Thursday, February 14, 2008

Everybody Takes Advantage Of An Opportunity, Right!

The more you try to understand the current home foreclosure and subprime mortgage crisis, the more it becomes clear that there are very few innocents. And, while there is more than a little blame that can be spread around, casting blame certainly won't help.

At the heart of these woes is the combination of the mores of consumerism and greed with an economic system based on credit and debt.

We have become a society that:

  • buys depreciable things on credit;
  • that we don't need;
  • just because they're on "sale";
  • and an ad told us that we had to have it in order to feel good;
  • so we can place them on a shelf;

and tell our neighbors that we have one too.

And our leading economists tell us that this is a good thing because it keeps the economy going.

No problem there.

excerpt from

Auctioneers Bring Down Hammer on America's Broken Dreams
Andrew Clark in Los Angeles for The Guardian

Homebuyers in California are bargain hunting after a year that saw 250,000 foreclosures

This article appeared in the Guardian on Tuesday February 12 2008 on p25 of the Financial section. It was last updated at 00:09 on February 12 2008.

Bellowing a quick-fire patter of garbled numbers, the auctioneer brings down his hammer - bang! A pianist lets rip with a jaunty snippet of easy-listening music on an electric keyboard, then another Californian home goes on the block.

In the ballroom of a tourist hotel outside the gates of Los Angeles' Disneyland resort, some 250 bank-owned properties were sold this weekend in rapid succession. The deals are noisy, no-nonsense and decisive - each takes barely three minutes.

This is the bargain basement of America's sub-prime mortgage crisis. The houses and flats offloaded by specialist auctioneer Hudson & Marshall are all properties
repossessed by lenders from people unable to keep up the payments on homeloans.

"Folks, take advantage of this opportunity - it won't be here for long," urges the auctioneer, gesturing at a picture of a two-bedroom bungalow which quickly fetches $147,500. "If it sells today, tomorrow's too late!"

California is at the very heart of America's property slump. The California Association of Realtors reported that home sales dropped by a third last year and the average house price was down by 16.5%.

Lenders filed for foreclosure on 249,513 properties in the state during 2007 and almost one in 50 households was subject to repossession proceedings according to data
specialist RealtyTrac.

The banks have no desire to hang onto thousands of houses. Initially, they place these recession-hit homes onto the books of estate agents. But in a depressed market, many of them fail to sell - so they are offloaded in mass auctions to fetch whatever price they can get.

"We're coming into areas that are very stagnant," says Dave Webb, joint head of Dallas-based Hudson & Marshall, who travels around America conducting sales for the big banks. "The houses are boarded up. People are vandalising them and that hurts the values of the communities. So we're coming in and we're getting these properties off the books and there's a lot of people that benefit."

More than 400 people turned up for Saturday's session, leaving standing room only. Auction staff in crisp white shirts patrolled every corner of the room, finding bids and communicating to the rostrum with shouts and complex hand signals.

Clued-up professional property investors scoured the listings in search of bargains to refurbish, then sell at a profit. But many of those present are simply looking for a cheap new home - families are here in force, handing out crayons to their children and refuelling on take-out pizzas during the marathon sale.

"My brother and I are looking for a duplex [maisonette] to move into," says Ricardo Lopez, an insurance adjuster. "We saw one in Silver Lake listed for $415,000 but we'd love to get one for less than that."

For as little as $200,000, bidders were able to snap up three-bedroom homes. Many of those on the block were in the so-called "inland empire"- the canyons, creeks and arid semi-desert to the east of downtown Los Angeles where the city's suburbs have crawled in search of space.

This inland sprawl was, until recently, booming. Blue-collar workers came here in
search of modest first homes, while middle-class families sought affordable
larger properties away from the city's costly beaches and skyscrapers.

John Husing, an economist based in southern California, says 80,000
people were moving east annually in the first half of the decade. Property
prices were rising by 8% annually in the Inland Empire and jobs were growing at
3.5% until, quite suddenly, the economy shuddered to a halt.

In part, he blames property speculators for the seizure. One popular book, published in
2006, was Flipping Houses for Dummies. Aimed at the "mom and pop investor", it
teaches how to make a quick buck by snapping up homes in a rising market, then
selling them almost immediately at a profit.

Lenders compounded the crisis, says Husing, by making ridiculous offers. He cites a copy of a 2006 advertisement which offered: "Buy a house - we'll give you a Maserati!"

"Folks didn't get it. The public just said 'I don't get this' and they stopped. What I call that is a buyers' strike," he says. "It was almost overnight that it stopped."

Horror stories abound about predatory lending in California, the home state of America's biggest mortgage firm, Countrywide Financial, which is under investigation by federal prosecutors.

Sub-prime lenders typically signed up clients using a "teaser rate" for the first couple of years with low repayments. They assured customers that, given the property boom, their homes would appreciate in value by as much as $100,000 annually - so by the time the "teaser" rate expired, it would be easy to refinance.

Checks on documentation were often minimal. The Hispanic community was particularly badly hit. Upwardly mobile immigrants, keen to buy homes of their own, were given loans far beyond their means. The Wall Street Journal recently found a Brazilian babysitter who was approved for a $495,000 loan and a housekeeper, married to a taxi driver, who secured a $713,000 sub-prime mortgage.

Legislators have responded by proposing laws forcing lenders to warn of rate rises at least four months in advance, using plain English. "The Wild West excesses of the mortgage frenzy of the last few years have resulted in shattered dreams and severely damaged the state and national economy," says Ted Lieu, a Democrat who chairs the banking committee in California's assembly.

In Washington, the joint economic committee of Congress has estimated that 2m homes across America will be repossessed in the sub-prime crisis, eliminating $71bn of housing wealth, including $23.6bn in California.

excerpt from:
Mortgage Crisis Spreads Past Subprime Loans

The credit crisis is no longer just a subprime mortgage problem.

As home prices fall and banks tighten lending standards, people with good, or prime,
credit histories are falling behind on their payments for home loans, auto loans and credit cards at a quickening pace, according to industry data and economists.

The rise in prime delinquencies, while less severe than the one in the subprime market, nonetheless poses a threat to the battered housing market and weakening economy, which some specialists say is in a recession or headed for one.

Until recently, people with good credit, who tend to pay their bills on time and manage their finances well, were viewed as a bulwark against the economic strains posed by rising defaults among borrowers with blemished, or subprime, credit.

“This collapse in housing value is sucking in all borrowers,” said Mark Zandi, chief economist at Moody’s

Like subprime mortgages, many prime loans made in recent years allowed borrowers to pay less initially and face higher adjustable payments a few years later. As long as home prices were rising, these borrowers could refinance their loans or sell their properties to pay off their mortgages. But now, with prices falling and lenders clamping down, homeowners with solid credit are starting to come under the same financial stress as those with subprime credit.

“Subprime was a symptom of the problem,” said James F. Keegan, a bond portfolio manager at American Century Investments, a mutual fund company. “The problem was we had a debt or credit bubble.”

The bursting of that bubble has led to steep losses across the financial industry. American International Group said on Monday that auditors found it may have understated losses on complex financial instruments linked to mortgages and corporate loans.

The running turmoil is also stirring fears that some hedge funds may run into trouble. At the end of September, nearly 4 percent of prime mortgages were past due or in foreclosure, according to the Mortgage Bankers Association.

That was the highest rate since the group started tracking prime and subprime mortgages separately in 1998. The delinquency and foreclosure rate for all mortgages, 7.3 percent, is higher than at any time since the group started tracking that data in 1979, largely as a result of the surge in subprime lending during the last few years.

An example of the spreading credit crisis is seen in Don Doyle, a computer engineer at Lockheed Martin who makes a six-figure income and had a stellar credit score in 2004, when he refinanced his home in Northern California to take cash out to pay for his daughter’s college tuition.

Mr. Doyle, 52, is now worried that he will have to file for bankruptcy, because he cannot afford to make the higher variable payments on his mortgage, and he cannot sell his home for more than his $740,000 mortgage.

“The whole plan was to get out” before his rate reset, he said. “Now I am caught. I
can’t sell my house. I’m having a hard time refinancing. I’ve avoided bankruptcy
for months trying to pull this out of my savings.”

excerpt from:

What Would Happen if Non-Profit Housing Associations
Were Able to Originate Mortgage Loans.

POSTED: Monday, January 14, 2008
FROM BLOG: Seattle's Rain City Real Estate Guide - We cover the real estate, mortgage, legal, technology and neighborhood scene in Seattle!

The following blog post is from an independent writer and is not connected with Reuters News. The opinions and views expressed herein are those of the author and are not endorsed by

The growth of non-profit associations within the real estate sector can be traced to 1977 and the Community Reinvestment Act (CRA). At that time, banks began giving money to the non-profit housing sector in order to meet their CRA requirements.

Non-profit housing agencies perform many services for the community. First time homebuyer seminars, and then later, mortgage default counseling, preforeclosure workout assistance, help negotiating short sales, all for free or for a nominal cost.

Non-profits set up special training programs for loan originators and loan officers who want to be on the “approved” list to receive consumer referrals for their government sponsored loan programs such as state bond financing loans. These loans have traditionally been considered a win-win for states as the funds are earmarked for specific neighborhoods in need of owner-occupied homeowners, as well as homeowners whose debt to income ratio might be too high for a prime loan. But what about people who live outside of the designated census tracts?

In September of 2007, Washington State Governor Gregoire commissioned a task force to report back to her with their recommendations on how to thwart any subprime meltdown from affecting the voters homebuyers and homeowners, also known as voters and campaign contributors, in Washington State. Here is how the representation on
the task force shaped up, including alternates.

Bankers: 6
Non-Profits: 11
Government Divisions: 2
Industry Trade Groups: 2
Realtors: 2
Mortgage Brokers: 1

The Task Force has completed their work, just in time for the next state legislative session. Looking at the way the voting would be split, I bet you’ll never guess what they’re recommending. If you guessed more money for the non-profit associations, you are smarter than most people originating loans in the U.S. during the calendar year
2006 based on a random sampling of comments from Moe’s insightful blog article
to which I owe a hat tip. Moe writes about the rise in power of NACA, the
Neighborhood Assistance Corporation of America, and how they created a mortgage
origination division following the successful predatory lending settlement between NACA and Fleet Funding, which provided NACA with 8.5 billion dollars to
start their direct-to-consumer mortgage lending operations

Related articles:

  • Value of homes rigged, lawsuit says
    A lawsuit filed by two couples claims that Los Angeles builder KB Home and a unit of lender Countrywide Financial Corp. pumped up appraisals in their Sacramento-area development to sell homes at higher prices.
  • Subpoena Deepens Countrywide's Woes
    Florida joined several other states, including California and Illinois, that have begun investigating Countrywide to determine whether the company's lending practices contributed to or were responsible for the rising wave of problem mortgages in the state..

Related posts:

When The Middle Class Can No Longer Cope

Do What's In Your Best Interest Not Theirs

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