Foreclosure Land

[Zoocat]

This article in the NY Times today is startling. I knew that Ohio was hard hit but Cleveland is really sunk. 15000 foreclosures in 2006 (versus 2500 in 1995). A picture shows the middle class suburban neighborhood of Shaker Heights. Really nice looking houses. The city is having to spend lots of $$$ to maintain the houses and keep vandals out. In Euclid, another modest suburb, 600 foreclosures in the past two years. And this is supposedly going to get worse?

The article says that elderly and minorities were the victims of predatory lenders. I know "Let the borrower beware." But this is really sad and disturbing.


http://www.nytimes.com/2007/03/23/us/23vacant.html?th&emc=th

 

[kathyet]

Your right it is sad to see these people lose what they have worked so hard for.

I know a few that this is happening to..I don't feel sorry for some of the lenders though...these people tried to talk to there lender asking to change there mortgage either extend it or anything so they could keep the house and lower the payments but the lender said no. Unless the mortgage companies try and work some of these things out with the borrowers people will just walk away...I am afraid this is just the tip of the ice berg....and this is all over the country it is just starting. Very sad situtation

Kathyet

 

[brewer12345]

I make no blanket judgements either way, since I m quite sure there is more than enugh blame t o go around. But I find it amazing how quickly things went from "extending the dream of homeownership to more Merkins" to "filthy, evil, rotten, rat-bastard predatory lenders." :

 

[justin]

I think I'll call my credit union today to see if they'll knock a couple percent off the interest rate on my ARM. I don't really want to pay the exhorbitant rate that I agreed to 2 years ago. In the spirit of equity and fairness, I think I'm entitled to at least a 2% reduction for the rest of the life of the loan. :

 

[Sam]

Wouldn't this be a great time to jump in and invest in real estate there?

What's driving Cleveland's economy? Any chance for a come back?

 

[Sam]

I think I'll call my credit union today to see if they'll knock a couple percent off the interest rate on my ARM. I don't really want to pay the exhorbitant rate that I agreed to 2 years ago. In the spirit of equity and fairness, I think I'm entitled to at least a 2% reduction for the rest of the life of the loan. :

Nice sarcasm, justin. Your point is valid. But some people are unable to pay not because of the interest rate they agreed to in the past, but because they lost their job, and could not find anything else. These particular people deserve some help, imo.

 

[brewer12345]

What's driving Cleveland's economy? Any chance for a come back?

WIC? Dumpster Diving?

 

[justin]

Nice sarcasm, justin. Your point is valid. But some people are unable to pay not because of the interest rate they agreed to in the past, but because they lost their job, and could not find anything else. These particular people deserve some help, imo.

Sam,

What type of help would you propose individuals defaulting on their mortgages receive? Who pays for it? What tests for eligibility for said "help" would you have in place?

I know $hit happens. I've seen a few family members in the last few years lose their houses to foreclosures or turn them over to the bank. I'd have to say it was "poor decisionmaking" on my family members' behalf, and not the mortgage co's fault.

If folks get into a loan that consumes half their income AND the loan will probably consume much more of their income in the future, what other outcome besides foreclosure would one expect?

How much more disclosure should be required beyond that required by the Truth in Lending Act and state TILA's?

I do feel sorry for the folks losing their houses (and their wives, kids, parents, etc. that have their lives turned upside down temporarily). It sucks. I'm glad I'm fortunate enough to most likely not face that situation in the near future. However I'd like to think my "luck" was of my own creation.

 

[Sam]

Justin, I never said it was the mortgage co's fault. And I am not talking about "stupid" people who bought into the creative mortgaging either. I'm referring to working folks that bought a house using conventional mortgages but no longer able to pay because of the economy.

 

[Zoocat]

Here's an interesting chart on what states have the most the subprime lending. Wow, Ohio is at the bottom of this list.

I agree that foreclosed borrowers did not do their due diligence. They were suckers. Some lenders may have lied, but you don't have to believe everything you're told. That's being a grownup. Still, it's still sad. I'll bet a lot of those borrowers in Euclid, OH, just wanted to pay bills with their equity. These are people of modest means. They weren't out buying a boat. (Could be wrong about that though.)

I don't think a bail out is in the cards either, even though our government has a history of bailing out big corporations that get into deep water. But even if there was a consensus that borrowers in trouble needed a bail out, where would the money come from? More borrowing from China? This is a mess.

 

[justin]

I'm referring to working folks that bought a house using conventional mortgages but no longer able to pay because of the economy.

When you are right-sized out of your job (with no prospects of finding a new one), it's time to right-size your housing as well.

Let's say someone gets paid 1/2 of their previous income from unemployment insurance that lasts 6 months, and they had a few months expenses saved up. Plus they have credit cards to keep them afloat in a pinch. Wouldn't they be fairly well off for a while? Add to that scenario the fact that they can downsize expenses while they are laid off.

I think we can either have easy access to credit and a high rate of homeownership, or strict access to credit and a more landless society. I really don't know which type of society is "better".

Foreclosing on houses when the borrower can't pay is a side effect of our market economy. Imagine the effects if the lender had no recourse to collect most or all of what they are owed on a mortgage. Not only would the guy who got foreclosed on not have a house, but a dozen other folks around him never would have been able to buy a house either.

 

[Zoocat]

I don't think this mess is a result of an either or situation (easy credit or strict credit). Credit was made easy after 9-11 so that the economy wouldn't sink into recession. That's the analysis I've read. If anyone else has a different explanation I'd like to hear it. This mess had a cause and now here's the result. It's not entirely the borrower's fault.

 

[BarbaraAnne]

I feel sorry for the other homeowners in the areas with high forclosures who are paying their mortgages but watching their equity disappear as the homes around them are forclosed on and resold cheaply.

What happens if they need to move and have now lost their equity even though they were paying their mortgages and playing by the rules...

It's the domino effect that scares me.

 

[brewer12345]

It's not entirely the borrower's fault.

So, someone put a gun to their head and told them they had to borrow all that money?

 

[justin]

What happens if they need to move and have now lost their equity even though they were paying their mortgages and playing by the rules...

These buyers took a risk by buying a house. If they had made a few hundred thousand in a bubble real estate market, do you think we would be having discussions about how unfair it is for these same homebuyers to become unjustly enriched by their massive growth in equity?

If you buy a house with next to nothing down, and you end up owing the bank when you sell, then you got what you would expect to get.

 

[justin]

I'd like to see a story about a responsible borrower who is now in default/foreclosure. You know, someone who saved up enough for a real down payment of 20%. Bought a house with long-term payments (including taxes and insurance) no more than 25-30% of their incomes.

It seems like the trend was to buy as much as you can possibly afford and just cross your fingers that no one got sick or got laid off. Getting sick or getting laid off seem like things you can and should plan for. I don't know about others, but investing a day or two into analyzing "what-if" scenarios before you spend HUNDREDS OF THOUSANDS of dollars on 4 walls and a roof seems like a pretty darn good idea to me. If figure most people spend at least a day or two researching and shopping for their big screen HDTV's or jet skis. :

I'm just left with a big ole "glad it ain't my problem!" feeling.

 

[Sue J]

I'm familiar with Cleveland and Shaker Heights. Cleveland has been circling the drain for a few decades. One of the problems with Cleveland is that the City Of Cleveland schools are so bad that no one wants to live there. Everyone runs to the suburbs. Many of the manufacturing businesses left Cleveland for cheaper labor elsewhere, that happened to many cities.

Shaker Heights is almost all residential. There are some areas of affordable, average sized houses and then there are large neighborhoods of mansions. These are not the new McMansions with all the new toys. These are the older mansions with handcrafted details, tons of character. Shaker Heights has very high property taxes. It's expensive to live there. They support their schools completely. That's part of the property taxes.

I'm surprised to read about foreclosures in Shaker Heights but it seems to be a common problem in any zip code.

 

[Zoocat]

So, someone put a gun to their head and told them they had to borrow all that money?

If a lender lies to or misleads a potential borrower then the lender has to take some part of the blame when the loan goes bad. I was surprised to learn that many of these subprime mortage lenders are not under regulatory jurisdiction of the FDIC, only the state. In Colorado the regulations are very lax.

Here's an interesting article by a conservative economist about the wider implications.
http://www.rgemonitor.com/blog/roubini/185098

Justin, I wouldn't rest too easy just because you don't have a mortgage problem. If this mess gets worse and we end up in a recession, it can bite you in the a** in many unexpected ways.

 

[brewer12345]

I agree that supervision of most of the big subprime shops was essentially non-existant. Regulated depository institutions (banks) were subject to pretty strict oversight, which is why most of the lenders blowing up are not banks. So clearly there should be better oversight.

But there is a basic level of personal resposibility required of adult Merkins. That includes understanding the terms of any financing agreements you enter into when you sign on the dotted line. So as far as I am concerned, get those short sales and foreclosure auctions going.

 

[justin]

If a lender lies to or misleads a potential borrower then the lender has to take some part of the blame when the loan goes bad.

Well, folks have ample opportunity to sue for fraud, breach of contract, unfair or deceptive acts or practices, or improper disclosure. There's a lot more laws protecting consumers than there are laws protecting "big bad lenders".

Justin, I wouldn't rest too easy just because you don't have a mortgage problem. If this mess gets worse and we end up in a recession, it can bite you in the a** in many unexpected ways.

I intend to rest pretty easy. But thanks for the concern. I have structured my affairs in such a manner that a major recession won't impact me that much (at least as compared to 90% of the rest of folks out there). In fact it could be a good opportunity for certain things.

 

[Sam]

When you are right-sized out of your job (with no prospects of finding a new one), it's time to right-size your housing as well.

Let's say someone gets paid 1/2 of their previous income from unemployment insurance that lasts 6 months, and they had a few months expenses saved up. Plus they have credit cards to keep them afloat in a pinch. Wouldn't they be fairly well off for a while? Add to that scenario the fact that they can downsize expenses while they are laid off.

It's easier said than done. I witnessed Lowell, MA crash in 1990.

 

[BarbaraAnne]

These buyers took a risk by buying a house. If they had made a few hundred thousand in a bubble real estate market, do you think we would be having discussions about how unfair it is for these same homebuyers to become unjustly enriched by their massive growth in equity?

If you buy a house with next to nothing down, and you end up owing the bank when you sell, then you got what you would expect to get.

Those folks don't have my sympathy. If they put nothing down they took a huge risk. What I'm saying is that because of loose lending, there will be a lot of forclosures which will lower property values significantly for others who may not even be able to sell because the market will be flooded with homes at below-market rates. It happened in Texas in the mid-80's and it is really tough for everyone. If I recall correctly, both Steve R and Charles lost a lot of equity in their homes in Texas. We lost a lot on rental properties despite a lot that we invested in them. (At least a 20 percent downpayment when we bought them). We could afford the loss and that's the price of poker, but for a lot of middle class and poor folks, it could be a disaster, even if they have decent equity in their homes and didn't buy with "nothing down".

Those are the people that I really feel for...

 

[CCdaCE]

I'd like to see a story about a responsible borrower who is now in default/foreclosure. You know, someone who saved up enough for a real down payment of 20%. Bought a house with long-term payments (including taxes and insurance) no more than 25-30% of their incomes.

It seems like the trend was to buy as much as you can possibly afford and just cross your fingers that no one got sick or got laid off. Getting sick or getting laid off seem like things you can and should plan for. I don't know about others, but investing a day or two into analyzing "what-if" scenarios before you spend HUNDREDS OF THOUSANDS of dollars on 4 walls and a roof seems like a pretty darn good idea to me. If figure most people spend at least a day or two researching and shopping for their big screen HDTV's or jet skis. :

I'm just left with a big ole "glad it ain't my problem!" feeling.

Yeah, it's all those "what-ifs' that people don't/can't think of.

When I/we bought a house, I didn't think taxes'd go up high single digit percentages per year. Home insurance would increase by quite a percentage (still single digit?). The fuzzy math of the ARM isn't something I took much time to figure out, as far as what a 1% increase in interest rate means as far as re-amoritization, new payment/interest amount, etc. Somewhat "hidden" PMI magic, smoke & mirrors/bells & whistles, etc. The interest rate portion went from 4.0% to 6.0%. Overall, my payment has gone up 22% in 3 years.

I'm not complaining, my head is still well above water. I consider myself to be well above average intelligence (who doesn't). But, when you tell the lender you want everything explained to you and expect no less than thorough explanations... blah blah, and he goes on to say "oh I've got XX years of experience in lending"... but still falls flat on his face as a bad communicator, "hurry up and sign this" mentality, etc. Some of it was my/our fault and some was his.

Just when you think you have a handle on it, you still think, "should I run away from all of this?". Some of the time you can't even think of the right question to ask.

There's 100's (thousands?) of factors to consider. Who's fault should it be that people are stupid not taking time to consider everything? The lenders? I think not. Buyer beware, YMMV, and all that.

-CC

 

[crazy connie]

The issue is too real and was brought about by corporate and individual greed. Many people wanted to jump on the home ownership bandwagon without paying the dues. The majority of foreclosures will NOT be people who managed their finances and did a proper down payment. How many of the folks got in a house and ran out to buy new furnishings for the new home? How many have 1 or 2 new cars in the driveway this week?

Think back in time and remember... 20% downpayment, stable employment, second hand furniture, driving old economical cars, getting a 2nd job to make ends meet (I thought that was like a meatloaf when a small child!), eating ramen and brown bagging our lunch, making do, wearing it out, and doing without, and sometimes renting out a room.

I remember doing most of these things and most of all "JUST SAY NO" (in regards to money spending) was not always a drug abuse slogan. That was the mantra of life when I grew up and is how I raised my children.

Think about those you know who have lost homes or filed BK... How many meals out a week, new cars, overstuffed closets, vacations and lattes?

This is a group who for the most part knows the old adages: A penny saved is a penny earned & Take care of the pennies and nickels and the dollars will take care of themselves.

Am I sympathetic to the Lenders? NO, I just hope my MF's are not too heavily invested in them.
Am I sympathetic to the borrowers? NO, experience is the best teacher and hopefully they will learn.

Some times in life you just have to pay your dues. I do not think I should pay more in taxes to bail out companies and individuals who made poor choices and now have a crisis.

Also, on Bloomberg some lending expert acknowledged this morning that some of the borrowers and their loans are aging (I believe that was the term he used), meaning they have managed to pay every month for the last 1 to 2 years and now are qualifying for more conventional loans at locked rates.

 

[brewer12345]

Those are the people that I really feel for...

I feel bad for everybody who loses their home. But that is the way the system works. I don't like some of the outcomes and I would like to see some gummint assistance to help them find alternative housing, but an orderly market demands that lenders be allowed to take collateral when loans go bad.