CNN Money - Foreclosures up 75% in 2007

[Wags]

CNN Money - Foreclosures up 75% in 2007

Foreclosures continue to soar - Jan. 29, 2008

Excerpts from the article
The number of foreclosures soared in 2007, with 405,000 households losing their home, according to a report released Tuesday.

Total foreclosure filings soared 97% in December alone compared with December of 2006, according to RealtyTrac, an online seller of foreclosure properties. For the year, total filings - which include default notices, auction sale notices and bank repossessions - grew 75%.

End of excerpts.

The hardest hit are/were California, Florida and Michigan.

GOD BLESS

 

[Spanky]

In California alone, nearly 66,000 people lost their homes last year.

or walked away from their home and may have profited from them by taking out home equity loan and living there for free.

 

[Retire Soon]

When DW and I used to live in San Diego, we enjoyed trips to Las Vegas once a year. Neither of us are big gamblers, but we always enjoyed seeing a show and playing the nickel slot and poker machines. While there, we would sometimes go to the Santa Fe Station Hotel Casino, which was several miles west of the strip off of a main freeway. I remember how we were always amazed at the literally thousands of houses that were being built at at such a rapid pace with no end in site. With the desert being so large and empty, we knew there was always room for more new housing tracts. Each year when we would go there, we never ceased to be awe stricken by the thousands more new homes being built and wonder where all of the people were coming from, where they were working and how they could afford such beautiful large houses, in a state whose main industry was gambling with relatively low casino wages. It really blows my mind to read in this article that up to 40% of the homes in some of these Las Vegas communities are now in foreclosure. Everyone knew this was eventually going to happen, but no one did anything to stop it. There has to be untold amounts of human misery when the dream of home ownership is forcefully taken away from a family with the shame of not being able to make their payments. How could America do this to itself? It seems that that greed easily trumps morality in modern society.

 

[W2R]

or walked away from their home and may have profited from them by taking out home equity loan and living there for free.

Wouldn't that home equity loan have to be paid back when the family no longer owns that home (or the equity in it)? Having to come up with that money all at once could be tough.

I suppose some are not inclined to pay it back at all, and they probably have hundreds of thousands in credit card debt, too. I don't know if bankruptcy would help them as much as they might expect it to, or not.

 

[Retire Soon]

Wouldn't that home equity loan have to be paid back when the family no longer owns that home (or the equity in it)? Having to come up with that money all at once could be tough.

I suppose some are not inclined to pay it back at all, and they probably have hundreds of thousands in credit card debt, too. I don't know if bankruptcy would help them as much as they might expect it to, or not.

How can a lender force someone to repay a debt when there is no longer collateral?

 

[HFWR]

More than 1 percent of all U.S. households were in some stage of foreclosure during 2007, up from 0.58 percent the year before.

Another quote from the article...

 

[brewer12345]

It really blows my mind to read in this article that up to 40% of the homes in some of these Las Vegas communities are now in foreclosure. Everyone knew this was eventually going to happen, but no one did anything to stop it. There has to be untold amounts of human misery when the dream of home ownership is forcefully taken away from a family with the shame of not being able to make their payments. How could America do this to itself? It seems that that greed easily trumps morality in modern society.

So you would have preferred that all these people were denied mortgages and told to rent? How would you suggest that you administer that, given that lenders have been beaten with a stick for decades whenever they pull back from making loans to the less well off (or minorities)?

TANSTAAFL. Either you create lots of new homeowners and hope that the resulting foreclosures are outweighed by the happy people who finally have a home of their own, or you restrict credit to the marginal buyers and keep them as renters. Can't have it both ways.

 

[FinanceDude]

It really blows my mind to read in this article that up to 40% of the homes in some of these Las Vegas communities are now in foreclosure. Everyone knew this was eventually going to happen, but no one did anything to stop it. There has to be untold amounts of human misery when the dream of home ownership is forcefully taken away from a family with the shame of not being able to make their payments. How could America do this to itself? It seems that that greed easily trumps morality in modern society.

America didn't do it, it wasn't like the "squatter's right" days of the old West. Owning a home is NOT a moral question, although owning a home you CAN'T AFFORD may be...........

 

[Retire Soon]

So you would have preferred that all these people were denied mortgages and told to rent? How would you suggest that you administer that, given that lenders have been beaten with a stick for decades whenever they pull back from making loans to the less well off (or minorities)?

TANSTAAFL. Either you create lots of new homeowners and hope that the resulting foreclosures are outweighed by the happy people who finally have a home of their own, or you restrict credit to the marginal buyers and keep them as renters. Can't have it both ways.

You are putting words in my mouth, big time. I absolutely believe a home should be foreclosed upon when borrowers are unable to make the payments. The point that you obviously missed, is that the easy money of the past few years, much in the form of subprime loans, set these people up for failure. Most of these people never should have been granted a mortgage in the first place. Why did lenders loan money to people when they knew they would not be able to make the huge payments when the interest rates were reset? Simple answer, greed trumps morality in modern American society.

 

[FinanceDude]

You are putting words in my mouth, big time. I absolutely believe a home should be foreclosed upon when borrowers are unable to make the payments. The point that you obviously missed, is that the easy money of the past few years, much in the form of subprime loans, set these people up for failure. Most of these people never should have been granted a mortgage in the first place. Why did lenders loan money to people when they knew they would not be able to make the huge payments when the interest rates were reset? Simple answer, greed trumps morality in modern American society.

IMHO, you are completely wrong, but I still respect your opinion..........

 

[lazygood4nothinbum]

according to United States - Households and Families there were 111,090,617 total households in 2005**.

is there much long-term significance to the economy that 405,000 of them might foreclose?

**edit: 66.9% of those were owner occupied

 

[brewer12345]

Most of these people never should have been granted a mortgage in the first place.

So you come down on the side of restricing credit rather than letting people take their chances. Good to know.

I'd argue that greed had a part in all of this, but that it was ultimately freedom of choice that lead to what we see today.

 

[FinanceDude]

So you come down on the side of restricing credit rather than letting people take their chances. Good to know.

I'd argue that greed had a part in all of this, but that it was ultimately freedom of choice that lead to what we see today.

Well that, and a healthy dose of financial illiteracy................

 

[brewer12345]

Well that, and a healthy dose of financial illiteracy................

I figured that goes without saying when talking about the general Merkin population.

 

[Retire Soon]

America didn't do it, it wasn't like the "squatter's right" days of the old West. Owning a home is NOT a moral question, although owning a home you CAN'T AFFORD may be...........

We didn't give them "squatters rights", but we did give countless thousands of Americans a new home to live in for 2 or 3 years, and even paid their closing costs, with some even receiving money at the close of escrow.

I agree owning a home is not a moral question, but teasing someone with one for a few years (knowing they will eventually lose it) borders on cruelty. The CEO got his millions. The lender got his cut, as did the loan officer, appraiser, real estate agent, title insurance company, and escrow company. Do you think any of these parties stopped for a minute to tell the buyers that they probably could not afford the house they were buying? No, they got their easy commission, so why should they worry. Did the buyer think he could really make those rapidly accelerating payments, or was the caught up in a false illusion of the American Dream that was placed like bait in front of him by unethical and greedy corporate America? Did everyone really believe that real estate prices were going to go up for ever? Was it really different this time? Even the credit rating companies got their cut for giving a phony rating to the nearly worthless paper that was sold around the world in the form of CDOs to unsuspecting banks, hedge funds and pension funds. Some of this paper is now worth only 50 cents on the dollar or less. Are you trying to tell me that no one should take responsibility for these crimes? Do you think it's an accident that 1% of American households are now in foreclosure? I stand by my assertion that greed trumps morality in modern American society.

 

[brewer12345]

Hmmm, crimes. That's a very specific word to use, even in the middle of a full-on rant. Aside from some fraud on the part of the borrowers and maybe some mortgage brokers, everyone was a consenting adult doing what they thought was best at the time. Don't see much in the way of actual crime, aside from some borrower and broker fraud.

 

[Marquette]

Can anyone help with some good ol' fashion data mining?

I'd like to see a graph of percentage of homeowners from, say, 1908-2007. I'm curious if we're just seeing a revision to the mean. Was the runup in house prices simply supply repricing to restrict demand? At a macro level, it's long struck me that we have had an increase in homeownership which, while causing a housing boom, also caused prices to rise in order to restrict demand. At some point demand should drop to satisfy the mean and prices should follow accordingly.

Sure, there's lots of honest-to-goodness greed, fear, and doubt in the mix along the way, but I don't know if you should need to account for that with a macro view of the situation.

 

[Retire Soon]

So you come down on the side of restricing credit rather than letting people take their chances. Good to know.

I'd argue that greed had a part in all of this, but that it was ultimately freedom of choice that lead to what we see today.

I believe someone should have a minimum of $3 of total monthly income for every dollar that is paid out in total monthly debt service (house payment + ongoing payments that are expected to last six months or longer). For example, if someones total monthly bills are $2,000, they should have a minimum income of $6,000 in monthly income. Had we followed this time-honored basic rule of home finance, we would not be in the mess that we are in now. Why did America's financial institutions think it different this time?

 

[Wags]

I believe someone should have a minimum of $3 of total monthly income for every dollar that is paid out in total monthly debt service (house payment + ongoing payments that are expected to last six months or longer). For example, if someones total monthly bills are $2,000, they should have a minimum income of $6,000 in monthly income. Had we followed this time-honored basic rule of home finance, we would not be in the mess that we are in now. Why did America's financial institutions think it different this time?

GREED and making a fast buck.

GOD BLESS

 

[Retire Soon]

Hmmm, crimes. That's a very specific word to use, even in the middle of a full-on rant. Aside from some fraud on the part of the borrowers and maybe some mortgage brokers, everyone was a consenting adult doing what they thought was best at the time. Don't see much in the way of actual crime, aside from some borrower and broker fraud.

In the 70's & 80's, loan officers went to prison for assisting home buyers in falsifying information on VA or FHA mortgage loan applications in order to earn what was then a 1/2 % commission of the loan amount. Why do we not now hold the same high standards for conventional loans?

 

[FinanceDude]

We didn't give them "squatters rights", but we did give countless thousands of Americans a new home to live in for 2 or 3 years, and even paid their closing costs, with some even receiving money at the close of escrow.

I agree owning a home is not a moral question, but teasing someone with one for a few years (knowing they will eventually lose it) borders on cruelty. The CEO got his millions. The lender got his cut, as did the loan officer, appraiser, real estate agent, title insurance company, and escrow company. Do you think any of these parties stopped for a minute to tell the buyers that they probably could not afford the house they were buying? No, they got their easy commission, so why should they worry. Did the buyer think he could really make those rapidly accelerating payments, or was the caught up in a false illusion of the American Dream that was placed like bait in front of him by unethical and greedy corporate America? Did everyone really believe that real estate prices were going to go up for ever? Was it really different this time? Even the credit rating companies got their cut for giving a phony rating to the nearly worthless paper that was sold around the world in the form of CDOs to unsuspecting banks, hedge funds and pension funds. Some of this paper is now worth only 50 cents on the dollar or less. Are you trying to tell me that no one should take responsibility for these crimes? Do you think it's an accident that 1% of American households are now in foreclosure? I stand by my assertion that greed trumps morality in modern American society.

Crimes is a strong word. Let me understand this, in your view ANYONE with sub-prime credit that got a home they couldn't afford is a "victim", basically someone took advantage of them?

I don't know about you, but folks try to take advantage of me every day, spammers, solicitors, etc. Funny I don't fall for it. Is it because I'm so smart? No, it's because when I apply COMMON SENSE, it works........

On the one hand, you have people that quite honestly were not good credit risks getting homes for two reasons:

1)Soaring values of homes with "no end in sight", and

2)Creative lenders that used ambiguous lending tactics to get folks into the homes.

A recipe for disaster? Turns out yes........

So, let me make sure I get this correctly. You are saying that ALL the parties in this mess need to PAY for their crimes, right? And, the "homeowner" was coerced and/or made to sign a document that was fake?

You have a bigger imagination than me. Sounds like the one of the two biggest human emotions, in this case GREED, came to light for the BUYER of the home in the equation.

But, fear not, Mr.Government steps in and bails them out. Now someone with a FICO of 750+ who makes $175,000 a year (one of my clients) has trouble getting the bank to agree to a 100% finance, because of "tightened lending policies" when another guy with a FICO of 550 is sitting in a 125% LTV, got a check at closing to spend on goodies, and gets a free ride...........how nice is that??

 

[brewer12345]

In the 70's & 80's, loan officers went to prison for assisting home buyers in falsifying information on VA or FHA mortgage loan applications in order to earn what was then a 1/2 % commission of the loan amount. Why do we not now hold the same high standards for conventional loans?

We may well see some jail terms handed out. But there are some significant differences this time around:

- The vast majority of these bad loans were not govt paper, they were private market stuff. So you can try for civil suits, but probably not criminal.
- Many of these loan programs were some flavor of low doc/no doc/stated income. While borrowers were not supposed to falsify their data, if nobody actually checked then it is going to be hard to prove that things were fraudulently filled out.

 

[FinanceDude]

You are putting words in my mouth. Please use your analytical skills to correctly interpret this question, which I will pose a second time: Are you trying to tell me no one should take responsibility for these crimes?

Does "no one" mean the same as everyone?

How about if the homeowner does the same prison time as the CEOs, would that be fair?

You are trying to put the "helpless homeowner victim" on one side, and the "big bad greedy CEO's" on the other. It is not as cut and dry as you think.

Maybe I need to ask you this: Do the people who SIGN loan documents to close on a house have ANY accountability at all in all of this?

To me, the homeowner that fails to keep up his/her end of the bargain is as guilty as the folks who used questionable lending practices to give someone a home they should not have gotten..........

 

[Retire Soon]

Buyers Were Frequently Just As Guilty As Others

As someone who was a loan officer for a major mortgage banker for six years in the late 70's and early 80's in Southern California, I apologize for not stating my opinions more clearly.

I've actually had a subprime loan myself. My wife worked in the mortgage department of a credit union in San Diego before we moved from there a year and a half ago after we ER'd. In 2004, we knew we were definitely going to sell our house in 2006, so we took out a refi in a low-interest subprime loan at DWs place of employment.

We sold our house to a self-employed buyer who qualified on his own income with Countrywide Financial for a subprime loan. In fact, the buyer's wife had bad credit and could not even have her name on the application. We are not innocent bystanders ourselves as we did indeed capitalize off of the subprime crisis.

I thought the loan documents at DW's credit union offered a high degree of clarity. In fact, I think a moron may have been able to understand that the loan would probably reach astronomical levels in a few years. We signed the loan docs as planned, because we were trying to make a quick buck and knew for sure we'd sell our home. We had a very high FICO scores, but took an advantage of low teaser rates.

I believe that subprime borrowers who claim ignorance in failing to understand the language in the loan docs are for the most part merely trying to gain sympathy and most are probably not telling the truth.

No, I believe anyone who was involved in fraud in a real estate loan application should suffer they consequences. Many of these buyers were just taking an advantage of the situation. There is a reason why many had a low FICO score and had little or no money for a down payment or closing costs. Many are able to make their house payment, but have chosen foreclosure instead because their loan is now upside down. They enjoyed living in a nice house for a couple or three years for less than what they probably would have paid for in rent. They have definitely exploited the system.

By the way, DW received a phone call from one of her former co-workers who told her the mortgage department for that large credit union had been closed down. Her CEO did not even have the decency to tell anyone in that department that they'd be getting laid off. Some had recently taken out loans for new cars, which thy wouldn't have done, had they known about the layoff in advance. Shortly, thereafter, DW called the credit union about her CD accounts, only to be greeted by a person with a thick foreign accent who obviously received the phone call in India. DW took all of her money out of that credit union and placed it in a local bank.

I think buyers, loan officers, CEOs, appraisers and real estate agents should all pay for their misdeeds for what happened the past few years, whether it be criminal or civil action. Will that happen? Probably not. Will a few be used as examples by the government and chastised by the press? Probably yes.

 

[Texas Proud]

..... Do you think any of these parties stopped for a minute to tell the buyers that they probably could not afford the house they were buying?.....

Do you think it would have made one ounce of differenct even IF they were told? NOT....

As a real example... back in my trust days... there was a guy who had won the lottery... and he was always broke because he would spend the money (got something like $150K/year).. SO, he sold his winnings for less than half of the NPV... We had an escrow account that we managed to collect the winnings and paid out the offer to him.... BUT, we asked him a few times if this is what he wanted as it could not be undone and the price was low... he said yes....