The Housing Bubble

The Chicago Tribune reports from Illinois. “An average of only 7.3 Chicago-area homeowners received government-certified foreclosure counseling for every 100 area foreclosure filings in 2008, according to a report Tuesday by Housing Action Illinois and the Woodstock Institute. Illinois has 94 HUD-certified agencies that offer counseling. The shortfall, the report concludes, is the result of a lack of homeowner awareness as well as agencies too strapped to do more. ‘As one of our counselors said, ‘This isn’t the job I signed up for,’ said Dru Bergman, executive director of the DuPage Homeownership Center. ‘We were working mostly with happy endings. In this situation, a lot of times this is not a happy ending, and you’re preparing them for a major life-altering event, the loss of their home.’”

“In one case, Sherry Smith…at Neighborhood Housing Services of Chicago, spent months working with a homeowner to craft a proposal for the lender. When the final settlement offer was made, an offer Smith said was manageable, the woman refused it, saying she wanted even better terms. The bank said no, and the client came back to Smith asking what should she do. ‘It was hard for me to say this, but it was, ‘Go get some boxes.’”

“Until recently, many banks have put off launching foreclosure action on many troubled properties, in part because they had signed up for the home-stability plan from President Barack Obama’s administration. But with many government and self-imposed foreclosure moratoriums expiring, the biggest lenders indicate they are likely to move more aggressively to clear a backlog of troubled mortgages.”

“Recent reports hint at the next wave of foreclosures. In the first quarter, 1.8 million homeowners nationwide fell behind on their loans by 60 to 90 days, a 15 percent increase from the prior quarter, according to Economy.com. The research firm said that loan defaults rose sharply as well, to 844,000 in the first three months of this year.”

“So far, more than 240,000 distressed borrowers have been approved on a trial basis under the Home Affordable Modification Program, in which their loans are being reworked so monthly payments are targeted at 31 percent of their gross income, said Seth Wheeler, a senior adviser to Treasury Secretary Timothy Geithner.”

“‘We’re very unlikely to implement another moratorium,’ Wheeler said but noted that the Treasury will monitor how many foreclosed homes are dumped into the market, suggesting officials could take other steps to prevent a flood of lender-owned properties.”

The Belleview News Democrat in Illinois. “More than four years have passed since developer Caseyville Sport Choice, of Bakersfield, Calif., announced plans to build 625 luxury homes — with some costing upwards of $1 million — and a golf course on nearly 500 acres of land off Illinois 159. Since then, not a single house has arisen. Nor can anyone say when construction will begin.

“Mayor George Chance blamed the stalled progress on the sorry state of the national economy in general, and the collapse of the housing market in particular. But he expressed optimism about the project’s future.”

“‘I don’t see how anybody could walk away from something as spectacular as that could be,’ he said. ‘And to put all the money and work and effort that they’ve put into it and say it’s dead, I’m not going to believe that.’”

The Southside Pride in Minnesota. “On a bright sunny Saturday, June 13, about 100 people gathered at Lake and Clinton to march to Wells Fargo and US Bank to protest the foreclosures of people in South Minneapolis. Organized by the Minnesota Coalition for a People’s Bailout, the group marched first to the Wells Fargo branch at Lake and Nicollet. They chanted: ‘WELLS FARGO GOT BAILED OUT. WE GOT SOLD OUT.’ ‘STOP FORECLOSURES NOW!’”

“Ann Patterson, who has good credit and has never missed a mortgage payment is trying to renegotiate an adjustable rate mortgage with Wells Fargo that has spun her monthly payments out of control. They refuse to negotiate with her. She said, ‘We’ve lived in the house for 12 years. We don’t want to be martyrs, but we’re not going to let these houses go without a fight.’”

The Winona Daily News in Minnesota. “The Winona City Council on Monday night rejected a plan for the city to buy, rehabilitate and sell foreclosed homes with a $250,000 low-interest loan from the Greater Minnesota Housing Fund, a private nonprofit group. The loan would have enabled the rehabilitation and sale of foreclosed homes that weren’t finding private buyers, and likely fulfilled the city’s broader goal of improving its many aging homes, said Winona’s Community Development department, which offered the proposal. But council members say it isn’t the city’s role to redevelop foreclosed homes — private developers should spearhead those efforts.”

“‘Let the market decide on how our homes are bought and sold, period,’ Councilwoman Deb Salyards said.”

The Times Herald in Iowa. “In September, America’s bubble burst, and the resounding ‘pop!’ echoes across the nation. When the recession struck, it hit the housing market first — and it hit hard. A record 1.8 million Americans were ousted from their homes in the first half of this year, according to RealtyTrac Inc. In May alone, officials reported 300,000 foreclosure filings. That means for-sale houses flood the market in a time of rising unemployment and shrinking incomes.”

“Dubuque real estate agent Rob Cook craved that challenge when he jumped into the industry six years ago, and with each passing day, he notices a shift. ‘I won’t say that it’s a difficult market now, but I will say it’s a different market,’ he said. ‘Just look at the numbers.’”

“Cook specializes in corporate relocation work, which means he helps business people moving in and out of town buy and sell their houses. ‘Right now, I have a couple who wants to move here, and they have even found some houses they absolutely fell in love with,’ he said. ‘The problem is that the housing markets are terrible where they live, and they can’t sell their houses there.’”

The Suburban Journal in Missouri. “As the pace of foreclosures has quickened over the last two years in St. Charles County, homes and families have been left in the wake. Schools also have been affected by the recent rash of foreclosures, and Fort Zumwalt has taken the biggest hit of the school districts serving St. Charles County.”

“Between January 2004 and March of this year, more than 1,300 properties within the Fort Zumwalt district boundaries were foreclosed upon. Fort Zumwalt Superintendent Bernard DuBray said he was unaware the district had the most foreclosures among local school districts. But he said the data is in line with the numbers he has seen from property value reassessments used to determine school funding, which dropped for the first time since DuBray took the helm at Fort Zumwalt 27 years ago.”

“‘We dropped about $125 million in assessed values,’ DuBray said.”

From ABC 12 in Michigan. “A brand-new state law that went into effect Sunday will now require lenders to give you time for counseling that could help save your home. State officials are trying to get word out to those worried about foreclosure. They want you to know that banks must notify you and give you time for counseling. It’s a move at least one Genesee County woman says would have saved her from a foreclosure nightmare.”

“‘We kept ourselves just above water at times, but we were hanging in there,’ said Janice Bailey.”

“Bailey remembers when it all began in 2007. Her husband’s construction work fell off. They were working hard to make the payments and repair mold found in the house. And then the banks just stopped working with her. Despite her trying to make payments, the bank moved ahead with foreclosure and then, one day, eviction.”

“‘And they just started moving things out into the street and people started swarming and starting to take things,’ Bailey said.”

The Business Journal in Ohio. “When Utah-based JD4 Investments LLC bought dozens of Ohio properties from Fannie Mae late last year, a company owner said the plan was to fix them up and rent or sell the homes to provide more affordable housing in a state slammed by foreclosures. But here in Cincinnati, six of the dozen properties owned by JD4 have been targeted by city inspectors because of their deteriorating condition.”

“‘It defies logic to think that letting a building go, become vacated and vandalized and ruining the neighborhood somehow makes good business sense,’ said Edward Cunningham, division manager of the city of Cincinnati’s property maintenance code enforcement division.”

The Columbus Dispatch in Ohio. “A thief used a pen and paper to steal nearly $1.5 million from a group of well-educated, upper-middle-class Columbus professionals. Somnath Ganguly remains free. But the Delaware County resident faces mounting legal troubles, including civil lawsuits and criminal investigations for the real-estate deals he orchestrated during the past four years.”

“The investors all are professionals: scientists, doctors and computer experts. They also are members of Columbus’ Bengali community who say they were taken by a fellow native of the Bengal region of India. About 300 Bengali families live in central Ohio. Some wanted to cash in on the red-hot housing boom four years ago. Others simply wanted to help a friend launch a career. One man was told that his investments would help build a nursing home for the Indian community.”

“All now say they were conned and betrayed. Ganguly scoffed at the allegations. ‘I am the victim,’ he said. ‘I have all the evidence. It’s the banks, the mortgage industry, the people who got way too greedy.’”

“Retirees Azeez and Badrun Quraishi invested about $127,000 to buy three East Side houses and ownership in a Westerville fast-food restaurant owned by Ganguly. They said he promised to fix up the properties and sell them. The profits, he told them, would provide seed money to develop a nursing home. But the money is gone and the houses have been foreclosed upon, according to court records.”

“Dr. Quraishi, 81, built a handsome nest egg from his years as a scientist at Ross Laboratories. He is credited with developing the nutritional-supplement drink Ensure. Now, he and his wife are broke. Mrs. Quraishi works as a grocery-store cashier. She took out a $25,000 advance on a credit card and borrowed money from her daughter to keep their own household running.”

“The Quraishis sued Ganguly and reached a settlement in which he promised to pay them $750 a month. His first payment was due Wednesday. It never came. ‘He took all our money,’ Mrs. Quraishi said. ‘My mind is upset. I’m getting sick.’”

The Herald Tribune. “New rules meant to create a firewall between real estate appraisers and mortgage lenders are instead scuttling home sales, some Realtors and mortgage brokers say. The point of the new code is clear, though it is having some unintended consequences, said Dennis Black, a Port Charlotte-based appraiser who is speaking about the new rules at a conference in Orlando later this month.”

“‘This code of conduct was put in place to disrupt and get rid of the cozy relationships that some mortgage originators had with appraisers,’ Black said. ‘The intent is that the people getting paid based on production should have nothing to do with the appraisers, who should be getting paid just for doing their job, regardless of whether their appraisal matches up to what a lender or real estate agent wants.’”

“Gary Schlips, an investor from Ohio who bought a new North Port home during the housing boom in 2006, said the new code scuttled his efforts to make a deal. Schlips recently agreed to sell the home for $220,000, but an appraiser from Fort Myers hired under the new guidelines said the home was worth $87,000 less.’

“‘The reason they under-appraised it is because they based it on two recent short sales and a bank-owned property that sold,’ Schlips said. ‘What rules they are using to appraise it on are ridiculous.’”

“His lender offered to take the appraised price, but then said Schlips would have to pay $158 every month for the next 30 years to make up the difference. ‘I’ve been trying to sell this house for three years and I’ve maintained the lawn, maintained the house, maintained the pool and then when I do get an offer not only will they not agree on it but they wanted me to pay the difference,’ said Schlips, who said he went through his life’s savings dealing with the house. ‘Everything I’ve had is gone.’”

From The Hill. “Republicans on the House Oversight panel are trying to re-energize debate over the role Fannie Mae and Freddie Mac played in causing the housing crisis continuing to ripple through the U.S. economy. Staff for ranking member Darrell Issa (Calif.) and other committee Republicans on Tuesday will release a 26-page report that blames the government’s drive to increase homeownership, particularly among minority groups and low-income households.”

“‘The housing bubble that burst in 2007 and led to a financial crisis can be traced back to the federal government intervention in the U.S. housing market intended to help provide home ownership opportunities for more Americans,’ declares the first sentence of the GOP Oversight and Government Reform report.”

“The report tries to center debate on government involvement, rather than Wall Street. ‘In recent months, it has been impossible to watch a television news program without seeing a Member of Congress or an Administration official put forward a new recovery proposal or engage in a public flogging of a financial company official whose poor decisions, and perhaps greed, resulted in huge losses and great suffering,’ the report states. ‘Ironically, some of these same Washington officials were, all too recently, advocates of the very mortgage lending policies that led to the economic turmoil.’”

“Democrats have defended Fannie and Freddie for trying to increase homeownership, while criticizing various polices at the two firms. They’ve put more of the blame for the housing crisis on poorly regulated Wall Street banks. House Financial Services Committee Chairman Barney Frank (D-Mass.), who comes under some criticism in the GOP report, has said more foreclosures were caused by unregulated entities rather than Fannie and Freddie. He has also noted that Republicans were in control of Congress from 1995 to 2007, when the housing bubble was created.”

“The GOP staff report ties the Obama administration to Fannie and Freddie by noting its connections to former Fannie Mae President Jim Johnson, who was involved in President Obama’s search for a vice president, as well as White House Chief of Staff Rahm Emanuel’s appointment to Freddie Mac’s board. It also points to a paper co-authored in 2002 by Office of Management and Budget (OMB) Director Peter Orszag that, according to the GOP report, minimized the risk Fannie and Freddie were taking on in terms of the capital the housing firms had to back their loans.”

“OMB spokesman Kenneth Baer defended Orszag’s finding…’This paper, written seven years ago with Nobel Prize winner Joseph Stiglitz, was based on applying well-established econometric techniques to historical data,’ Baer said in an e-mailed statement. ‘Even so, the authors highlighted the risks of ‘another Great Depression-like scenario’ or severe housing market downturn — and time has unfortunately proven this caution well-founded.’”

“Baer said Orszag has forgotten how much Fannie Mae paid him and the others to write the report.”

“GOP politicians criticized by the report include former Speaker Dennis Hastert (R-Ill.), whom the report suggests caved to pressure from Fannie and Freddie lobbyists by stripping Rep. Cliff Stearns (R-Fla.) of his subcommittee’s jurisdiction over the GSEs after he scheduled hearings on Freddie Mac’s use of improper accounting procedures in 2004.”

“Hastert instead handed the task over to then-Rep. Michael Oxley (R-Ohio), ‘for whom Freddie Mac held at least 19 campaign fundraisers.’”