Foreclosures Spur States to Rescue Homes From Default

Discussion in 'Wall St. News' started by ByLoSellHi, May 17, 2007.

  1. Foreclosures Spur States to Rescue Homes From Default (Update1)

    By Brian Louis

    May 17 (Bloomberg) --
    Willis Blackshear combs through Ohio mortgage filings looking for time bombs to defuse.

    The Montgomery County recorder, who oversees real estate filings in Dayton, is searching for loans with balloon payments, or interest rates that may soon rise to unaffordable levels. He has found more than 3,100 in Montgomery where 540,000 residents possessed the state's second-highest foreclosure rate last year.

    ``It's crazy,'' said the 46-year-old Blackshear. ``I knew it was bad, but I didn't know it was this bad.''

    The worst housing slump since the Great Depression is driving Ohio and 20 other states to propose consumer protection laws and bond sales that would help homeowners stem the escalating defaults. Ohio, with the third-highest foreclosure total in the U.S. last month, is raising $100 million to help homeowners refinance risky mortgages. New York, New Jersey and Pennsylvania are planning similar sales.

    ``We don't have much time to lose,'' said Ohio Governor Ted Strickland, in an interview. The foreclosure rate has ``escalated rather dramatically.''

    Strickland, the former Democratic congressman from Lisbon, Ohio, who became governor in January, created a task force of public and private officials to keep borrowers solvent.

    Foreclosures Rise

    Mortgages in foreclosure across the country rose 62 percent to 147,708 in April from a year earlier, according to a May 15 report by Irvine, California-based RealtyTrac Inc., which sells information on defaults. The median U.S. home price fell 1.8 percent in the first quarter, according to the Chicago-based National Association of Realtors.

    As many as 2.2 million Americans are at risk of losing their homes, the Center for Responsible Lending in Durham, North Carolina, said in a December study.

    The foreclosures have ``the possibility of making economic conditions worse, because they will shrink consumer spending,'' said Weihong Song, professor of finance at the University of Cincinnati.

    The 2007 median price for an existing home likely will drop 1 percent to $219,800 from 2006, the realtors association said in a May 8 report. The last time the national median declined probably was during the Great Depression in the 1930s, Lawrence Yun, the group's senior economist, said.

    Housing accounts for about 23 percent of the U.S. economy, when taking into account purchases of furniture, appliances and items for new homes, according to the Joint Center for Housing Studies at Harvard University in Cambridge, Massachusetts. The U.S. economy grew at a 1.3 percent annual pace in the first quarter, the slowest in four years.

    Subprime Crisis

    Ohio Attorney General Marc Dann said on May 15 that he wants to sue Wall Street firms because their bond sales enabled consumers to get mortgages they couldn't afford. Ohio has already won the right through a lawsuit to review foreclosures by New Century Financial Corp., the bankrupt California-based lender. Dann may add investment banks and credit-rating firms to the case or bring new suits, perhaps using Ohio's civil version of the federal Racketeer Influenced and Corrupt Organizations Act.

    At least 50 subprime mortgage lenders have halted operations, gone out of business or sought buyers in the past year, making it more difficult for consumers with limited or poor credit records to get loans.

    Ohio Sales Fall

    Ohio home sales fell 5.8 percent in the first quarter and the average price declined 1.5 percent to $143,383 from a year earlier, according to the Ohio Association of Realtors in Columbus. Ohio had 11,431 default notices, auction sale notifications and repossessions by banks in April, 39 percent more than in March and 135 percent more than a year ago, according to the data from RealtyTrac. Only California and Florida had more.

    As residents struggle to make payments, states are seeking policy solutions.

    The State of New York Mortgage Agency may offer mortgages that would let borrowers replace risky home loans with a fixed rate through participating lenders, said spokeswoman Tiffany Berns.

    New Jersey state Senator Ronald Rice, a Newark Democrat, introduced legislation this week to allow the state Housing and Mortgage Finance Agency to borrow up to $500 million and offer 40-year fixed-rate loans to owners in troublesome mortgages. Pennsylvania's Housing Finance Agency may sell up to $50 million in bonds to help subprime borrowers.

    Texas, Indiana

    In Texas, state Representative Eddie Lucio Jr. introduced a bill to require people taking out mortgages of less than $125,000 to first get mortgage counseling. Indiana Republican Governor Mitch Daniels signed a bill to provide consulting for people who defaulted or are in danger of losing their homes. In Colorado, some legislators want to require mortgage brokers to make a ``reasonable inquiry'' about a borrower's income before providing a loan.

    ``The states that are vulnerable should be looking to intervene to slow, if not reverse, this spiral,'' said Susan Wachter, a real estate professor at the Wharton School at the University of Pennsylvania in Philadelphia.

    The U.S. House Financial Services Committee is working on legislation to assist subprime borrowers if mortgage lenders don't, said Chairman Carolyn Maloney, a Democratic Representative from New York. U.S. Senator Hillary Clinton of New York, a Democratic candidate for president, has called for subprime borrowers to be given new loans at lower rates.

    `Saving' People

    Blackshear of Montgomery County isn't waiting for federal action. The county plans to send letters to residents alerting them of potential risks in their mortgages. He has identified 3,178 mortgages by eight subprime lenders that may have rising payments or rates that will reset. The mortgages were taken out from 2004 until March this year.

    ``It's unbelievable,'' Blackshear said. ``If we catch it early, we have the best chance of saving and helping people. If we help 100 people save their homes, to me we've done a good deed.''

    Foreclosure filings rose 24 percent to 79,072 last year from 2005, according to Policy Matters Ohio, a nonprofit research group with offices in Cleveland and Columbus. In Cuyahoga County, which includes Cleveland, filings soared 96 percent from 2001 to 2006.
  2. -Continued-

    Job Losses

    The culprits are slow growth in the economy, manufacturing job losses and ``aggressive lending practices that were barely policed,'' said State Treasurer Richard Cordray in an interview.

    In 1995, the two largest private employers in Ohio were Detroit-based General Motors Corp. and Dearborn, Michigan-based Ford Motor Co., with 87,200 workers, according to the Ohio Department of Development. By 2006, the number plunged 62 percent to 33,000. Wal-Mart Stores Inc., the world's largest retailer, is now the biggest private employer in Ohio with 50,000, followed by the Cleveland Clinic Health System, with 34,800.

    The faltering U.S. automakers have hurt the state's economy. Ford said on May 7 it will close a casting plant with 1,200 employees in Brook Park, Ohio, near Cleveland, in 2009.

    Ohio's unemployment rate has averaged 5.6 percent in the past two years through March, compared with 4.78 percent nationally.

    Ohio Refinancing Plan

    The independent Ohio Housing Finance Agency devised a plan to sell $100 million in taxable bonds in the next month for a mortgage refinancing program. The proceeds will allow homeowners to get fixed-rate mortgages at a forecast rate of 6.75 percent, compared with the current U.S. average 30-year fixed mortgage rate of 6.13 percent. The bonds are backed by the mortgages and taxpayer money is not at risk.

    Borrowers' household incomes must not exceed 125 percent of the median gross income of the county they live in to qualify for the loans. In Montgomery County, they can't earn more than $74,750. The owner must occupy the property and there is no limit on the loan amount. The loans will be packaged into Fannie Mae mortgage backed securities, the agency said.

    The bond sales are too little to help the number of homeowners who need assistance nationwide. First American CoreLogic, a unit of Santa Ana, California-based insurer First American Corp., estimated in a March report that $326 billion of adjustable-rate mortgages originated between 2004 and 2006 will end in 1.1 million foreclosures over the next six to seven years.

    Slavic Village

    ``This particular refinancing product does not in and of itself address the issue in this state, but it is hopefully part of a more comprehensive solution,'' said Doug Garver, the Ohio agency's executive director.

    The number of foreclosure filings in Cuyahoga County jumped 24.5 percent in 2006 to 13,610 from the previous year, according to Policy Matters Ohio.

    Cleveland's Slavic Village, a former enclave of Eastern Europeans, is among the city's hardest hit. The area is home to one- and two-story cottages built in the late 19th and early 20th centuries. The median price for a house sold in the first quarter in the Cleveland area fell 2.1 percent to $122,900, according to the National Association of Realtors.

    Many of the narrow streets in the neighborhood are dotted with boarded-up houses. Ripped-out carpets lie in front of abandoned homes. Plastic cups, empty soda bottles, sandals and other refuse litter empty properties.

    Rising Payments

    Lorenzo and Alicia Cook are among the residents there at risk of losing their home.

    Almost four years ago, the couple refinanced the mortgage on their two-story house, built in 1890. They got a 30-year adjustable rate mortgage that now resets every six months.

    The payments have risen by more than a third since then and are now $729 a month at 11.75 percent. The couple owes $71,300, Alicia Cook said.

    A slightly bigger house down the street is valued at $54,500, according to Cuyahoga County records. The Cooks want to refinance but can't because they've been late making payments over the past year. The couple also has a fixed-rate second mortgage with a payment of $277 a month.

    While the Cook's are now up-to-date, their financial troubles have mounted. They owe about $5,700 in gas bills and their two cars have broken down.

    Alicia, 53, lost her job as a machine operator in Cleveland and hasn't found steady work since 2003 because of an injured hand. Lorenzo, 54, works as an asphalt raker for seven to eight months out of the year at $24.63 an hour.

    ``I'll be all right until the end of the year,'' Lorenzo said. ``I take it day by day and just pray to the good Lord.''

    Struggling homeowners are familiar to Ron Nabakowski, the Lorain County Clerk of Court of Common Pleas. One in every 134 residents had a foreclosure last year in this county west of Cleveland, according to Policy Matters Ohio.

    ``Foreclosures are really overwhelming our office,'' said Nabakowski. ``I'm sure we'll set a new record this year.''

    The foreclosure trend is ``horrible,'' he said. ``It's something that used to be rare.''

  3. It's possible the US is in the "final, inflationary blow-off"... where NOTHING is ever again allowed to rebalance or contract as it would not be politically acceptable.

    If that's the case, then we are already on the "money pump until it all implodes" path. Eventually 90+% of Americans become bankrupt while the Gummint blames the Chinese, Globalization, or some other... Baby Boomers will be fortunate if ALL they lose is 90% of the buying power of their money due to inflation/currency debasement. Subsequent generations are TOTALLY F*CKED... and it's the US Gummint and Fed which did it to us!!!!!!!

    So, while you jubilantly celebrate the stock market bubble, keep enough gold handy to be able to buy a bar of soap. (When it's time to bend over and kiss your [financial] ass goodbye, you'll want it to at least be clean :D )
  4. S2007S


    ARMS still resetting every single day. Should be around another 1.5-2 million more ARMS resetting over the next 12-18 months. The bottom is not even close yet.
  5. Arnie


    I'll make a prediction

    Go out and buy the biggest house you can get and finance it with an ARM. Don't worry about making any payments. Then just sit back and watch as Unlce Sam comes to your rescue. You will probably get the house free and clear and maybe some "walking around money" to boot, for your "suufering". Trust me. Gentle Ben will make it all better. :D
  6. dont laugh... i was thinking this very thought. the govt will pass some kind of home buyer amnesty bill... the banks will whine and the govt will bail them out with tax payer money.

    reminds me of the IMF scams in latin america. who wins? the irresponsible home debtor, the banks and the builders. who loses??? once again, middle class america.