WP,pg1: Bane Amid The Housing Boom: Rising Foreclosures

Bane Amid The Housing Boom: Rising Foreclosures
By Michael Powell
Washington Post Staff Writer
Monday, May 30, 2005; Page A01


....Philadelphia, its suburbs and indeed much of Pennsylvania have experienced a foreclosure epidemic as low-income homeowners take on mortgage debt they cannot afford. In 2000, the Philadelphia sheriff auctioned 300 to 400 foreclosed properties a month; now he handles more than 1,000 a month. Allegheny County, which includes Pittsburgh, had record auctions of foreclosed homes, and officials speak of a "Depression-era" problem. The foreclosures fall particularly hard on black and Latino families.

For some American homeowners, the greatest housing boom in U.S. history has delivered riches. They repeatedly tap their homes for equity and use the cash to purchase granite countertops, a BMW, even a trip to the Super Bowl. But there's a dark side -- a sharp rise in foreclosures that is destroying the single greatest generator of personal wealth for most Americans.

Foreclosure rates rose in 47 states in March, according to Foreclosure.com, an online foreclosure listing service. The rates in Florida, Texas and Colorado are more than twice the national average. Even in New York City and Boston, where real estate markets are white-hot, foreclosures are rising in working-class neighborhoods....

***

Should the nation's housing bubbles deflate, as many economists and federal officials expect, the foreclosures could prefigure a national crisis. Americans now shoulder record levels of housing debt -- more than 8 percent of homeowners spend at least half their income on their mortgage....

***

State and federal regulators place much of the blame for the foreclosure problem at the feet of mortgage brokers and bankers, who have crafted ever-riskier ways for Americans with poor credit to buy homes....But many policymakers say the rise in foreclosures leads to a larger question: Is the push to boost homeownership -- successive presidential administrations have strongly promoted it -- backfiring? As home prices and personal debt rise to record levels, they note, homeownership has become an albatross for millions of Americans, destroying rather than creating wealth....


http://www.washingtonpost.com/wp-dyn/content/article/2005/05/29/AR2005052900972.html

successive presidential administrations have strongly promoted it

Hm. Interest rates during the Clinton years were much, much higher; and people didn't take the risks they're being conned into taking now.

This just stinks. I just sold an apt. bldg in Illinois, and I'm looking for a commercial bldg in Baltimore, where the prices are way too high for people to sustain the cost of 100% ARM mortgages and second mortgages for their down payments. The bubble is real here, and thousands of speculators are going (or are about to go) bust.

Housing has an artificial pricing. Cheap apartments with one bedroom, one bathroom, and no real kitchen shouldn't cost $500/month. That is more than a couple who has a mortgage on a $80,000 home. Once the bubble bursts, those that waited will get a great deal but I never understood how people can refinance their homes for cash when it can risk their home itself.

When I first moved to the area back in 1990, $1,500 would get you into the finest apartment building in town -- exclusive address, all amenities.

In theory, someone making $25,000 a year could purchase a modest condo in the outer reaches of Montgomery County (perhaps in Germantown or Gaithersburg).

When I was considering buying in the mid-90s, I was told that some luxury condos in Friendship Heights could run as high as a million.

Today someone might charge you $1,500 for renting their basement apartment. A one-bedroom unit in co-housing in a comparably affordable suburb can run a quarter of a million dollars or more.

The Washington Post did an article on the issue of affordable housing in Montgomery County, Maryland, and what was defined as "affordable" was something requiring a household income of $80,000-plus.

Saturday's Post had a front-page article on interest-only loans and the danger they pose.

Yet the country -- and particularly the administration -- hasn't really awoken to any of this yet. I am not looking forward to the pain to come.

Two months ago my 1BR condo in a so-so neighborhood in Fairfax, on the bus line but a few miles from Metro, sold for twice what I bought it two years ago. There's no way I could afford it now.

Those homeowners, most of whom are blacks, Latinos or working-class whites, live close to the economic margin.

They have low incomes and little or no health insurance -- 40 percent of those who sought emergency foreclosure help cited medical costs as the cause of their distress.

...

Few of these homeowners were tutored in home buying, and 70 percent relied on "subprime" mortgage brokers, which specialize in buyers with bad credit and charge interest rates between 8 and 12 percent, far above market interest rates of 6 percent or less.

Too many of these subprime lenders, I prefer to call them predatory, know exactly what they're doing when they extend large mortgage loans to low income people, and those on fixed incomes like senior citizens, or talk them into flipping their mortgages. I know because I see people like this almost everyday; and those are the ones that can afford legal assistance. It serves a dual purpose in that these lenders know chances are good these people will fall behind on making payments. And when these people complain, or plead their story, they will be dismissed, wrongly, as "deadbeats," or people who got in way over their head and were too "unsophisticated" to understand the consequences. Nevermind the lender's pressure tactics when it made the loan, and, in many cases, their failure to disclose important components of the mortgage loan to the borrower.

This doesn't even begin cover the tactics of the worst ones, such as purposely "misplacing" borrowers' payments until after the due date, even though the borrower sent it in well beforehand, to ding them with late fees, etc. Pressuring a borrower into flipping their loan to strip out any equity built up in the home. Planned "incompetence" when the borrower tries to refinance, so that its impossible for the refinancing lender to complete the transaction. Outright stealing payments by first crediting the borrower's account and then weeks or months later, reversing those payments, to put the borrower in a foreclosure posture. When the lender has terrorized the borrower with the propect of losing their home, they are able to get the borrower into an oppressive forbearance agreement, which doubles or triples monthly payments, and which the lender knows the borrower will never be able to complete, so they will foreclose anyway after squeezing the borrower for whatever money they have. In some foreclosures, these lenders will disguise their identity by filing for foreclosure under the name of a major bank that provides custodial services for the lender's notes, and they use incompetent evidence in support of their claims. These type of lenders will also buy the property at the court auction and then use it for property flipping schemes, or to wrangle in their next victim and start the entire process over again. As if to add insult to injury, most of the time, the lender doesn't even own the promissory note because they failed to comply with UCC Article 3 procedures.

More often than not, courts and lawyers are of little help unless they're aware of the tactics of predatory lenders and know what to look for, because too many have been taught to believe that if a lender claims the borrower is behind on payments, it must be true. To be fair though, people outside the legal profession can be included too.

I'm not sure what Clinton's policy was re: homeownership; whether he actively promoted it, supported previous administrations' policies, was indifferent about it, etc. However, the advent of predatory lending was during his administration because many of these lenders got their start by purchasing the residential and commercial mortgage portfolios of failed S&Ls from the RTC in the early 90s. That, of course, was not Clinton's fault. But this is an area where things start getting murky and extremely complex. In fact, Catherine Austin Fitts has written a series of articles on the subject which are very disturbing in this respect.

In any event, the mortgage industry is just one area among many in the consumer finance sector that is screaming for regulation. But because of the influence corporations and their PACs have on both parties, some of the things that really need to be done -- like regulation and licensure of mortgage brokers (as it stands now, anyone can become one, even former white collar felons), and consumer protection laws with teeth -- won't happen and we'll keep getting these watered down laws sold as panaceas for the excesses of the industry, and so full of loopholes the lenders will find ways around them.

This is good info that we all need to be aware of.

I'm wondering, have any of the individual states done anything about this? I'd think that some of the AG offices or oversight offices for banks and lending would be all over this kind of stuff.

I'll grant you that state solutions are spotty and lack a consistency, but it it is a start toward consumer protections--and lord knows we are NOT gonna ever see that at a federal level as long as thing current gang of thieves is in place. I am convinced that we are at a point where any consumer protections we have will HAVE to be organized and driven from local levels.


Laura

yes, North Carolina has one of the better predatory lending laws on the books and so does the municipality of Oakland, CA. Contrary to mortgage industry claims, and the skewed studies it financed on these laws, they have not restricted low income consumers' access to credit. In fact, subprime mortgage business increased after NC enacted its law. But the mortgage industry hates these laws because they help to level the playing field between lenders and borrowers, and force lenders to behave more responsibly when making these loans. The shortcoming of these laws, however, is that they do not address the problems of homeowners who find themselves in the grip of the more aggresive predatory lenders. My personal feeling is there should be the corporate "death penalty" in cases like this, and the officers, as well as the employees and brokers that conspired with them, criminally charged and forced to pay restitution because these tactics are essentially fraud, theft and racketeering, among other things. But more importantly, people and families are left homeless after these companies steal their homes from them. Further, as the article said, many end up filing bankruptcy to stave off foreclosure. But this only hurts them even more in the long run, and in many cases, needlessly because they wouldn't have had to if the lender behaved lawfully and responsibly.

This is why I think there should be, at minimum, a moritorium on judicial foreclosures until this problem and the industry are cleaned up. At most, every single one of the cases filed by these lenders should be reviewed, and restitution plus back interest paid in cases where there was no ground to lawfully foreclose, with criminal penalties where the statute of limitations haven't run out. I also think at most that there should be an outright ban on foreclosures and the lender forced to work with borrowers when the latter runs into problems; this would also effectively solve the problem of fraudulent foreclosures. Moreover, there should be a permanent ban on non-judicial foreclosures, which only invites abuse by predatory lenders. This all may sound revolutionary, but under the current system, these mortgage companies end up inflicting more damage on the financial system because when they conduct a fraudulent foreclosure, they make a claim against the mortgage insurance. Primarily, they're not entitled to this money in the first place. But of equal concern, when these lenders make too many claims, they affect the solvency of insurers. And when you're dealing with HUD mortgages, its the Federal government backing the mortgage, meaning your and my tax dollars are involved. On this note, lenders also cheat the tax system because they can write off foreclosed loans. Further, stockholders get hurt because fraudulent forclosures skew the company's books, which overstate the company's true financial heath; think of mini WorldComs waiting to happen. It also creates havoc in the mortgage-backed securities market because the actions of these lenders engender less confidence from investors in the system.

Unfortunately for homeowners, Bob Ney introduced a bill which would preempt NC's and Oakland's laws, and severly water down HOEPA, which was Congress' initial response to predatory lenders, but really doesn't do a whole lot in the first place. This bill is sponsored by a few other Republicans and several Democrats. On the bright side, an analog to NC's law that has been introduced as a competing bill in the House, can't remember by who offhand, but it will need all the support it can get to get through this Congress.

The only two states I know of that have attempted to make some headway on this issue are AGs of New York, who of course is Spitzer, and California, Bill Lockyer. Last year, Lockyer attempted to revoke Wells Fargo's (one of the worst!!) ability to make mortgage loans in California after numerous complaints about Wells' originating and servicing practices. However, Wells went to Federal court and received a decision in its favor which held that because Wells is a Federally-chartered bank, it couldn't be regulated by California, but only by the Office of Thrift Supervision. The problem with this is that OTS is no different than any of the other Federal regulatory agencies in that its a revolving door for former banking and mortgage industry insiders. So all OTS does is give a lot of lip service to the problem of predatory lending, but does nothing to stop or solve the problem.

Last year, Spitzer was going to test an OTS pronouncement that claimed only it, and not the States, could regulate Federally-chartered banks. But I haven't heard anything more on that case. I will have to definitely check on that though to see if anything came of it.

My own attorney general, Charlie Crist -- the person in a position to do something major about this, because many of the worst predatory lenders (Homeside, Ocwen, Fairbanks) are based in, or have a substantial presence in Florida -- seems more interested in taking on easy and politically popular cases, like gas prices. Well, that's all well and good, but I think people having their homes wrongfully stolen out from underneath them is a bit of a bigger problem.

The FTC doesn't seem very interested in solving the problem either. Last year they did sue, and settled with, Fairbanks over its servicing practices, which included some of the things in my initial post, as well as breaking into people's homes and changing the locks on them. But the settlement was basically a slap on the hand as Fairbanks only paid $40 million in restitution, which worked out into borrowers receiving $3,000 in compensation, after many spent much more than that in legal fees, and still lost their homes. The CEO was allowed to keep his job and Fairbanks is still in business.

We've had clients make complaints to the state bar about the lender's flunky attorneys (these lenders often use the same law firms, called "foreclosure mills," to conduct their foreclosure suits, and there is a national association of law firms that exclusively do this kind of work). The complaints were extensively documented and backed up with supporting evidence, but the Florida Bar's response was basically get lost. They obviously don't care that their members are possibly committing perjury, or fraud, or engaged in racketeering activities.

Anyway, when the regulatory agencies that are in a position to take action on this problem don't seem interested in doing anything, what are these people supposed to do? It's left them, and me, with very little faith in the political and legal systems. Borrowers have tried to enforce the laws on the books through class actions and private civil suits {this is one reason why limiting class actions is a very bad idea and judicial appointments are extremely important). In fact, I know of one lender that has over 16,000 class action and private suits against it nationwide. But these cases often end up settling instead of going before juries which could level substantial punitive damages against them. And I think that until a proper regulatory scheme is put in place, these lenders need to be hit financially through punative damages, as well as boycotts, govermental penalties, whatever people can come up with, because it seems money is the only thing these people running these corporations understand.

Appreciate it.
That was a lot of info.

Didn't we suspect this would happen in a second reign of terror?
No escape for the people at the bottom of the ladder. The Raw Deal Republicans continue to squeeze up each rung. Along with the fear this engenders in the getting-by-for-now crowd, it keeps the serfs in line on a basic survival level. I understand we're building more prisons. Debtors prison can't be far off.
They're the meanest bunch of thugs we've ever seen.

It doesn't surprise me that home foreclosures are soaring. It's next to impossible to get/keep a job in this dying economy, and too many people are one paycheck away from disaster.

Add to that the insane American policy of not having single-payer healthcare, & you have families that are one severe illness away from losing their homes due to extremely expensive medical care.

You can rent a four bedroom, tewo car garage, never lived in, brand-spanking new house for less than a grand now. Just multiply that by thousands. No takers.

By this fall I predict the housing bubble will be in full pop...culminating in a very nasty October stock market surprise.

People will migrate to where the jobs are.. Currently the DC metro area (which just keeps getting larger and larger sq. mile wise) has one of the lowest unemployment rates in the country. Mostly due to the federal govt (DoD etc) and all the defense contractors in this area. Not to mention a lot of tech and bio-med companies.

The housing around here is rediculous. I bought a year ago and have seen places around me go for $75000 more than what I paid. IN ONE YEAR. I couldn't afford to live where I am if I were to buy now. Luckily, I have steady income and my mortgage is 27% of my monthly income. High, but not as high as lot of these people buying $700k TOWNHOUSES.

At this point, I dont see much that will cool off the market around here. If interest rates rise ALOT, causing foreclosures, and the ability to find houses cheaper than market rate, I could see a downturn, but not a "bust". There are simply too many people attempting to move into this particular area.

Of course, as the article states... A lot of the foreclosures are from people on the edge of marginal living. These are the people that get hurt the most, since they will be the first to run out of money (not a lot saved, etc). Most people my age (mid 20s) could care less, which is a shame. "Oh, thats there fault, etc". This country is gonna need a movement like what happened in the 60s and 70s before anything real happens. The young just dont care, since mommy and daddy spoiled them the last 20 years. They have little concept of money. Welcome to the me first generation!

...and when you tie in these problems with the changes in Bankruptcy Laws, well, thank Bush and his cronies ...such as Harry Reid!

PHILADELPHIA -- To walk Thayer Street in northeast Philadelphia is to count, door by door, the economic devastation afflicting a working-class neighborhood. On a single block, 18 of the 42 brick rowhouses have gone into foreclosure in the past three years.

There's Marciela Perez, who fell ill with cancer, lacked health insurance and stopped making mortgage payments. Barrel-chested Richard Hidalgo, who got divorced and could no longer make his monthly nut. And Mike O'Mara, a rawboned and crew-cut truck driver who took on too much debt, lost his job and fell behind on his mortgage.


Cynthia Boyd 42, is barely holding on to the house she bought in Philadelphia. Boyd, who had problems making her mortgage payments after she became sick and had family problems, tried unsuccessfully to file for bankruptcy.
Cynthia Boyd 42, is barely holding on to the house she bought in Philadelphia. Boyd, who had problems making her mortgage payments after she became sick and had family problems, tried unsuccessfully to file for bankruptcy.

"Mortgage companies convinced us to refinance, and each time our bill went up," O'Mara said as he surveyed his narrow street from his shaded front porch. "You fall behind and they swoop down on you."

more...

http://www.washingtonpost.com/wp-dyn/content/article/2005/05/29/AR2005052900972_pf.html

and lead off the news cast never do,do they?The network news could have a backbone and air these stories every single day until it got through,that all is not well with America.Just because the top 5% is doing fantastic doesn't mean the rest of us are.

more housing BAD NEWS that the Bush admin wants you and I to IGNORE!!!

The chief economist for the Mortgage Bankers Assn. is worried enough about the torrid housing market to get out of it.

"I'm going to rent for a while," said Douglas Duncan, who expects "significant reversals" in regions that have enjoyed strong home price appreciation, including Washington, D.C., Florida and California. He plans to sell his suburban Washington home, which has tripled in value since he bought it a dozen years ago, and move into an apartment.

Duncan is among a multitude of experts and consumers across the country debating the possibility of a housing bubble — a condition where prices have risen so far out of hand that they eventually crash.

Prominent policymakers and academics, including Federal Reserve Chairman Alan Greenspan, have recently warned about bubbles in regional markets. A recent nationwide Gallup/Experian poll of consumers showed that nearly four in 10 said they expected a bubble to burst in their region in the next three years. Across America, water cooler or cocktail party conversations often include talk about those who have made a killing in real estate, and whether it's now too late to get in on the action.

However, none of the experts or novices knows for sure when and how a bubble might burst. Bubbles throughout history, including tech stocks in the late 1990s, often go on for years, and crash when few expect it. Many experts and media pundits have been predicting a downturn for the last three years — and home prices have continued to rise, up nearly 70% since 2001 in the hot Southern California market.

Consequently, though some homeowners like Duncan are pulling back, others are buying as if prices will continue to rise for quite some time. Still others regret that they didn't buy in the last two or three years, now hoping to pounce when the bubble bursts and prices fall.

"If I had been reckless and disobeyed every single financial analyst's advice, I would be one of those people with tons of equity," said Susan Lindsey, a 42-year-old La Jolla renter who passed up buying a home in San Diego three years ago because she refused to take out a riskier type of mortgage that would have allowed her to qualify.


more...


http://www.latimes.com/news/nationworld/nation/la-fi-bubble29may29,0,5453706,print.story?coll=la-headlines-nation

Save up a 3-6 month buffer of living expenses before buying a home. Don't put yourself at risk of losing it all and destroying your credit. And don't get interest-only loans in areas of expensive homes. Won't take much of a drop in prices until you're upside-down in a hurry.

And don't get me started on adjustable rates. :)

I owe $36,000 on a $400,000 house, I bought for $75,000.
The Homes that were built around me sell for $1.5 million+, I never expected to keep taking steady cuts in income and have Property taxes go through the Roof, I'm getting squeezed.