January 13, 2012

The Downward Spiral That We See Today

It’s Friday desk clearing time for this blogger. “In 2007, Mohamed and his wife, Wanda, owned their three-bedroom Hallsville home free and clear. But with their five children, the husband of their oldest daughter and a grandchild also living under their roof, they needed a larger home. When the Sultans first sought to buy a new home, they had no debts or liabilities but little savings and a modest income, court records show. To help them finance the purchase of a new home, their real estate agent referred them to a loan specialist at a local branch of Countrywide Financial.”

“In May 2007, they found a five-bedroom home in north Columbia with a price tag of $208,000. They thought they could afford the home and said the Countrywide loan specialist told them they’d be able to make the payments. They took out a $165,000 loan to buy the property, according to court records. On the advice of the loan specialist, the Sultans also borrowed $60,000 against their home in Hallsville. Part of the money was to be used as a down payment for the new home, and the rest was to make repairs to the Hallsville property, which they wanted to rent out.”

“After two years of making payments, the Sultans fell behind. ‘We exhausted everything we had,’ Mohamed says. ‘We exhausted everything to keep the house.’ ‘We trusted Countrywide,’ Wanda says. ‘Why would they lie to people and tell them they can afford something?’”

“Scores of UAW members joined friends and activists Tuesday in marching with a Southgate husband and wife to a Bank of America branch to protest the foreclosure of the couple’s home and efforts to evict them. The couple paid $138,000 in 2004 for the three-bedroom ranch, now worth about $30,000, they said. ‘We’re not the only ones being forced out of our home, and this has got to stop,’ Debbie Henry said after the group marched to the bank.”

“Eugene-based Gorilla Capital CEO John Helmick said he’s paid $20,000 for a house that had a $200,000 loan before foreclosure. ‘I can see this being a $50,000 loan but, really, a $200,000 loan on an 1,100-square-foot house in the middle of nowhere?’”

“Residential properties with foreclosure filings in Connecticut dropped sharply in 2011 compared with the previous year. Jeff Gentes, a staff attorney and foreclosure expert at the Connecticut Fair Housing Center in Hartford, said the center has not seen a slowdown in borrowers facing foreclosure. ‘When we declared there was a crisis in 2007, the numbers were far lower than what they are now,’ Gentes said. ‘I don’t see a slowdown in overall need. I still see us stuck with problems of this nature for another three years.’”

“It took nearly three years, on average, to foreclose on a property in New York in the fourth quarter of 2011, the longest delay of any state in the nation, according to a report. Michael Smith, president of the New York Bankers Association, said the delays are bad for bank bottom lines and serve as a disincentive for extending credit to other borrowers. ‘If there’s no way to ever collect on a [defaulted] loan or a portion of the loan, then what’s the incentive to lend?’ Smith said.”

“A bank has foreclosed on portions of another prominent West Des Moines development. It’s the third major development in West Des Moines to face foreclosure action since the economy turned south three years ago. In the past, such foreclosures could taint a development for some time, according to Gerard Neugent, CEO of Knapp Properties.”

“‘There is no question that when property undergoes foreclosure, there is a taint that can develop over it and create concern about the property’s viability,’ Neugent said. ‘But my sense is that the taint is much more temporary and goes away a lot more quickly than it has in the past because of all the foreclosures that are happening right now.’”

“Josh Barker of ReMax Town & Country Realty in Redding said foreclosures are still plaguing the local market. About two-thirds of all sales in Shasta County in 2011 were either foreclosures or short sales. Barker expects foreclosures to be a big part of the north state’s real estate market through 2014 because so many homeowners still owe more on their mortgages than their houses are worth.”

“‘Most people are going to foreclose, not so much for financial reasons anymore, but it will be more for strategic reasons,’ meaning they realize they may never get more for their house than they paid, Barker said.”

“This week we’re tackling the debate on whether or not it’s a good idea to foreclose on your home. Tracy W. Smith with HomeSmart Realty says she respects all of those that honored their mortgage contract and held up neighborhood stability. Dean Wegner with WJ Bradley Mortgage Capital says you have to do what’s best for your family and not put your mortgage company above your family’s well-being.”

“Smith: In my view if everyone paid there mortgage payment on time we would have no housing crisis. In fact home prices would have moved down a little but no where near the amount we have seen from the so called strategic-defaulters. It created the downward spiral that we see today and created a giant housing hole we are slowly crawling out of…Somehow our mortgage came with a guarantee that said in the event your home value declines you can stop making payments and we will be just fine with that, who cares if you drop your neighborhoods value and send our beloved country into the worst recession since the great depression.”

“The truth is when home values were going up, no body thought of defaulting their mortgage to ‘get out of it.’ Every lunch table in town the conversation was how great the market is doing and how much equity they have now and how they are buying investment properties. Nobody called their mortgage company or the banks crooks. But now all of a sudden they are the bad guys, are they really the bad guys because if home prices were still up would you be mad? I see this anger for people to rationalize and default on their home loans and seeing the market further down the drain.”

“The Villages of Avignon Community Development District in Palmetto is the latest of more than 160 special districts to default on its development bonds since the housing bust. The problem is too many projects were started at the same time — the boom days of 2005 and 2006 — before the market dried up. After that, the developers kept pushing forward like there was no housing crisis, said Richard Lehmann, a Miami financial adviser who runs a website that keeps tabs on district finances.”

“‘This has been going on a couple years now,’ he said. ‘They’re all in trouble. We’re talking about a large amount of property across the state.’”

“The number of foreclosure filings in the Roaring Fork Valley portion of Eagle and Garfield counties soared in 2011. There were 107 foreclosures filed by lenders in the Eagle County portion of the valley in 2011, according to research by attorney Garret Brandt, also a real estate agent with Chaffin Light Real Estate. Brandt said there didn’t appear to be any areas of the middle and lower valley that were hit particularly hard or spared from foreclosure actions. ‘They’re still all over the place,’ he said.”

“However, in the Glenwood Springs and Carbondale areas, the average amount of the foreclosure filings was for $508,000. That suggests there are a lot of homes in lower price ranges targeted for foreclosure, not just more expensive luxury properties. ‘It seems like the really big projects are all done with,’ Brandt said, referring to the projects facing financial trouble. Now more foreclosure actions are affecting less expensive homes and condominiums, property owned by ‘average people,’ Brandt said.”




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42 Comments »

Comment by Realtors Are Liars®
2012-01-13 07:50:02

“Smith: In my view if everyone paid there mortgage payment on time we would have no housing crisis. In fact home prices would have moved down a little but no where near the amount we have seen from the so called strategic-defaulters. It created the downward spiral that we see today and created a giant housing hole we are slowly crawling out of…Somehow our mortgage came with a guarantee that said in the event your home value declines you can stop making payments and we will be just fine with that, who cares if you drop your neighborhoods value and send our beloved country into the worst recession since the great depression.”

“The truth is when home values were going up, no body thought of defaulting their mortgage to ‘get out of it.’ Every lunch table in town the conversation was how great the market is doing and how much equity they have now and how they are buying investment properties. Nobody called their mortgage company or the banks crooks. But now all of a sudden they are the bad guys, are they really the bad guys because if home prices were still up would you be mad? I see this anger for people to rationalize and default on their home loans and seeing the market further down the drain.”
___________________________________________________________

You scumbag reaItors are still blaming everyone elseand deflecting from your own crimes and corrupt business model.

How dare you invoke the word “truth” and lecture the public!! You people are so corrupt and desperately rationalize everyone one of your lies when confronted with them, you know longer recognize what truth is anymore. You worship at the Altar of Lies.

Comment by Darrell_in_PHX
2012-01-13 16:18:05

The bottom was always going to be the intersection of supply and demand. Supply is determined by the number of houses, which we drastically overbuilt. Demand is determined by the wages of purchisers and equivilent rent.

None of the factors effecting supply and demand have anything to do with the number of foreclosures. Blaming foreclsoures is simply blaming the symptom for the disease.

 
 
Comment by Robert
2012-01-13 08:46:38

Oh Come On, “Realtors are Liars”.

You can’t take either side at face value. Of course, Realtors are Liars. But I’m sure “Mohammed and His Wife” also thought they were going to make the proverbial killing in real estate by renting out their old home and buying a new one!

If they had simply sold their old home and bought a new one, I’d have more sympathy for them. But by deciding to get into the business of owning and managing rental property, you need to hold them accountable for the success or failure of their business venture.

Comment by Realtors Are Liars®
2012-01-13 08:49:50

Where was anyone discussing anything but reaItor lies and distortions?

 
Comment by Steve J
2012-01-13 09:48:48

Reading the article, the Sultans owned two properties before buying the house they couldn’t afford?

I think they were really speculating in real estate with hopes if striking it big.

Comment by Robert
2012-01-13 10:17:41

Exactly. And that’s why you have to be careful when “taking sides” in these stories, as our friend “Realtors are Liars” has done.

Both sides in these transactions deserve each other. One thought he was going to get rich quick, and the other was more than happy to lend him more money than he could ever possibly pay back.

The other side, if there is any at all, is the person who didn’t buy any real estate during this period, or the person who bought one house and kept up with the mortgage, or a renter who’s trying to save money and can’t get more than .1% interest on his CDs.

Just because you’ve learned to chant “bankers are evil” from your local Occupy meetings, doesn’t mean that the debtors are saints.

Comment by Realtors Are Liars®
2012-01-13 10:28:28

Who is “taking” sides my friend? SHOW us where I champion the cause of the home-debtors.

PS- Quit hiding.

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Comment by Carl Morris
2012-01-13 10:28:44

That’s true. But which one should have known better?

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Comment by eastcoaster
2012-01-13 10:35:05

Both. Actually, no, the buyer should have. Due diligence. Personal accountability. Research. Come on, people, it’s simply way too easy in this day and time to get facts for yourself to use the excuse of, “But, I trusted that person would be honest with me!” Really? And used car salespeople, too?

 
Comment by Carl Morris
2012-01-13 11:48:18

If home loans were only available to educated professionals (who also got suckered), sure. But we made sure they were available to everybody, and you’ve seen the average American. There needs to be some consumer protection in place, especially when dealing with purchases much larger than used cars.

 
Comment by Realtors Are Liars®
2012-01-13 11:59:01

Carl,

Are you suggesting that used house salesmen are as untrustworthy as used car salesmen?

 
Comment by polly
2012-01-13 12:26:20

I’ve always thought that the duping of the average person had more to do with everyone “knowing” that bankers were the guys who were tight with money. They didn’t want to lose their money so if they approved a loan you could be sure that it wasn’t too much because if you couldn’t pay, they suffered for it too. Average people (and many others) just missed the transition in the incentives in the banking industry. My father did and he had an MBA (admittedly he concentrated on marketing and advertising and the degree was of a fine old vintage). He was baffled the first time I told him I could get approved for enough mortgage to buy a small two bedroom condo, but I didn’t think I could afford it.

 
Comment by Steve J
2012-01-13 12:53:08

The Sultans knowledge of real estate law is also top notch.

 
Comment by jbunniii
2012-01-13 15:42:27

But we made sure they were available to everybody, and you’ve seen the average American. There needs to be some consumer protection in place, especially when dealing with purchases much larger than used cars.

Bring back the 20% downpayment requirement. The average buyer will overnight become a lot more prudent, as their own money is on the line and those with marginal finances are prevented from buying in the first place.

 
Comment by Carl Morris
2012-01-13 17:15:17

But that’s not fair to the financially challenged.

 
 
Comment by Montana
2012-01-13 14:07:44

I thought RAL was merely deriding Smith’s stupid little sermon.

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Comment by Realtors Are Liars®
2012-01-13 16:09:55

Correct Montana. The reaItor troll threw a lame attempt to divert attention to the corrupt reaItor talk.

 
 
 
Comment by Dale
2012-01-13 10:30:20

…and they learned about the beauty of leverage when housing prices are on the way down.

 
Comment by Diogenes (Tampa, Fl)
2012-01-13 15:46:18

I think they were really speculating in real estate with hopes if striking it big……………………………
Ding. ding. ding.
YOU win the prize. Once again, the media “story” is always a sob story about some poor slob who was taken advantage of by dubious business people who led them astray.
He was greedy. He wanted to succeed in the real estate “price only goes up” investment fantasy.
He failed.
Now it’s someone else’s fault.
Boo. f9i9ckin. Hoo.

Comment by Posers
2012-01-13 22:40:24

Think you’re tired of this now? Think again. This meme will be turned up several notches as this election year drags on unmercilessly. Be ready to blow your brains out.

Class warfare tactics will prevail at least until November. Depending on the results of the election, such tactics may remain top priority 24/7 until November 2016.

There must always be a scapegoat class to control the uneducated masses. That many of those who comprise today’s masses also are unethical only sweetens the deal.

What apparently hasn’t been discussed much on this board is the extent to which the political and financial elite are encouraging lawlessness among the masses.

It is to their advantage to do so.

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Comment by eastcoaster
2012-01-13 10:36:37

I thought the exact same thing when I read this. They should have just sold the paid off house and bought the new one. The end.

Comment by Elanor
2012-01-13 13:43:08

Better yet, stay in their paid-off house and tell the daughter and son-in-law to find their own place.

 
 
Comment by Jim A
2012-01-13 14:06:19

At some level, the sad thing isn’t that they ended up forclosed out of a house that, in reality they couldn’t afford. It’s sad that they spent so long TRYING to make the payments. They would have been better off getting foreclose earlier. Of course they would have been far better off if they simply continued to live in their paid off house.

Comment by Prime_Is_Contained
2012-01-13 15:39:41

It’s sad that they spent so long TRYING to make the payments.

+1. The tragedy is when people are stupid enough to let themselves be bled dry before walking away. The smart ones walk away sooner, and do tap things like 401(k)’s that would be protected from creditors.

 
 
 
Comment by Arizona Slim
2012-01-13 09:37:52

“After two years of making payments, the Sultans fell behind. ‘We exhausted everything we had,’ Mohamed says. ‘We exhausted everything to keep the house.’ ‘We trusted Countrywide,’ Wanda says. ‘Why would they lie to people and tell them they can afford something?’”

Because Countrywide was one of the most notorious control frauds ever to walk the face of this earth, that’s why. And one of the hallmarks of a control fraud is dishonesty in its dealings. Which, of course, includes its dealings with customers.

Unfortunately, Mohamed had no way of knowing that. He was probably like a lot of people in that he trusted the friendly people at Countrywide, they assured him that everything would work out, and it didn’t.

Comment by Steve J
2012-01-13 09:51:35

Makes you wonder how the Sultans had a paid for house in the first place…

Comment by Arizona Slim
2012-01-13 10:12:58

They probably thought that they’d get rich in real estate. Y’know, by buying a lot of houses and then renting them out. They were going to get rich on the appreciated value of the places.

During the boom years, there were plenty of mortgage companies that were all too eager to lend them money. There were plenty of such outfits here in Tucson.

BTW, quite a few of the “investment for appreciation” houses in this nabe have been foreclosed on. Most of the foreclosures have happened in the last three years, and I suspect that more are on the way.

 
Comment by Cantankerous Intellectual Bomb Thrower©
2012-01-13 13:41:52

You’d think a Sultan could afford more than a $165,000 Garage Mahal.

Comment by Prime_Is_Contained
2012-01-13 15:41:15

LOL!!! Awesome one, PB!! :-)

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Comment by aqius
2012-01-13 17:55:47

Second that !

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Comment by jbunniii
2012-01-13 15:45:57

Unfortunately, Mohamed had no way of knowing that.

“No way” is certainly an exaggeration. Everyone on this board knew it, as did anyone who did some basic arithmetic when told by the Countrywides of the world that they could afford a loan at some egregious multiple of their income.

 
Comment by Darrell_in_PHX
2012-01-13 16:19:29

Why would they lie? Because they are comissioned salesman, DUH!!!!

 
Comment by ahansen
2012-01-14 00:26:30

When something is advertised six times per half hour on daytime and late-night television, it’s a pretty good bet you shouldn’t buy it.

 
 
Comment by Cantankerous Intellectual Bomb Thrower©
2012-01-13 13:40:34

“‘We trusted Countrywide,’ Wanda says. ‘Why would they lie to people and tell them they can afford something?‘”

$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$

Comment by Arizona Slim
2012-01-13 14:06:03

Reminds me of that line from the movie “Animal House.”

“You —-ed up! You trusted us!”

 
 
Comment by BetterRenter
2012-01-13 15:14:39

“Smith: In my view if everyone paid there mortgage payment on time we would have no housing crisis.”

Tracy Smith said quite a few good and true things that I seldom if ever hear in the media. I’m glad to hear it in any event. Her first quoted line is the most pertinent: If people just made the payments they promised under contract to make, there would be no housing crisis (although there’d still be a national economic crisis, since mortgage payments would consume all excess cash in the hands of the middle class). True, we’d also still have a massive housing glut, which would eventually cause housing prices to fall across the board; purchases or rentals.

So strategic defaulters are a big problem. But it’s contractual; you can default, and then whatever penalty clauses or law can be invoked.

Sadly, at no point in this matter are the lenders feeling the pain for the defaults. So the housing crisis will just deepen. In many places, you won’t see housing prices rising on average until the middle 2020s. The Denial Phase itself is only starting to peter out; we’ve yet to see real subscription to the Anger Phase, and the Bargaining Phase is only hinted at. This is a generational economic crash, hence it must transpire in generational time.

Comment by Darrell_in_PHX
2012-01-13 16:22:25

The bubble was the problem. The crash was inevitable.

Stratigic defaulters are not the problem. Lending them huge sums of money with inflated asset as collateral was the problem.

 
 
Comment by Cantankerous Intellectual Bomb Thrower©
2012-01-13 15:37:54

“It’s the third major development in West Des Moines to face foreclosure action since the economy turned south three years ago.”

Wasn’t Field of Dreams set in Iowa?

In the case at hand, if you build it, they won’t come.

Comment by seen it all
2012-01-13 16:45:37

I remember a WSJ article 15 years ago detailing a local farmer’s lament at watching tract housing (these Des Moines developments) being built on “6 feet of loam”.

It may have been Nebraska but it was some great farmland getting swallowed by the bubble.

 
 
Comment by M
2012-01-13 19:03:00

Dateline Boston….2,900 for mortgage, pmi and taxes. 500 for student loan, 400 for utilities and sewer. Ok 3800…. Let’s say 4000 just to make it easy. Now add 500 for car (at least….loan, tax, gas, insurance). Say you want child care…. (because you need two incomes to even be involved in housing…or have a kid responsibly)…another 1300 per month. That’s 5800 after tax before you even eat never mind healthcare, life insurance, retirement, college savings. If you add that…….you are at 7k after tax. What percentage of people make that?

Very simple question

Comment by Carl Morris
2012-01-13 22:02:12

I think it’s worse than that. You both need a decent car. Maybe you were smart and don’t have student loans…or maybe you both have student loans of 500+ each. But it’s that last 1200 for everything else that I don’t think is realistic. You need more than that or you just end up going further in the hole.

 
Comment by 2banana
2012-01-14 07:10:15

But EVERYONE wants to live in Boston - so it’s worth it.

 
 
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