial was going to do with the unit he vaguely shook his head.
These instances are bringing to the forefront that so far the mortgage sector has been a lenders paradise with little protection for the borrowers. Today all that can be done is to appeal to lenders. Apparently the lenders seem to be suddenly proactive and extending a lending hand but that is because the sheer number of foreclosures has led to a cash crunch and collapse of the housing market. If the lender group wants to survive they will have to bend in order not to break. Central banks around the world got together on Wednesday to help banks under pressure to be able to borrow money.
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The foreclosure has taken the country by storm. The story began with the introduction of the sub-prime loan to accommodate those who, due to bad credit history, could not avail of the prime loans. In the latter one must make a down payment and show proper source of income in proportion to the loan being taken. In the sub-prime the initial terms were extremely lenient. This led to many taking it. A housing boom exploded. But when the honeymoon period of grace expired and the floating rates began to double the borrowers failed in monthly payments. The lenders then served them with foreclosure notices.
In USA, the foreclosure process is not uniform in all the states. For instance in Georgia the lender can take over the house within a month. Here it is not even necessary to go through the court corridors. All that is required is an advertisement in the newspaper announcing the date of the forthcoming sale.
But in the Sunshine State the lenders have to file a lawsuit if they want to evict borrowers. The foreclosure process does not start operating effectively until the borrower has missed out on five consecutive payments, says legal expert Kingcade of Kingcade & Garcia of Miami. Thus statistics may not expose the real picture of the foreclosure crisis in Florida. It ranks second in the national foreclosure race but experts opine that the actual situation is worse.
People who are not paying due to various reasons are being sued in court by the lenders. From the date of filing the lawsuit it takes anything from 60 to 90 days to evict the occupants. The good thing for house owners here is that since the process goes through the courtroom, they have a fighting chance to reverse the odds. Kingcade explains that foreclosure lawsuits are not exceptional – these are just like any other of the type. If house owners appoint a lawyer and put up a fight the chances are that even if the result is negative they will be able to stay on for sometime more than otherwise. The borrower cannot be evicted until the court dispenses with the suit.
To cite an example, Kingcade mentions a client of his who continued to live 22 months since the initiation of foreclosure proceedings against him. In money terms it means 2 months without paying mortgage dues!
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