Ugly, Painful And Maybe A Good Thing
It’s Friday desk clearing time for this blogger. “Grace Morgan has faced foreclosure not once, but twice, and she’s scared it could happen again. The Salisbury resident and her husband have been out of work for some time and they simply weren’t able to pay their mortgage. Morgan was able to make one mortgage payment on her own and through the United Way, was able to make another. ‘It could happen again. We are just taking it day-by-day. I don’t know what we would do,’ she said.”
“She said years ago, she didn’t have any money problems. ‘I had plenty of money in the bank,’ Morgan said.”
“Between them, Jeff and Jennifer Felts had seven children when they wed in 2002, so they decided a bigger house was in order. Their ordeal began in December 2004 when they contracted with a builder for a custom house costing about $800,000. They were comfortable with the debt, based on his earnings as a truck driver for 28 years and her higher income as an insurance agent.”
“Last week, with him out of work and her earnings down, they won a 60-day delay in foreclosure on their Kannapolis home. Their case is one of more than 63,000 started last year in North Carolina, a record jump in foreclosure filings amid a weak economy. ‘It’s a nightmare,’ he said.”
“About March last year, they began negotiating with their lender, Wachovia, part of Wells Fargo. They rejected a loan modification last fall because they want the bank to reduce the principal to reflect the lost value of the house. ‘We’re just trying to get them to do right,’ he said.”
“Only NBC2 was there as U.S. Senator George LeMieux (R-FL) got a first-hand look at Southwest Florida’s foreclosure crisis. Now, he’s promising to do everything in his power to fight the blight. Members of the Galvez family say they enjoy their Cape Coral property and don’t want to leave it. ‘I’m trying to save this house, but the bank is not allowing me to,’ said Romy Galvez.”
“The senator says he plans to help get federal dollars. And after this trip, he’s anxious to hold meetings with bank executives. ‘I can say, ‘Look. I was right here in Cape Coral. Look at the map. Look at that every house on every street, practically, is in foreclosure. What are we going to do about this?’ said LeMieux.”
“Foreclosures dominated last year’s market in the Victor Valley, with local Realtors estimating they accounted for up to 90 percent of homes sold. That trend is expected to continue in 2010, but the supply has slowed down due to federal programs that have allowed defaulting homeowners to stay in their homes longer. Still, more foreclosures are expected here in 2010.”
“‘A lot of the loan modifications done last year are already delinquent,’ said Caroll Yule, broker in Apple Valley.”
“Joblessness and a weak housing market don’t appear to be going away any time soon, said William Emmons, an economist at the Federal Reserve Bank of St. Louis. And so, he said, neither will foreclosures. ‘I think it’s really not an exaggeration to say this is something like a 100-year flood that’s hit us,’ Emmons said. ‘And unlike the ‘93 flood, this is not going to recede in a few weeks or even months. This is going to last years.’”
“In recent months, some economists have begun to argue that massive government efforts to prevent foreclosures are only dragging the crisis out and slowing economic recovery. Through mid-December, some 759,000 borrowers nationwide — about 9,000 in Missouri and 37,500 in Illinois — had mortgages modified through the government’s $75 billion Making Home Affordable Program. But only 31,000 of those people — about 4 percent — have received permanent modifications. That raises worries about what will happen when these trial runs end.”
“‘This program is not working the way we had hoped it would work,’ said Todd Swanstrom, a professor at the University of Missouri-St. Louis.”
“One out of 10. That’s how many properties in Merced County got foreclosure filings last year. RealtyTrac reports countywide numbers. Merced Mayor Bill Spriggs said the city has about 750 vacant homes right now, measured by the number of homes that have canceled garbage service. About 215 homes in the city are up for sale right now.”
“‘So you know the numbers don’t add up. Lenders are holding foreclosed homes off the market. If they flooded the market, it would really hurt value,’ Spriggs said.”
“Spriggs said he wasn’t surprised by the county’s presence at the top of the foreclosure rankings. ‘I think this market was way too speculative,’ he said. ‘When the downturn hit, I think we were more impacted than other markets. We had lots and lots of out-of-area investors which really compounded things, too.’”
“Nevada’s congressional delegation demanded answers Thursday after the Las Vegas Valley did not receive a penny of nearly $2 billion in federal stimulus money aimed at helping areas most affected by the nation’s housing crisis. The news also upset Las Vegas Mayor Oscar Goodman. ‘It’s a slap in the face. It defies logic,’ Goodman said. ‘Only a moron wouldn’t know how much we needed the money. It’s inexcusable. It makes me sick. It seems like every other city in the country got money except us. We’re the poster child for economic woe at this time.’”
“The mortgage interest deduction, a tax break long considered a fundamental piece of the American dream, played a major role in the collapse of the housing and financial markets, according to a University of California, Davis, School of Law professor. Dennis J. Ventry Jr., an expert in tax policy, reached that conclusion in an article titled, ‘The Accidental Deduction: A History and Critique of the Tax Subsidy for Mortgage Interest.’”
“Ventry writes that the deduction, which permits homeowners to reduce their taxable income by the amount of interest paid on a home mortgage, was never intended to promote homeownership. Rather, Congress enacted the subsidy in 1913 as a general deduction for consumer interest. ‘Over the course of 50 years, however, politicians and the housing industry transformed the subsidy into a sacred cow,’ Ventry explains. ‘At the same time, Congress lowered income-tax exemptions, making more Americans eligible for the deduction and allowing the housing industry to link it to the value of people’s homes and one’s ability to achieve the American dream.’”
“‘If you’re a homeowner, your real estate agent and mortgage broker almost certainly told you that you’d get a tax benefit in the form of this mortgage interest deduction and perhaps a property tax deduction To the extent the market incorporates these subsidies into the value of homes, it raises their cost. Indeed, many economists believe they artificially raise housing prices by as much as 25 percent.’”
“Ventry concludes that the deduction does a lousy job of increasing the number of homeowners. ‘It might sound counterintuitive, but rather than raise rates of homeownership, the subsidy merely promotes overinvestment in residential real estate and encourages Americans to buy bigger and more expensive homes — sometimes more expensive than they can afford.’”
“Lane County saw a steep increase in home foreclosure filings in 2009 as homeowners — who’d been hanging on by their fingernails — fell into default. The borrowers who received notices in Lane County on Tuesday owed anywhere from $108,000 to $400,314. ‘We’ve had million-dollar properties that ultimately ended up selling for $600,000,’ said Joyce Leavitt, broker with Century 21 Westover Realty. ‘It affects the appraisals we’re getting. Every month, the price goes down another $5,000 to $10,000 on these properties. That’s what’s forcing the prices down on all the regular real estate.’”
“The depreciation in turn spawns foreclosures, said independent broker Rick Richardson. ‘If the market is appreciating at 3 to 6 percent a year, you only need to own the house for one to two years in order to be able to sell it and cover all your closing costs,’ he said. ‘In a depreciating market, a person who used to have 10 percent equity probably doesn’t have that, and he’s probably in the hole.’”
“Finance professors Stephanie and Andreas Rauterkus teamed with University of Florida geography professor Grant Thrall in an analysis that attempted to dig deeply into reasons delinquenices are rising. Though Center Point is slightly wealthier, the report estimates that Center Point has a 6.2 percent default rate, compared to 4.7 percent in East Lake. Residents of Center Point tend to be younger, college educated folks buying their first homes, they found. East Lake homeowners, by contrast, were older and tended to own fewer vehicles.”
“Another finding that surprised David Higginbotham of Alabama Title, who keeps a tally of mortgage defaults in the Birmingham metro area: The report’s assertion that 26 percent of foreclosures are ’strategic,’ meaning the homeowner chooses to spend money on things other than the mortgage and give up the home despite the consequences.”
“‘I thought that was a high number and that the moral obligations to repay would win out,’ Higginbotham said.”
“Defaults are increasing among Alternative-A mortgages, which generally fall between conventional and subprime home loans. Though a small part of the U.S. mortgage market, Alt-A mortgages grew in popularity during the past decade, St. Louis Fed economist Rajdeep Sengupta said in his report.”
“After 2003, with mortgage rates climbing and house values rising, many homeowners seeking equity turned to Alternate-A mortgages, Sengupta said. ‘The share of borrowers using Alt-A products to extract equity in their homes almost doubled between 2000 and 2006,’ he wrote.”
“A group of business leaders, academics and politicians doubts there will be a quick recovery for Las Vegas’s economy and suggested the future won’t be bright for Southern Nevada unless a greater emphasis is placed on diversification. ‘The foundations upon which Las Vegas was built: growth without consequences, home values always rising, a limitless oasis of jobs and unbridled opportunity for a monolithic economy are cracked,’ the report will say.”
“When I saw the news about Smurfit a few weeks ago, I knew it was going to be ugly, painful and in the long run, maybe a good thing. This week on NPR, folks from an industry group and the legislature talked about how they would be studying biomass next spring so that they could find a way to deal with the losses in the resource industry. What concerns me is the lack of news stories about the business that thought ahead and found another use for these materials, created a market and dodged the Smurfit bullet.”
“Why in the world do we think it’s OK wait on industry groups, the Governor and the Legislature to solve this for us? Any solution that goes through the state and industry groups will also likely go through DC. Hello politics.”
“Next thing you know, they’ll be putting a clause into farm subsidy legislation to pay us not to grow trees. Or to grow trees that don’t produce heat. Are we so comfortable in the land of complacency that we’re willing to wait until Brian and the Legislature come to us with a solution that everyone’s willing to sign but no one really likes?”
“What’s the most dangerous number in business? The Smurfit-Stone situation reminds us once again. It’s ONE. If your business is dominated by one income stream, gets all its raw materials from one supplier, depends on one cheap raw material, or ‘falls apart’ when one person is on vacation, you have one big potential problem. Solve it while you still can. Start with two.”
