October 31st, 2008
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As the foreclosure crisis worsens throwing thousands out of their houses, various companies are competing for a slice of the bailout pie. The focus is on it and not on the unfortunate foreclosure victims facing immediate eviction. Joining in the fray are insurance companies, automobile firms and the subsidiaries of foreign banks stationed in America. None want to be left out of the largest rescue operation undertaken by the USA government. The prediction is that many who are sitting with open palms extended will be lucky while the economy tumbles into recession.
The arguments making the rounds are that the foreclosure related crisis is so severe that not only the banks, the industries too need support. The treasury is mulling over requests from various industries but has not yet taken a decision about expanding the programme to accommodate them. Meanwhile the lobbying efforts are intensifying. The treasury received a request from the Financial Services Roundtable that the $250 billion meant for the banks should also include others. The primary aim that Congress had been made to understand was that the funds would be utilized to bolster the banks so that money begins to flow.
It is anticipated that over and above the $700 billion the additionally groups would receive separate assistance. The $700 billion would be utilized for buying soured mortgages from financial bodies.
Steve Bartlett who heads the Roundtable has put pressure on the treasury to widen the connotation of those who will be qualified for the original programme. Bartelle wrote to Neel Kashkari of the treasury department, “The institutions that are excluded play a vital role in the U.S. economy by providing liquidity to the market. This is a global crisis and to not recognize the U. S. firms controlled by foreign banks or companies would create further impediment to the market’s recovery.”
Over the past the Treasury Secretary Henry Paulson conferred with many groups that included hedge fund administrators who are also praying for help. However no decision has yet been made. In September American International Group (AIG) – the largest insurance body in the country got $85 billion as low interest loan from the Federal Reserve.
The decision making powers of the government is further complicated by the fact that the Bush administration is fast on its way out. Paulson has already declared that he is not interested in continuing further.
Meanwhile the foreclosure victims remain forgotten in the wings.
Bank Foreclosures by Top States
October 31st, 2008
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Senator Barney Frank (Democrat) and five other House Democrats accused hedge fund investors of confusing foreclosure assistance programmes. They have been summoned for a hearing. In a note the senators said, “For the hedge fund industry, which has flourished for much of the past decade, to take steps so actively in opposition to what is currently in the national economic interest is deeply troubling.”
Another big reason for people defaulting into foreclosures is the loss of jobs or any other source of earning. Death and divorce further mire the situation. All combine to hasten the knock of the foreclosure on the door. About two years previously about 36% of the mortgage defaults were because of lowering of income or loss of job according to researches conducted by Freddie Mac. But that has now increased to 45% as the unemployment rate has reached 6.1% - the highest in five years.
Approximately one third of the total number of sub-prime loans that underwent modification during the third quarter of 2007 soon became delinquent again within a span of 10 months according to Credit Suisse. It shows that the loan modification was not sufficient to give the borrower relief – it was just eyewash. More generous modifications could have avoided a second round of impending foreclosure.
Countrywide Financial reported that in July 2007 there was a sudden flood of defaults in high-ended mortgages. Following this within three months the Bush government announced the Hope Now alliance. It had an “aggressive plan to reach more homeowners and help them find a way to stay in their homes.” Hope Now claims to have modified 765,000 mortgages since July 2007. About 1.5 million borrowers have shifted to a temporary repayment schedule. As yet it is not known how many of these have again fallen into default and facing foreclosure.
The executive director of Hope Now, Faith Schwartz defends the stand by saying that the effort was not expected to be the only answer to the crisis. She said that tremendous efforts have been made on the part of the mortgage industry. Roughly 1.9 million have been issued letters stressing the importance of contacting housing counselors.
But housing advocates are highly critical about the slow and tardy steps being taken by the mortgage industry as well as the government. Their approach is also accused of being too narrow. The focus is on the voluntary coming forward of the lender which leaves behind a big question mark.
Bank Foreclosures by Top States
October 30th, 2008
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One of the consequences of the foreclosure crisis is that the souring of the economy has caused many migrants to exit from USA.
Dionisio Urbina is one of the many who is going back. After trying hard to send money to his family in Honduras he has decided to return and saved money for a one-way plane ticket. His job as a day labourer was no longer sufficient. There were few other work options and after suffering the fourth straight week without a job he took the decision.
Thousands of legal and illegal immigrants are following the same trend. The foreclosure related crisis has led to the drying up of jobs in the housing sector and this has led to an all round slump in landscaping, restaurant business etc. The inflow and outflow of immigrants to and fro the border follow a cyclical pattern. Many return during Christmas. But those in authority say that the exit numbers are abnormally high.
The foreclosure crisis is not contained within the boundaries of America. The municipal government of Mexico predicts that the numbers of those returning are more than 20,000 or 30,000 of the regular figures because of lack of jobs. The consulates of Mexico in California and Chicago note that 4,000 more immigrants have already left because of the foreclosure related economic crisis. There are also other things that point to the fact that USA is no longer the magnet it used to be a couple of years ago. During the housing boom there was plenty of work for all.
Lesser numbers of illegal immigrants are caught crossing over into America. This year the number till 30th September has fallen by 18% from the previous year and 39% less than the numbers of 2005.
The immigrants, thanks to the foreclosure related credit crunch, are sending less money to their native homes. In August the remittances were the lowest since the last twelve years. The central bank of Mexico said that the amount of money coming in dropped in August this year by 12%.
There are about 12 million illegal immigrants in America and as such the number going back home is comparatively small. Most of them will continue to hang around USA because the job prospects are far worse in Mexico. Moreover many have brought over their families to USA. This was the opinion of Wayne Cornelius of California University, San Diego Center for Comparative Immigration Studies.
California Bank Foreclosures by Top Counties
October 30th, 2008
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Today it is much harder to avail of a mortgage than it was yesterday. That is why some of the house sellers are financing deals on their own in this foreclosure age. The concept of the owner becoming the financier is not new but generally the buyer preferred the mortgage lender because the latter was cheaper. But days are tough today. A seller who finances the deal gets preference over the others.
Dawn Rickabaugh of Rickabaugh Realty said that there are many “good buyers out there that can’t get loans.” The bank lays down many preconditions that make many buyers shy away. In her own website NoteQueen.com she deals mainly with financing by owners. The most difficult loans to obtain are large mortgages for commercial properties. These are ideal for seller financing schemes. The plan however can be applied to any kind of property. The sellers can finance the full or part of the loan.
Self-employed buyers or those who work for commission are generally disregarded by banks and lenders for regular loans. A person with a scarred credit is also ignored. There is also the instance of the parent who has co-signed with a son or daughter for a car loan and then gets a black credit mark because of default.
From the sellers point of view there are many advantages in this scheme today when the market is clouded by the foreclosure crisis. By financing the deal the seller is assured of a steady income from the mortgage contract. These days any other type of investment is risky but interest on these house mortgages are welcome with more than a 7% turnover as interest. The scheme will especially appeal to those who have good equity on their houses.
But undoubtedly it is not everybody’s cup of tea. Russell Bean is a property appraiser of Georgia and Alabama. He has experience in this sort of financing being done by the seller. He said, “It wouldn’t be for someone who needs all of their money now to purchase their next home.” If the buyer trip in payment while the paper is with the seller then the latter can repossess the property by following the process of foreclosure.
A generous down payment will give protection to the seller. This should be the norm especially if the buyer has a questionable credit history.
Bank Foreclosures by Top States
October 29th, 2008
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Real estate market tumbled as foreclosures spiked in August. The fall in the housing market is the biggest since the last seventeen years. Foreclosures are largely responsible for reducing property prices. Global credit crisis worsened matters.
Price of property fell by 5.9% from the previous year – this being the biggest fall since 1991. The Federal Housing Finance Agency started collecting data from that year. Foreclosures increased in the third quarter by 71% from the same period in 2007 according to RealtyTrac.
With foreclosed houses rushing into the housing market supply is outstripping demand, causing prices to tumble. Thousands of foreclosed houses across the country are being sold at court auctions. Recession kicked off during the third quarter has worsened the situation. More borrowers are defaulting as unemployment rises according to Jay Brinkmann of Mortgage Bankers Association. Rick Sharga of RealtyTrac said, “The people living paycheck to paycheck are at risk if they lose their jobs. It will cause more people to lose their homes.”
A single foreclosure has the power to bring down the price of adjacent houses in the neighbourhood. The value can drop by approximately $220,000 as the entire area is stigmatized. Foreclosed houses are offered for sale at discount prices. Towards the end of June the banks in America held foreclosed properties that were worth $9.9 billion. It is an increase from $8.5 billion – what it was three months previously according to FDIC. About 250,000 houses are being foreclosed upon every three months.
Foreclosure filing dropped by 12% in September compared to the previous month of August. This was largely because of states enacting laws to contain the flood of foreclosures. In North Carolina the default notices dropped by 66%. This was after a law was passed making it mandatory for the lenders to give a 45 days notice before proceeding with foreclosures. A similar recently passed law in California made it compulsory for lenders to meet borrowers before resorting to foreclosure. This led to a drop of 23% in foreclosure numbers during the third quarter. The word foreclosure is used broadly to include all the stages of the legal process.
In September the foreclosure rate across the nation was 1:475. According to the National Association of Realtors the average selling price of a house in America dropped by 9.5% in August. From $224,400 in September 2007 it fell to $203,100 this year in the same month.
Bank Foreclosures by Top States
October 28th, 2008
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Foreclosures are not just about numbers but real life with people either being threatened to be evicted or really out on the roads. Even those who are not in the soup are in fear being surrounded by foreclosed units.
Gabrielle Revere looks like as if she is in the pink of health. But worry is gnawing her. Even if a sore throat crops up she does not want to go to the doctor for fear of spending $300. This is the picture today in the foreclosure ridden society comments News Medical correspondent of CBS. Gabrielle said, “Is it worth the $300 to go to the doctor’s office too tell me that I have strep, and then get a prescription filled that my health insurance does not cover for another $50?”
According to a recent survey today’s foreclosure crisis has forced nearly 80 million Americans, even those who are insured like Gabrielle, to make cuts on their health care spending. Nearly 36% of the people are postponing medical attention. It is a huge increase from what it was only 6 months previously. Nearly 30% do without tests or treatments and 27t% avoid getting a prescription.
LaPook took an informal survey. It showed that patients have often missed appointments, medications and screenings. In another scrutiny it was found that it was mostly the young adults who were the worst affected. The majority (about 70%) opines that it is the foreclosure crisis that has caused this critical situation when people just do not have the money for health care.
Scott Crumpler is another such victim of the times. He lamented, “I haven’t had a physical or any kind of checkup in a long time.”
Those in charge of health care economics are warning that overlooking even simple ailments can have serious consequences. Dr. Sherry Glied of Columbia University said, “When people cut back on preventive care on the monitoring and care of chronic illnesses, they are really cutting back on their own lives, on the health and quality of their lives in the long run.”
A recent survey by American Psychological Association shows that as many as eight out of ten Americans complain that they are stressed out because of the foreclosure related economic crisis. In April, 66% had made these observations. Women are feeling the stress more than men. Perhaps this is because women are more open as regards their feelings rather than the opposite gender.
Bank Foreclosures by Top States
October 27th, 2008
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Pundits had given adequate warnings but the ignoring of these has led to the foreclosure crisis of today in USA. But since the days were heady from 2003 to 2008 one did not heed the approaching storm. Defaults set in. It had a snowballing effect on financial bodies since the banks in USA are without SLRs and CRR’s. This meant that for every $1 deposit a loan of $8 is created by means of accounts on paper and transfers.
At this juncture rumours began to circulate. The cry of foreclosure was raised. The media thrived on it highlighting figures of millions of foreclosures. It meant banks were neither being able to get their mortgage dues nor make profitable use of the property they seized. People rushed to withdraw deposits. Banks failed them. Panic set in. The financial bodies do not have the reserve fund to satisfy all depositors at one time. They declared bankruptcy. The ranks of Fannie Mae and Freddie Mac were joined by Lehman Brothers, AIG and many other smaller fry.
The stock market generally reacts to each shred of bad news. This was no exception. It began to plummet and added to the mayhem as news of more foreclosures leading to bank failures poured in. Globalization led to international panic since one financial unit is linked to another. To restore confidence the governments had to step in.
The foreclosure crisis has led to the Bush government’s bailout package of $700 billion. In its first edition the package was rejected mainly it envisaged making direct grants to the busted banks. But after much trimming aimed at saving the taxpayer the bill has been given the green light.
The two presidential candidates Senator Barack Obama and Senator John McCain have their own suggestions to the foreclosure problem. But both plans seem to be much short of remedial expectations. Most of suggestions avoid the basic issue the ordinary man being harassed by foreclosure. The blame game is going along with some blaming the Blacks and the Hispanics for being gullible and greedy. This has set off racist tensions.
Foreclosures have become a socio-economic issue with entire neighbourhoods turning into eyesores with vacant foreclosed houses. The police and fire fighting forces with reduced budgets, thanks to the credit crunch, are in no position to tackle the increase in crime and disease. Meanwhile foreclosures have the last laugh.
Bank Foreclosures by Top States
October 24th, 2008
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California, Florida, Arizona and Nevada together with Ohio and Massachusetts are the foreclosure centres of USA. Despite desperate measure things are not getting any better but worsening.
HUD will be giving Florida $540 million to purchase foreclosed properties, refurbish them and let it out as rentals. The logic is that by enforcing the Neighborhood Stabilization Program and taking these foreclosed houses off the market the regular real estate market will stabilize. But this move alone cannot
bring back health to the economy of Florida. The apprehension is that foreclosures will increase between 14% to 15% by the following year in Jacksonville, Naples and Miami because of the tumbling housing market and unemployment.
Doug Duncan of Fannie Mae said that the situation is nowhere near recovery. He explained that the inability to sell a house in Florida is not because of price but because there are no buyers even the price of a brand new unit drops to zero. This is causing many foreclosure victims not to try to sell the houses but to walk away from worthless properties.
The situation is similar in California. Five of the top ten foreclosed cities are located in California like Fresno, Merced, Santa Cruz and Santa Barbara. Here the fear is that by next year foreclosures will increase by 11% to 14%. The growth of jobs is better here than in Florida and perhaps the number of sanctioning of new housing permits will not drop further – having reached its bottom. Although the prices of houses are low slowly sales are picking up in San Diego (17%), Los Angeles (21%) and Sacramento (32%) as per the findings of RadarLogic of New York. Scott Hoyt of Moody’s Economy opines that perhaps in some places of California the bottom has been reached. He said, “These places were the first places to crash. Now they’re further into the foreclosure cycle. It looks like permit activity is starting to bottom out.”
A compilation of the 50 biggest foreclosure markets has been made by calculating the rate of those mortgages that have been written off – or those whose loan amount is more than the value of the house. In Miami the rate is 6.2%. It means of each $100, $6.20 vanished due to the foreclosure crisis.
The vital factor in any prediction is the job factor. Without jobs people cannot pay mortgages. Jobs are expected to fall by 4% or 3% in some places in Florida. The macro economy will get rid of 1.3 million jobs. That is not good news for 2008.
October 23rd, 2008
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A visit to the Cook County foreclosure court is enthralling with sunlight dancing on Lake Michigan. But people entering the court hardly notice Mother Nature as they enter with their heads down, worried and clutching piles of files as they hunt around for the relevant courtroom.
Cook County is flooded with foreclosure cases compelling the authorities to add four more judges to the team of ten. Foreclosures have gone up by 47.8% during the first six months of 2008 and it is apprehended the number will cross 42,000 before the year draws to a close.
Dorothy Kinnaird is the presiding judge of the Chancery. She comments that it takes about 10 months for the foreclosure process to run through the procedure. She said, “We haven’t even felt the full brunt of 2008. We’re still feeling last year’s foreclosures.”
Most of the foreclosure victims arrive unattended. For some this is the beginning of the fight. Others arrive on the eve of the eviction day hoping that some time will be gained. If the borrowers turn up the judges are only too glad to give them time. But unfortunately about 80% of the borrowers quietly lose out and allow the case to go unattended. They are too busy grappling with basic shelter and food problems to contest court cases. Those that do appear at court are emotionally upset about losing their hearth and homes. For them it is not so much an economic issue.
The scene in a Cook County court mimes what is going on in every corner of the country as the nation reels against the onslaught of the foreclosure attack. It is this that has led to the financial crisis whose tremors are being felt globally. All – the judges, lenders as well as borrowers, is sharing the tension while the communities pay the price of being saddled with vacant foreclosed houses.
Judge Clifford Meacham summed up his feelings aptly, “When you take somebody out of their house, it comes with a judicial price, at least for me.” He thinks that when the house that is home is taken away the person loses his or her identity. Meacham has been supervising foreclosure courts since 2004. He added that although money is an important factor and he knew “that banks are entitled to repossess homes” but personally he did not like it. After 20 years in the bench he is due to retire the following month.
Illinois Bank Foreclosures by Top Counties
October 22nd, 2008
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The financial illiteracy of the ordinary Americans is said to be largely responsible for the foreclosure crisis. As the financial drama unfolds the blame game goes on with fingers pointing at bankers, borrowers and policy makers.
A recent report shows that that the financial literacy standards of the ordinary American are very low. It makes it difficult for them to oversee their simple cheque accounts in banks. How can they save themselves from the falling credit market? Even the policy makers are not much better financially educated. Less then 15% of the present members of the Congress have a degree in economics, finance or business. Of the adults 70% cannot note FICO scores being the most important point in being able to get a mortgage. About the same number of people cannot calculate late credit card interests. Thus it does not need much thinking to connect the present foreclosure related financial crisis to collective ineptitude. The survey brought out the shocking revelation that the widespread financial illiteracy has been a contributing factor to the proliferation of problems in all corners of the economy.
Undoubtedly the causes of the present financial crisis are complicated but one cannot deny the major role that foreclosures and mortgage defaults have played in it. There were shrewd dishonest mortgage brokers and confused Wall Street investment firms. But it has to be admitted that millions borrowed well beyond their means and aggravated the situation. The contracting of adjustable rate mortgages with negligible interest rates is indicative of the lack of financial knowledge. This has stopped them from asking fundamental questions about their loans. A simple question like how much will the monthly payment be in the fifth years would have been of great help to prevent people from falling into this foreclosure mess.
Financial education has not kept pace with personal finance that has become much more complex from what it was a couple of decades ago. For instance instead of the employer managing retirement funds, the employee is expected to do so himself. To do so one must have a basic knowledge of inflation, deflation, deferred taxes and diversification of assets.
A recent survey conducted by Rutgers University showed that more than 30% of the citizens had more credit card debts than savings in retirement funds. In 2005 the national savings dropped to zero – the first time since the Great Depression. Overspending and under saving can have dangerous consequences as seen in the eruption of the foreclosure crisis.
Bank Foreclosures by Top States