Economy > Housing market > USA > Foreclosure
A foreclosure sign outside a home for sale in Phoenix earlier
Ross D. Franklin/Associated Press
February 24, 2009
A Sharp Drop in Home Prices at End of Year
25 February 2009
The Pittsburgh Post-Gazette
27 October 2010
Foreclosure Abuses, Revisited
By THE EDITORIAL BOARD
NYT OCT. 6, 2015
USA > mortgage giants > Freddie Mac and Fannie Mae
UK / USA
housing defaults USA
cartoons > Cagle > Christmas foreclosures
USA December 2010
foreclosed house / home / property USA
a house in foreclosure
bargain hunter USA
subprime loans — higher-rate loans to buyers with poor credit
UK / USA 2007-2008
predator / shark USA
How Good Is the Housing News?
March 7, 2012
The New York Times
The housing market has shown signs of life recently. Home
sales have beat expectations and pending sales neared a two-year high. But
prices — the crucial measure of housing-market health — are still falling,
driven down by increasing levels of distressed sales of foreclosed properties.
That means the market, and the broader economy, which derives much of its
strength from housing, are not out of the woods — not by a long shot.
For too long, President Obama and his team have relied on the banks to
voluntarily modify troubled loans. Those efforts were focused on reducing
monthly payments, not principal — a more powerful form of relief.
Now President Obama is trying again. On Tuesday, he announced a new policy of
easier refinancings for loans that are backed by the Federal Housing
Administration. As part of the settlement announced in February, the major banks
will be required to promote loan modifications for troubled borrowers, including
principal reductions for underwater homeowners.
Mr. Obama has also promised a far-reaching investigation into mortgage abuses
that is supposed to yield more accountability from the banks and more money for
foreclosure prevention. He must deliver.
One thing is sure: Waiting for the situation to self-correct, as Mitt Romney has
recommended, won’t fix the problem. The recent good news on sales has been
driven by pent-up demand and warm winter weather that lured buyers. But more
sales won’t translate into higher prices until foreclosures abate.
In the last quarter of 2011, national home prices fell 4 percent, putting prices
back to levels last seen in mid-2002, according to the Standard &
Poor’s/Case-Shiller price index. Moody’s Analytics estimates that 3.3 million
homes are in or near foreclosure and another 11.5 million underwater homeowners
are at risk of foreclosure if the economy or their finances weaken.
Is help really on the way?
The main component of the administration’s new efforts is the recent foreclosure
settlement between the big banks and state and federal officials. In exchange
for immunity from government civil lawsuits over most foreclosure abuses, the
banks will provide $26 billion worth of relief, including principal write-downs,
to an estimated 1.75 million borrowers. That is a pittance compared with the
losses in the housing bust. But by preventing a chunk of additional
foreclosures, it could help ensure that prices do not fall much further before
The settlement was announced nearly a month ago, but the specific terms have yet
to be released. One concern is that banks may have leeway to tailor loan
modifications in ways that help them clean up their balance sheets, while
leaving many homeowners deeply underwater. Another is that states may be able to
use money from the settlement for purposes other than foreclosure relief.
The investigation that is supposed to be the powerful follow-up to the
settlement has also gotten off to a worryingly slow start. Announced in January
by Mr. Obama, it still has no executive director, raising questions about the
administration’s commitment to truly holding the banks accountable. The longer
it takes to do an investigation, the longer it will take to secure verdicts or
settlements that would include money for further antiforeclosure efforts.
Because the banks held off on foreclosure while the settlement was being
negotiated, reclosure filings are set to rise in the coming year to more than
two million. That means more pain for struggling homeowners — and the economy.
By this point, homeowners should be inundated with relief, not still anxiously
How Good Is the Housing News?,
The New York Times
Neither Congress, nor federal regulators, nor state or federal prosecutors have
yet to conduct a thorough investigation into the mortgage bubble and financial
bust. We welcomed the news that the Justice Department is investigating
allegations that Standard & Poor’s purposely overrated toxic mortgage securities
in the years before the bust. We hope the investigative circle will widen.
But a lot more needs to be done to address the continuing damage from the
Tens of millions of Americans are being crushed by the overhang of mortgage
debt. And Congress and the White House have yet to figure out that the economy
will not recover until housing recovers — and that won’t happen without a robust
effort to curb foreclosures by modifying troubled mortgage loans.
Instead of pushing the banks to do what is needed, the Obama administration has
basically urged them to do their best to help, mainly by reducing interest rates
for troubled borrowers. The banks haven’t done nearly enough. In many instances,
they can make more from fees and charges on defaulted loans than on
The administration needs better ideas. It can start by working with Fannie Mae
and Freddie Mac, the government-run mortgage companies, to aggressively reduce
the principal balances on underwater loans and to make refinancing easier for
underwater borrowers. If the president championed aggressive action, and Fannie
and Freddie, which back most new mortgages, also made it clear to banks that
they expect principal reductions, the banks would feel considerable pressure to
The housing numbers are chilling. Sales of existing homes fell in July by 3.5
percent, while prices were down 4.4 percent in July from a year earlier. In all,
prices have declined 33 percent since the peak of the market five years ago, for
a total loss of home equity of $6.6 trillion.
There’s no letup in sight. Currently, 14.6 million homeowners owe more on their
mortgages than their homes are worth, and nearly half of them are underwater by
more than 30 percent. At present, 3.5 million homes are in some stage of
foreclosure. Nearly six million borrowers have already lost their homes in the
Reducing principal is a better solution than lowering interest rates, because it
reduces payments and restores equity. Bankers resist, because it could force
them to recognize losses they would prefer to delay. The administration has
resisted, in part because principal reductions are seen as rewarding reckless
But many of today’s troubled borrowers were not reckless. Rather, they are
collateral damage in a bust that has wiped out equity and hammered jobs, turning
what were reasonable debt levels into unbearable burdens.
Housing advocates and bankruptcy experts are calling for the administration to
try new approaches. One would have Fannie and Freddie urge banks to let
underwater borrowers who file for bankruptcy apply their monthly mortgage
payments to principal for five years — in effect, reducing the loan’s interest
rate to zero.
Another solution would be for Fannie and Freddie to ease the rule for
refinancing underwater mortgages for borrowers who are current in their
payments. The lower payments on refinanced loans would help to prevent defaults
and free up money for borrowers to use for paying down principal or consumer
President Obama is reportedly planning to include housing relief measures in his
new jobs plan. Unless the plan includes strong support for principal reductions
and easier refinancings, it will not get at the root of the problem: too much
mortgage debt and too little relief.
Homeowners Need Help, NYT, 21.8.2011,
Cost of Seizing Fannie and Freddie
Surges for Taxpayers
June 19, 2010
The New York Times
By BINYAMIN APPELBAUM
CASA GRANDE, Ariz. — Fannie Mae and Freddie Mac took over a foreclosed home
roughly every 90 seconds during the first three months of the year. They owned
163,828 houses at the end of March, a virtual city with more houses than
Seattle. The mortgage finance companies, created by Congress to help Americans
buy homes, have become two of the nation’s largest landlords.
Bill Bridwell, a real estate agent in the desert south of Phoenix, is among the
thousands of agents hired nationwide by the companies to sell those
foreclosures, recouping some of the money that borrowers failed to repay. In a
good week, he sells 20 homes and Fannie sends another 20 listings his way.
“We’re all working for the government now,” said Mr. Bridwell on a recent
sun-baked morning, steering a Hummer through subdivisions laid out like circuit
boards on the desert floor.
For all the focus on the historic federal rescue of the banking industry, it is
the government’s decision to seize Fannie Mae and Freddie Mac in September 2008
that is likely to cost taxpayers the most money. So far the tab stands at $145.9
billion, and it grows with every foreclosure of a three-bedroom home with a
two-car garage one hour from Phoenix. The Congressional Budget Office predicts
that the final bill could reach $389 billion.
Fannie and Freddie increased American home ownership over the last half-century
by persuading investors to provide money for mortgage loans. The sales pitch
amounted to a money-back guarantee: If borrowers defaulted, the companies
promised to repay the investors.
Rather than actually making loans, the two companies — Fannie older and larger,
Freddie created to provide competition — bought loans from banks and other
originators, providing money for more lending and helping to hold down interest
“Our business is the American dream of home ownership,” Fannie Mae declared in
its mission statement, and in 2001 the company set a target of helping to create
six million new homeowners by 2014. Here in Arizona, during a housing boom
fueled by cheap land, cheap money and population growth, Fannie Mae executives
trumpeted that the company would invest $15 billion to help families buy homes.
As it turns out, Fannie and Freddie increasingly were channeling money into
loans that borrowers could not afford. As defaults mounted, the companies
quickly ran low on money to honor their guarantees. The federal government,
fearing that investors would stop providing money for new loans, placed the
companies in conservatorship and took a 79.9 percent ownership stake, adding its
own guarantee that investors would be repaid.
The huge and continually rising cost of that decision has spurred national
debate about federal subsidies for mortgage lending. Republicans want to sever
ties with Fannie and Freddie once the crisis abates. The Obama administration
and Congressional Democrats have insisted on postponing the argument until after
the midterm elections.
In the meantime, Fannie and Freddie are, at public expense, removing owners who
cannot afford their homes, reselling the houses at much lower prices and
financing mortgage loans for the new owners.
The two companies together accounted for 17 percent of real estate sales in
Arizona during the first four months of the year, almost three times their share
of the market during the same period last year, according to an analysis by MDA
Valarie Ross, who lives in the Phoenix suburb of Avondale, has watched six of
the nine homes visible from her lawn chair emptied by moving trucks during the
last year. Four have been resold by the government. “One by one,” she said.
The population of Pinal County, where Mr. Bridwell lives and works, roughly
doubled to 340,000 over the last decade. Developers built an entirely new city
called Maricopa on land assembled from farmers. Buyers camped outside new
developments, waiting to purchase homes. One builder laid out a 300-lot
subdivision at the end of a three-mile dirt road and still managed to sell 30 of
Mr. Bridwell sold plenty of those houses during the boom, then cut workers as
prices crashed. Now his firm, Golden Touch Realty, again employs as many people
as at the height of the boom, all working exclusively for Fannie Mae. The
payroll now includes a locksmith to secure foreclosed homes and two clerks
devoted to federal paperwork.
Golden Touch gets more listings from Fannie Mae than any other firm in Pinal
County. Mr. Bridwell said he was ready to jump because he remembered the last
time the government ended up owning thousands of Arizona houses, after the
late-1980s collapse of the savings and loan industry.
“The way I see it,” said Mr. Bridwell, whose glass-top desk displays membership
cards from the Republican National Committee, “is that we’re getting these homes
back into private hands.”
Selling a house generally costs the government about $10,000. The outsides are
weeded and the insides are scrubbed. Stolen appliances are replaced, brackish
pools are refilled. And until the properties are sold, they must be maintained.
Fannie asks contractors to mow lawns twice a month during the summer, and pays
them $80 each time. That’s a monthly grass bill of more than $10 million.
All told, the companies spent more than $1 billion on upkeep last year.
“We may be behind many loans on the same street, so we believe that it’s in
everyone’s best interest to aggressively do property maintenance,” said Chris
Bowden, the Freddie Mac executive in charge of foreclosure sales.
Prices have plunged. So by the time a home is resold, Fannie and Freddie on
average recoup less than 60 percent of the money the borrower failed to repay,
according to the companies’ financial filings. In Phoenix and other areas where
prices have fallen sharply, the losses often are larger.
Foreclosures punch holes in neighborhoods, so residents, community groups and
public officials are eager to see properties reoccupied. But there also is
concern that investors are buying many foreclosures as rental properties, making
it harder for neighborhoods to recover.
Real estate agents tend to favor investors because the sales close surely and
quickly and there is the prospect of repeat business. But community advocates
say that Fannie and Freddie have an obligation to sell houses to homeowners.
David Adame worked for Fannie Mae’s local office during the boom, on programs to
make ownership more affordable. Now with prices down sharply, Mr. Adame sees a
second chance to put people into homes they can afford.
“Yes, move inventory,” said Mr. Adame, now an executive focused on housing
issues at Chicanos por la Causa, a Phoenix nonprofit group, “but if we just move
inventory to investors, then what are we doing?”
Executives at both Fannie and Freddie say they have an overriding obligation to
limit losses, but that they are taking steps to sell more homes to families.
Fannie Mae last summer announced that it would give people seeking homes a
“first look” by not accepting offers from investors in the first 15 days that a
property is on the market. It also offers to help buyers with closing costs, and
prohibits buyers from reselling properties at a profit for 90 days, to
discourage speculation. Fannie Mae said that 68.4 percent of buyers this year
had certified that they would use the house as a primary residence.
Freddie Mac has adopted fewer programs, but it said it had sold about the same
share of foreclosures to owner-occupants.
The companies also have agreed to sell foreclosed homes to nonprofits using
grants from the federal Neighborhood Stabilization Program. Chicanos por la
Causa, which won $137 million under the program in partnership with nonprofits
in eight other states, plans to buy more than 200 homes in Phoenix in the next
two years. It plans to renovate them to sell to local families.
The scale of such efforts is small. The home ownership rate in Phoenix continues
to fall as foreclosures pile up and renters replace owners.
But John R. Smith, chief of Housing Our Communities, another Phoenix-area group
using federal money to buy foreclosures, says he tries to focus on salvaging one
property at a time.
“I tell them, ‘O.K., you want to unload 10 houses to that guy, fine,’ ” he said.
“ ‘Now give me this one. And this one. And one over here.’ ”
Cost of Seizing Fannie
and Freddie Surges for Taxpayers, NYT, 19.6.2010,
Finding in Foreclosure a Beginning,
Not an End
March 21, 2010
The New York Times
By JOHN LELAND
BOSTON — Jane Petion lived in her home for 15 years and saw
its value rise slowly, rise rapidly and, when the housing bubble burst, plunge
at a sickening pace that left her owing $400,000 on a house worth closer to
$250,000. Last June, her lender foreclosed on the property. The family received
notices of eviction and appeared in housing court.
Then they discovered a surprising paradox within the nation’s housing crisis:
Their power to negotiate began after foreclosure, rather than ending there.
In December Ms. Petion signed a new mortgage on her house for $250,000, with
monthly payments of less than half the previous level. She and her husband now
have a mortgage they can afford in a neighborhood that benefits from the
stability they provide. A nonprofit lender made the deal possible by buying the
house from her original mortgage company and selling it to her for 25 percent
more than its purchase price — a gain to hedge against future defaults.
“It was exactly what we needed to get back on our feet,” said Ms. Petion, who
works for a state agency. “We have income. But another bank, it would have been
easy to look at our foreclosure and say, ‘I’m sorry, we have nothing for you
This counterintuitive solution — intervening after foreclosure rather than
before — is the brainchild of Boston Community Capital, a nonprofit community
development financial institution, and a housing advocacy group called City
Life/Vida Urbana, working with law students and professors at Harvard Law
Though the program, which started last fall, is small so far, there is no reason
it cannot be replicated around the country, especially in areas that have had
huge spikes in housing prices, said Patricia Hanratty of Boston Community
Capital. “If what you’ve got is a real estate market that went nuts and a
mortgage market that went nuts, what you’ve got is an opportunity.”
Two years into the nation’s housing meltdown, and after hundreds of billions of
dollars of federal rescue programs, government officials and housing advocates
denounce the unwillingness of lenders to adjust the balances on homes that are
worth less than the mortgage owed on them.
Research suggests that such disparity, rather than exotic interest rates, is the
main driver of foreclosures, in tandem with a job loss or another financial
setback. The financial industry lobbied aggressively to defeat legislation that
would empower bankruptcy judges to adjust mortgage balances to properties’
That reluctance, however, eases after foreclosure, when lenders find themselves
holding properties they need to unload, Ms. Hanratty said.
“We found, frankly, the industry wasn’t ready to do much pre-foreclosure,” she
said. “But once it was either on the cusp of foreclosure or had been taken into
the bank portfolio, banks really do not want to hold on to these properties
because they don’t know how to manage them, don’t know what to do with them.”
Working with borrowed money, Boston Community Capital buys homes after
foreclosure and sells or rents them to their previous owners, providing new
mortgages and counseling to the owners, who typically have ruined credit. During
the process the families remain in their homes. Since late fall it has completed
or nearly completed deals on 50 homes, with an additional 20 in progress, Ms.
Hanratty said. The organization is now trying to raise $50 million to expand the
Steve Meacham, an organizer at City Life/Vida Urbana, is one reason banks may be
willing to sell their foreclosed properties to Boston Community Capital. When
families receive eviction notices, his group holds demonstrations or blockades
outside the properties, calling on lenders to sell at market value. It also
connects the residents with the Harvard Legal Aid Bureau, whose students work to
pressure lenders to sell rather than evict by prolonging eviction and “driving
up litigation costs,” said Dave Grossman, the clinic’s director.
“So they’re being defended legally, and we’re ramping up the pressure
publicity-wise,” Mr. Meacham said. “And B.C.C. came in; they had a part that
buys properties and a part that writes mortgages. It wouldn’t work without all
A focus of the program has been the working-class neighborhood of Dorchester,
where home prices dropped 40 percent between 2005 and 2007, compared with a 20
percent drop statewide, according to research by the Federal Reserve Bank of
Boston. Foreclosures and delinquencies there are more than twice the state
average, the bank found.
In such neighborhoods, lenders and residents are hurt by evictions, which often
leave vacant properties that invite crime and drive down values of neighboring
houses, Ms. Hanratty said. “So it’s in the lenders’ interest to get fair market
value as quickly as possible, and in the interest of the community to have as
little displacement as possible.”
The program is not a solution for all lenders or distressed homeowners. After
months of post-foreclosure negotiations with her bank, Ursula Humes, a transit
police detective, is waiting for her final 48-hour eviction notice. Her
belongings are in boxes.
Mrs. Humes owed $440,000 on her home; her lender offered to sell it to Boston
Community Capital for $260,000. But after assessing Mrs. Hume’s finances, the
nonprofit asked for a lower selling price, and the lender refused.
On a recent evening, Mr. Grossman of the Harvard law clinic counseled Mrs. Humes
on her options. “This is a case that doesn’t have a happy ending,” Mr. Grossman
Mrs. Humes said, “I depleted my retirement account and everything I owned, but
I’m still going to lose it.”
Many commercial lenders, similarly, would shy away from such a program because
it involves writing mortgages for borrowers who have already defaulted once — a
high risk for a small reward.
For other homeowners, though, the program is a rescue at the last possible
second. Roberto Velasquez, a building contractor, lost his home to foreclosure
last November, owing the lender $550,000. After extensive wrangling, during
which his family stayed in the house, he bought it again in March for $280,000,
a price he can afford.
On the night after he closed, he joined other members of City Life/Vida Urbana
at a foreclosed four-unit building in Dorchester from which most of the tenants
had been evicted. A group of artists projected videos on sheets in the windows,
showing silhouettes of families re-enacting their last 72 hours before eviction.
Garbage filled one of the units. Mr. Velasquez said it hurt to stand amid such
loss, but he was jubilant at his own perseverance.
“We’ve been fighting for so long,” he said, “and we win, because we’re still in
Foreclosure a Beginning, Not an End, NYT, 22.3.2010,
U.S. Mortgage Delinquencies
Reach a Record High
November 20, 2009
The New York Times
By DAVID STREITFELD
The economy and the stock market may be recovering from their swoon, but more
homeowners than ever are having trouble making their monthly mortgage payments,
according to figures released Thursday.
Nearly one in 10 homeowners with mortgages was at least one payment behind in
the third quarter, the Mortgage Bankers Association said in its survey. That
translates into about five million households.
The delinquency figure, and a corresponding rise in the number of those losing
their homes to foreclosure, was expected to be bad. Nevertheless, the figures
underlined the level of stress on a large segment of the country, a situation
that could snuff out the modest recovery in home prices over the last few months
and impede any economic rebound.
Unless foreclosure modification efforts begin succeeding on a permanent basis —
which many analysts say they think is unlikely — millions more foreclosed homes
will come to market.
“I’ve been pretty bearish on this big ugly pig stuck in the python and this
cements my view that home prices are going back down,” said the housing
consultant Ivy Zelman.
The overall third-quarter delinquency rate is the highest since the association
began keeping records in 1972. It is up from about one in 14 mortgage holders in
the third quarter of 2008.
The combined percentage of those in foreclosure as well as delinquent homeowners
is 14.41 percent, or about one in seven mortgage holders. Mortgages with
problems are concentrated in four states: California, Florida, Arizona and
Nevada. One in four people with mortgages in Florida is behind in payments.
Some of the delinquent homeowners are scrambling and will eventually catch up on
their payments. But many others will slide into foreclosure. The percentage of
loans in foreclosure on Sept. 30 was 4.47 percent, up from 2.97 percent last
In the first stage of the housing collapse, defaults and foreclosures were
driven by subprime loans. These loans had low introductory rates that quickly
moved to a level that was beyond the borrower’s ability to pay, even if the
homeowner was still employed.
As the subprime tide recedes, high-quality prime loans with fixed rates make up
the largest share of new foreclosures. A third of the new foreclosures begun in
the third quarter were this type of loan, traditionally considered the safest.
But without jobs, borrowers usually cannot pay their mortgages.
“Clearly the results are being driven by changes in employment,” Jay Brinkmann,
the association’s chief economist, said in a conference call with reporters.
In previous recessions, homeowners who lost their jobs could sell the house and
move somewhere with better prospects, or at least a cheaper cost of living. This
time around, many of the unemployed are finding that the value of their property
is less than they owe. They are stuck.
“There will be a lot more distressed supply entering the market, and it will
move up the food chain to middle- and higher-price homes,” said Joshua Shapiro,
chief United States economist for MFR Inc.
Many analysts say they believe that foreclosures, instead of peaking with the
unemployment rate as they traditionally do, will most likely be a lagging
indicator in this recession. The mortgage bankers expect foreclosures to peak in
2011, well after unemployment is expected to have begun falling.
There was one sliver of good news in the survey: the percentage of loans in the
very first stage of default — no more than 30 days past due — was down slightly
from the second quarter. If that number continues to decline, at least the ranks
of the defaulted will have peaked.
“It’s arguably a positive, but it doesn’t undermine the fact that there are
still five or six million foreclosures in process,” Ms. Zelman said.
The number of loans insured by the Federal Housing Administration that are at
least one month past due rose to 14.4 percent in the third quarter, from 12.9
percent last year. An additional 3.3 percent of F.H.A. loans are in foreclosure.
The mortgage group’s survey noted, however, that the F.H.A. was issuing so many
loans — about a million in the last year — that it had the effect of masking the
percentage of problem loans at the agency. Most loans enter default when they
are older than a year.
When the association removed the new loans from its calculations, the percentage
of F.H.A. mortgages entering foreclosure was 30 percent higher.
The association’s survey is based on a sample of more than 44 million mortgage
loans serviced by mortgage companies, commercial and savings banks, credit
unions and others. About 52 million homes have mortgages. There are 124 million
year-round housing units in the country, according to the Census Bureau.
Delinquencies Reach a Record High, NYT, 20.11.2009,
Foreclosures: No End in Sight
June 2, 2009
The New York Times
A continuing steep drop in home prices combined with rising
unemployment is powering a new wave of foreclosures. Unfortunately, there’s
little evidence, so far, that the Obama administration’s anti-foreclosure plan
will be able to stop it.
The plan offers up to $75 billion in incentives to lenders to reduce loan
payments for troubled borrowers. Since it went into effect in March, some
100,000 homeowners have been offered a modification, according to the Treasury
Department, though a tally is not yet available on how many offers have been
That’s a slow start given the administration’s goal of preventing up to four
million foreclosures. It is even more worrisome when one considers the size of
the problem and the speed at which it is spreading. The Mortgage Bankers
Association reported last week that in the first three months of the year, about
5.4 million mortgages were delinquent or in some stage of foreclosure.
Not all of those families will lose their homes. Some will find the money to
catch up on their payments. Others will qualify for loan modifications that
allow them to hang on. But as borrowers become more hard pressed, lenders —
whose participation in the Obama plan is largely voluntary — may not be able or
willing to keep up with the spiraling demand for relief.
One of the biggest problems is that the plan focuses almost entirely on lowering
monthly payments. But overly onerous payments are only part of the problem. For
15.4 million “underwater” borrowers — those who owe more on their mortgages than
their homes are worth — a lack of home equity puts them at risk of default, even
if their monthly payments have been reduced. They have no cushion to fall back
on in the event of a setback, like job loss or illness.
This page has long argued that a robust anti-foreclosure plan should directly
address the plight of underwater homeowners by reducing the loans’ principal
balance. That would restore some equity to borrowers — and give them a further
incentive to hold on to their homes — in addition to lowering monthly payments.
The mortgage industry has resisted this approach, and the Obama plan does not
With joblessness rising, lower monthly payments could quickly become
unaffordable for many Americans. In a recent report, researchers at the Federal
Reserve Bank of Boston argued that unemployment is driving foreclosures and to
make a difference, anti-foreclosure policy should focus on helping unemployed
homeowners. The report suggests a temporary program of loans or grants to help
them pay their mortgages while they look for another job.
The government will also have to make far more aggressive efforts to create
jobs. The federal stimulus plan will preserve and generate a few million jobs,
but that will barely make a dent — in the overall economic crisis or the
foreclosure disaster. Since the recession began in December 2007, nearly six
million jobs have been lost, and millions more are bound to go missing before
this downturn is over.
President Obama needs to put more effort and political capital into promoting
the middle-class agenda that he outlined during the campaign, including a push
for new jobs in new industries, expanded union membership and a fairer
distribution of profits among shareholders, executives and employees.
There will be no recovery until there is a halt in the relentless rise in
foreclosures. Foreclosures threaten millions of families with financial ruin. By
driving prices down, they sap the wealth of all homeowners. They exacerbate bank
losses, putting pressure on the still fragile financial system. Lower monthly
payments are a balm, but they are no substitute for home equity. And until more
Americans can find a good job and a steady paycheck, the number of foreclosures
will continue to rise.
Foreclosures: No End
in Sight, NYT, 2.6.2009,
A Sharp Drop in Home Prices
at End of Year
February 25, 2009
The New York Times
By JACK HEALY
Home prices in the United States plunged at the fastest pace on record in
December, a sign that housing is likely to continue declining in the months
ahead as the economy sinks deeper into recession.
Single-family home values in 20 major metropolitan areas fell 18.5 percent in
December compared with a year earlier, according to a data released Tuesday by
Standard & Poor’s Case-Shiller home price index. Housing prices dropped 2.5
percent from November to December.
Nationwide, housing prices in the last three months of 2008 sank to their lowest
levels since the third quarter of 2003.
Prices fell in all of the 20 cities surveyed by Case-Shiller, but the declines
were starkest in Phoenix and Las Vegas as well as much of Florida and Southern
California, where development has all but dried up.
“The Sun Belt continues to get hardest hit in terms of just about any measure,”
said David M. Blitzer, chairman of Standard & Poor’s index committee.
Prices in Phoenix fell 5.1 percent in December alone, and were down 34 percent
since December 2007. In Las Vegas, which was recently rated “America’s emptiest
city” by Forbes magazine, prices dropped 4.8 percent in December and were down
33 percent for the year.
The declines for 2008 were shallowest in Dallas and Denver, where prices fell
about 4 percent.
Housing prices are now falling so quickly that economists worried that potential
buyers will stay on the sidelines and wait for the market to deteriorate
further, reinforcing the downward momentum.
“It’s a deflationary spiral,” said Dan Greenhaus, an analyst in the equity
strategy division of Miller Tabak & Company. “Prices go down, people hold back,
prices go down further, people hold back, and so on and so forth.” Although
houses are now cheaper and mortgage rates have fallen to 5.22 percent from 6.10
percent about a year ago, the rapidly deteriorating economy and rising
unemployment have scared off potential buyers, economists said. The unemployment
rate has risen to 7.6 percent nationwide, and the economy is shedding more than
500,000 jobs every month.
“We continue to believe that it is unlikely that we are anywhere near a bottom
in nationwide home prices,” Joshua Shapiro, chief United States economist at
MFR, wrote in a note.
Since the recession began in December 2007, the pace of declines in housing
prices has accelerated as the financial crisis spread and unemployment rose.
According to the National Association of Realtors, the country’s median home
price was $175,400 in December, down nearly 25 percent from its peak of $230,100
in July 2006.
The two-year decline in real-estate prices followed more than a decade of steady
growth in home prices.
A Sharp Drop in Home
Prices at End of Year, NYT, 25.2.2009,
New Home Sales
Post 14.7 Pct Drop in December
January 29, 2009
Filed at 11:34 a.m. ET
The New York Times
By THE ASSOCIATED PRESS
WASHINGTON (AP) -- Sales of new homes plunged to the slowest
pace on record last month as the hobbled homebuilding industry posted its worst
annual sales results in more than two decades.
The Commerce Department said Thursday that new home sales fell 14.7 percent in
December to a seasonally adjusted annual rate of 331,000, from a downwardly
revised November figure of 388,000.
''This is an awful report...Builders just can't cut back fast enough, so prices
remain under downward pressure,'' Ian Shepherdson, chief U.S. economist for High
Frequency Economics, wrote in a research note.
December's sales pace was the lowest on records dating back to 1963. Economists
surveyed by Thomson Reuters had expected sales would fall to a rate of 400,000
For 2008, builders sold 482,000 homes, the weakest results since 1982, when
412,000 homes were sold.
The median price of a new home sold in December was $206,500, a drop of 9.3
percent from a year ago. The median is the point where half the homes sold for
more and half for less.
Builders have been forced to slash production during a prolonged and severe
slump in housing that has seen sales and prices plummet. December's sales
activity was depressed by the worst financial crisis in seven decades, which has
made it harder for potential buyers to get mortgage loans.
The inventory of unsold new homes stood at a seasonally adjusted 357,000 in
December, down 10 percent from November. But at the current sales pace, it would
take a more than a year to exhaust the stock as houses are dumped onto a market
already glutted by a tide of foreclosures.
''The inventory of unsold new homes is still too high,'' wrote Joshua Shapiro,
chief U.S. economist at MFR Inc. ''Prices need to fall further to stimulate
sufficient demand to begin to balance the market.''
The sales weakness in December reflected a 28 percent drop in the Northeast and
a 20 percent drop in the West. The South and Midwest posted smaller declines of
12 percent and almost 6 percent, respectively.
Earlier this month, a key gauge of homebuilders' confidence sank to a new record
low, as the deepening U.S. recession and rising unemployment erode chances for a
Sales of existing homes, however, posted an unexpected increase last month, as
consumers snapped up bargain-basement foreclosures in California and Florida.
Sales of existing homes rose 6.5 percent from November's pace, the National
Association of Realtors said Monday.
New Home Sales Post
14.7 Pct Drop in December, NYT, 29.1.2009,
Mortgages and Minorities
December 9, 2008
The New York Times
The mortgage crisis that has placed millions of Americans at risk of losing
their homes has been especially devastating for black and Hispanic borrowers and
their families. It seems clear at this point that minorities were more likely
than whites to be steered into risky, high-priced loans — even when researchers
controlled for such crucial factors as income, loan size and location.
The Congress that takes office in January can start to deal with this problem by
strengthening fair-lending laws, especially the Community Reinvestment Act,
which encourages fair, sound lending practices while requiring banks to lend,
invest and open branches in low- and moderate-income areas.
Lawmakers should also extend that law to cover the often fly-by-night
mortgage-lending companies that helped drive the subprime crisis. Those
companies saddled entire neighborhoods with risky, high-priced loans that
borrowers could never hope to pay back, sold those loans to Wall Street and then
went out of business.
Congress needs to keep in mind that many of those players are surely to be back
in operation somewhere down the line. Some already have returned in the guise of
offering to help homeowners avoid foreclosure.
The need to revisit fair-lending law is evident in numerous studies of federal
lending data. A particularly striking analysis in 2006 by the National Community
Reinvestment Coalition found that nearly 55 percent of loans to
African-Americans, 40 percent of loans to Hispanics and 35 percent of loans to
American Indians fell into the high-cost category, as opposed to about 23
percent for whites. There also were troubling gender differences. Women got
less-favorable terms than men.
A classic discrimination study by the reinvestment coalition found that black
and Hispanic people who posed as borrowers received significantly worse
treatment and were offered costlier, less-attractive loans more often than
whites — even though minority testers had been given more attractive financial
profiles, including better credit standings and employment tenures. That study,
and others, go a long way to rebutting mortgage companies’ claims that lending
patterns are explained by so-called risk characteristics like credit scores.
John Taylor, the coalition’s president, told a Congressional hearing last year,
that minority borrowers were paying a “race tax.” While lenders are required to
report to the federal government such things as race, gender, census tract,
amount of loan and income, they omit credit score data. By guarding the single
most important statistic used in making loans, the lenders have given themselves
a ready shield against charges of discrimination.
But with indications of discrimination popping up everywhere, Congress has no
choice but to require lenders to report on all data that form the basis of
lending decisions, including data that would permit neutral third parties to
determine whether lenders were discriminating by race. Ideally, lenders would
have to report, not just on the borrower’s credit worthiness, but on details of
the terms and conditions of the loan itself.
Looking back, it’s hard to say whether such reporting requirements would have
forestalled the subprime crisis. Certainly, they would have given consumer
advocates and regulators more information earlier on. There is no excuse for not
putting them in place now to avoid the possibility of history repeating itself
and having all those risky, high-priced loans issued and sold off as securities
before anyone intervenes.
Minorities, NYT, 9.12.2008,
House prices fall
at fastest pace in 25 years
December 4, 2008
From Times Online
British house prices tumbled at a record 16.1 per cent in November, marking
the sharpest drop in property values for a quarter of a century.
Figures released this morning by Halifax revealed that prices fell 2.6 per cent
in November compared with October, and are 16.1 per cent lower than in November
The year-on-year decline is deeper than falls recorded during the last recession
in the early 1990s, and is the biggest drop since 1983.
The shock fall emerged just hours before the Bank of England's Monetary Policy
Commitee (MPC) cut the interest rate again by 1 per cent to 2 per cent, after
last month reducing borrowing costs by 1.5 per cent to 3 per cent.
The reduction is likely to be accompanied by a rate cut by the European Central
Bank, which is predicted to fall by 50 basis points in the 15-nation eurozone.
Howard Archer, chief UK and European economist at IHS Global Insight, said:
"Ongoing very tight credit conditions, still relatively stretched housing
affordability on a number of measures, faster rising unemployment, muted income
growth and widespread expectations that house prices form a powerful set of
negative factors are weighing down on the housing market."
The average price of a house in the UK is back to the July 2005 level of
£163,445, but this is 124 per cent higher — or £90,000 — than the figure in
Mr Archer said Halifax's figures had placed further, last-minute pressure on the
Bank to deliver a large cut in rates.
IHS Global Insight predicted that interest rates would fall as low as 0.5 per
cent in the first half of the new year, and could be reduced even further.
Central banks around the world have cut interest rates ahead of today's moves.
Sweden's central bank today cut its key rate by a record 175 basis points, to 2
per cent, the third reduction since October and the biggest since 1992. It
expects rates to remain at 2 per cent throughout next year.
The Riksbank said there was an "unexpectedly rapid and clear deterioration in
economic activity since October".
New Zealand also announced a record cut of 150 basis points, bringing its rate
down to a five-year low of 5 per cent and acknowledging that further cuts would
probably be necessary.
Indonesia made a surprise 25 basis-point cut to its rate. This reduction, the
first since December last year, takes the interest rate to 9.25 per cent.
Yesterday, the Bank of Thailand cut rates by 100 basis points to 2.75 per cent,
partly in response to the recent political turmoil during which the ruling party
was dissolved and the Prime Minister forced out of office.
On Tuesday, the Reserve Bank of Australia surprised with a
larger-than-anticipated 100 basis-point cut to 4.25 per cent.
But Mr Archer added that: "...it is highly questionable how much of further
interest rate cuts by the Bank of England that mortgage lenders would pass on."
Yesterday, Gordon Brown unveiled a rescue package for homeowners who struggle to
meet their mortgage repayments if they lose their jobs or suffer a severe drop
Those with loans of up to £400,000 — typically borrowers on upper and middle
incomes — will be able to cut payments, with the taxpayer underwriting the risk
The emergency state guarantee, which will enable homeowners to defer mortgage
interest payments for up to two years, was announced unexpectedly in the debate
following the Queen's Speech yesterday.
The Prime Minister said eight big lenders which account for 70 per cent of the
market — HBOS, Abbey, Nationwide, Lloyds TSB, Northern Rock, Barclays, Royal
Bank of Scotland and HSBC — had signed up to the £1 billion plan.
Northern Rock, the nationalised lender, yesterday announced that it would follow
Royal Bank of Scotland (RBS) in delaying the issue of repossession orders by six
RBS announced that it was taking the same measure on Monday.
House prices fall at
fastest pace in 25 years, 3.12.2008,
Return of the Predators
November 24, 2008
The New York Times
The demise of the subprime mortgage industry has been hard on predatory
brokers, too. They feasted for years on bad loans until reality crashed down and
the money ran out, and there they were: sharks without a frenzy.
Now they are circling again. Predators of every sort have regrouped and returned
to their old ways, this time as loan-modification companies, inserting
themselves between hard-strapped homeowners and banks, offering to work deals —
for cash up front.
It’s a high-pressure, high-volume business, advertising in the usual low-rent
ways: talk-radio ads, Web come-ons, fliers on car windshields. The ads are full
of glossy promises, like this one for a Long Island outfit: “Reduce your
mortgage rate to as low as 4%. No refinancing — no closing costs. Reduce your
monthly payment. Foreclosures, late pays/bad credit okay.”
It’ll cost you — in this case, 1 percent of your outstanding loan, half of it in
There’s often nothing illegal about this booming and largely unregulated
business. Some shops are true scams, taking the money and running. But others
are just immoral, profiting on fear and false hopes with expensive services that
nonprofit organizations and government agencies offer for nothing.
Troubled homeowners know all about the relentlessness of the loan-rescue racket:
it fills their mailboxes and sends salespeople to lurk on their doorsteps.
Foreclosure filings are public records, and loan modifiers routinely swarm
courthouses to find leads. Loan counselors at the Long Island Housing
Partnership, a respected nonprofit in Hauppauge, N.Y., tell of scammers crashing
its housing workshops, posing as troubled borrowers, then working the crowd with
And they do work hard. A call to one law firm’s toll-free number plugged on WABC
radio quickly gets a call back with a hard sell. “We have a 100 percent success
rate” in renegotiating loans, an operator sweetly vows, reluctant to say more
until you tell her what your mortgage payment is and how far behind you are.
The painful truth is that nobody has a 100 percent success rate, and not every
loan is fixable. Banks have recently made public commitments to putting more
effort into working loans out. But homeowners need to realize that the best way
to do that is directly with the lender or through a reputable nonprofit
The for-profit loan modifier’s cruelly deceptive sales pitch is that you get
what you pay for. Nonprofit organizations, which work for no fee, say they can
strike better deals, because they have longstanding relationships with lenders
that storefront firms do not have.
But that doesn’t mean that well-meaning advocates are aggressive and effective
in finding people who need help. The government, banks and nonprofit
organizations need to be more creative and assertive to outmaneuver the
predators — to send the competing message that hope doesn’t require thousands of
dollars in cash up front, although it does mean facing up to hard truths about
one’s finances and future.
Nonprofits frequently complain about how hard it is to get at-risk homeowners to
ask for help. It’s true that people deep in debt are often embarrassed and
wrapped in blankets of denial. They don’t open mail or reliably make
appointments. But the good actors in this bad drama need to get better at
working around that problem, before more good money is thrown after bad.
Return of the Predators,
One in five homeowners
with mortgages underwater
Fri Oct 31, 2008
By Jonathan Stempel
NEW YORK (Reuters) - Nearly one in five U.S. mortgage
borrowers owe more to lenders than their homes are worth, and the rate may soon
approach one in four as housing prices fall and the economy weakens, a report on
About 7.63 million properties, or 18 percent, had negative equity in September,
and another 2.1 million will follow if home prices fall another 5 percent,
according to a report by First American CoreLogic.
The data, covering 43 states and Washington, D.C., includes borrowers
nationwide, even those who took out mortgages before housing prices began to
soar early this decade.
Seven hard-hit states -- Arizona, California, Florida, Georgia, Michigan, Nevada
and Ohio -- had 64 percent of all "underwater" borrowers, but just 41 percent of
"This is very much a regional problem, and people tend to forget that," said
David Wyss, chief economist at Standard & Poor's, who expects home prices
nationwide to fall another 10 percent before bottoming late next year.
"Most of the country is not in bad shape," he continued. "Things seem to be
stabilizing in Michigan, but the big bubble states -- Florida, California,
Arizona and Nevada -- are still very overpriced."
About 68 percent of U.S. adults own their own homes, and about two-thirds of
them have mortgages.
JPMorgan Chase & Co, one of the biggest mortgage lenders, on Friday offered to
modify $70 billion of mortgages to keep a potential 400,000 homeowners out of
foreclosure. Bank of America Corp, which bought Countrywide Financial Corp in
July, also has a large loan modification program.
HOME PRICES, ECONOMY UNDER PRESSURE
U.S. home prices fell a record 16.6 percent in August from a year earlier, with
declines in all 20 major metropolitan areas measured by the S&P/Case-Shiller
Home Price Indices.
Foreclosure filings rose 71 percent in the third quarter to a record 765,558,
according to RealtyTrac.
Meanwhile, the Commerce Department said gross domestic product fell at a 0.3
percent rate in the third quarter. Some experts expect the worst U.S. recession
since the early 1980s.
Yet despite a series of expensive government programs to spur lending, mortgage
rates are rising, making it tougher to borrow or refinance. The rate on a
30-year fixed-rate mortgage jumped this week to 6.46 percent from 6.04 percent a
week earlier, Freddie Mac said.
Meanwhile, borrowing costs on hundreds of thousands of adjustable-rate mortgages
are expected to reset higher in the coming months. The problem may be
particularly serious for borrowers with rates tied to the London Interbank
Offered Rate, or Libor, which is abnormally high relative to benchmark U.S.
Last week, Wachovia Corp said borrowers with its "Pick-a-Pay" ARMs and living in
or near Stockton and Merced, California, owed at least 55 percent more on their
mortgages, on average, than their homes were worth. Wells Fargo & Co is buying
NEVADA HARD HIT, NEW YORK AT RISK
First American CoreLogic, an affiliate of title insurance and real estate
services company First American Corp, said states with large numbers of homes
with negative equity either had rapid price appreciation, many homes bought with
subprime mortgages or as speculative investments, steep manufacturing declines,
or a combination.
Nevada was hardest hit, where mortgage borrowers on average owed 89 percent of
what their homes were worth, and 48 percent had negative equity. Michigan was
second, with an 85 percent loan-to-value ratio and 39 percent of borrowers
New York fared best, with an average 48 percent loan-to-value ratio and just 4.4
percent of mortgage borrowers with negative equity.
But Wyss said this could change as financial market upheaval transforms Wall
Street. This month, New York City Comptroller William Thompson estimated that
the city alone might lose 165,000 jobs over two years.
"We're going to see home prices coming down pretty significantly in New York,"
Wyss said. "A lot of people are losing jobs, and won't be getting their usual
bonuses, and that leaves less money for housing."
(Reporting by Jonathan Stempel;
Additional reporting by Al Yoon;
One in five
homeowners with mortgages underwater, R, 31.10.2008,
Families brace for holidays
without a home
Thu Oct 30, 2008
By Lisa Baertlein
THOUSAND OAKS, Calif (Reuters) - A memento with Depression-era
humor helps Kristin Bertrand keep perspective as her family braces for a
Christmas holiday without their home.
The small ceramic dish she keeps from her grandfather reads: "Cheer up, things
could be worse." Then, in smaller type: "So I cheered up and sure enough things
Just a few years ago, Kristin and her husband Mike Bertrand, 36, were confident
they owned their own piece of the American dream. They pulled in $140,000 a
year, owned a house, two cars, a telescope and other gadgets, and had season
tickets to Disneyland for their two kids.
But since they lost their home in May, the Bertrands live in a sparsely
furnished rental in Thousand Oaks, California, and have cut expenses to the
They've sold Kristin's set of wedding rings, given up a car and the Disneyland
passes to get back on their feet. The dish, taken when Kristin's 90-year-old
grandfather moved to a nursing home, sits on the mantel as a reminder.
"It's going to be a lean holiday for us," said Kristin, 36, who said the family
has put plans to visit relatives in Idaho on the back burner. "I think this year
we need to lay low."
Adding to their worries as the holidays approach, Mike just learned that his
consulting contract, the family's main income, will not be renewed at the end of
The Bertrands' story will be played out in many versions across the United
States this holiday season, where several hundred thousand people who lost their
homes to foreclosure try to redefine how they celebrate with their families.
For the Bertrands, and others, past splurges for special occasions have already
been cut out of the household budget.
The Bertrands have kept their 13-year-old daughter McKaylee and 10-year-old son
Taylor in the loop about their financial troubles all along. The kids have long
stopped asking for money for clothes or fund-raisers, they said.
While the family had once taken McKaylee and a friend to Disneyland to celebrate
her birthday, her latest party was held at home with a borrowed karaoke machine
and a jump rope that guests fashioned from glow-in-the-dark necklaces.
NOT JUST A NUMBER
More than one million U.S. homes were lost in foreclosure from the beginning of
2007 through the end of September this year, according to RealtyTrac. Credit
Suisse estimates 6.5 million loans will fall into foreclosure over the next five
years, with the peak coming this year.
Families who have already lived through the worst of their financial troubles --
due to inflated monthly mortgage payments, the plunge in U.S. home values, or
layoffs -- have prepared for a low-key holiday.
But even people who have not fallen into dire straits expect to tone it down
this year, frightened by a plunge in financial markets that has wiped out
trillions of dollars of asset values and raised the prospect of a global
Six times as many people say they will cut back on gift-buying as those who plan
to spend more, according to a recent Reuters/Zogby poll. U.S. retailers are
bracing for their most dismal holiday sales season in nearly two decades.
Virginia Washington, a 64-year-old grandmother to 10, is already planning a more
frugal holiday as she struggles to make payments on the $207,000 loan on her
dream retirement home in Tolleson, Arizona, which is now worth about $150,000.
"The spirit will be there, though many of the things you've gotten used to over
the years may not be," she said.
Counselors who help people through the foreclosure process say that many
families just aren't making holiday plans.
"They're not as concerned about what they're going to do for the holidays, it's
more about what they're going to do to keep the home," said MaryEllen De Los
Santos, a housing counseling coordinator with the Adams County Housing Authority
in Commerce City, Colorado.
One outlier is Ann Neukomm, 57, a receptionist from Cape Coral, Florida, who
filed for bankruptcy in May and now faces foreclosure on a mortgage she took out
about two years ago.
She's thinking about using a small inheritance from her father to take her
17-year-old son on a holiday cruise.
"I'd like to do something with him because it's probably going to be the last
time," Neukommm said, referring to her son's 18th birthday, a time when many
American teenagers stop living with their parents.
De Los Santos, the housing counselor, said that in the past, families in trouble
would pour into her office at the beginning of each year. Many of them could not
make mortgage payments because they spent too much on the holidays.
Now she expects more people won't even make it to the holidays to overspend, and
predicts a flood of cases starting in early December.
One question De Los Santos asks clients is: "Do you want to have this kind of
Christmas, or to you want to spend next Christmas in your home?"
Archstone Consulting Chief Executive Todd Lavieri said his biggest concern is
unemployment and job insecurity. The United States has lost more than 700,000
jobs since January and experts are bracing for massive layoffs ahead.
"Saving your money to save your house will have a direct impact on holiday
spending, no question about it," said Lavieri, whose group expects this year's
holiday sales to contract when adjusted for inflation.
The Bertrands' plight began when Mike lost his job in 2007. He has worked since,
but always for lower pay.
"I was working, but I was making less money. I kept fighting and struggling to
catch up," Mike said.
In February, he lost a second job. "That was pretty much the final nail in the
coffin," said Mike.
"The fear was overwhelming," Kristin said of the foreclosure saga, which left
her feeling guilty and helpless.
While the family was not required to make mortgage payments during the year that
the Newbury Park house they bought in 2001 was in foreclosure, Mike and Kristin
said nothing felt as good as making their first payment on their rental.
"It was the best therapy," said Mike.
The couple started a support group called Moving Forward
(http://wearemovingforward.org/) to help others manage the emotional toll of
foreclosure. They worry that the holidays will pile additional stress on
families already struggling to keep their heads above water.
"We need to get through it without any casualties," Kristin said.
(Reporting by Lisa Baertlein;
Additional reporting by Tim Gaynor in Phoenix
Tom Brown in Cape Coral, Florida;
Editing by Michele Gershberg
and Eddie Evans)
Families brace for
holidays without a home, R, 30.10.2008,
Home Prices Tumbled in August
October 29, 2008
The New York Times
By MICHAEL M. GRYNBAUM
The beleaguered housing market found little relief in August
as home prices across the country dropped at yet another record pace, according
to a closely watched survey released Tuesday.
Home prices in 20 cities fell 16.6 percent in August compared with a year ago,
the biggest annual drop in the history of the Case-Shiller Home Price Index,
released by Standard & Poor’s, the ratings agency.
Every city included in the survey experienced a drop in prices from a year
earlier, a trend that has so far lasted five months. Phoenix and Las Vegas were
hit hardest, with prices down 31 percent in both cities. Prices declined more
than 25 percent in Los Angeles, Miami, San Diego and San Francisco.
Prices dropped a percentage point between August and July, a sign that the pace
of the decline may be slowing slightly. Only two cities — Cleveland and Boston —
had price increase for the month, compared with six in July. Prices were
unchanged in Chicago and Denver.
“The downturn in residential real estate prices continued, with very few bright
spots in the data,” David M. Blitzer, who oversees the survey, said in a
A 10-city index fell 17.7 percent year-over-year.
The housing slump has continued unabated for months, and its consequences can be
felt throughout the nation’s economy. It has led to the erosion of jobs, pain in
a number of housing-related industries, and, in part, the credit crisis that
caused the collapse of several Wall Street banks. Whirlpool, the appliance
maker, announced more layoffs and additional plants closings on Tuesday, citing
the housing slowdown. Households have also watched their home equity lines
Lower prices, however, are in some sense the key to recovery, economists said,
although prices may need to fall further to lure buyers back into a market
sagging with unsold inventory.
Sales also appeared to pick up slightly in September, according to reports from
the Commerce Department and the private National Association of Realtors. Sales
of both previously owned and newly reconstructed homes rose. But inventories
Housing woes are just one of the problems currently ailing the American
consumer, a fact driven home by a disastrous reading on consumer confidence
released on Tuesday by the Conference Board, a private group.
The confidence survey, which dates back decades, plunged to its lowest reading
on record, hitting 38.0 in October from 61.4 in September. Expectations are also
at an all-time low.
The enormous declines in the stock market last month appeared to have taken a
dramatic toll on sentiment among Americans. Nearly half of the 5,000 consumers
surveyed said they expected the job market to deteriorate further, and many
appeared worried about their ability to make purchases over the next few months.
“These moves are likely to have at least partially been driven by the worrying
news flow on the U.S. financial system, but it appears to be the labor market
that is the source of the bulk of the worries,” James Knightley, an economist at
ING Bank, wrote in a research note.
Home Prices Tumbled
in August, NYT, 29.10.2008,
Britain faces crisis
as negative equity to reach 2
October 19, 2008
From The Sunday Times
Robert Watts and Jonathan Oliver
Collapsing house prices are plunging 60,000 homeowners a month
into negative equity, which means the country is on course for a worse crisis
than the 1990s crash.
At current trends, 2m households will enter negative equity by 2010,
outstripping the 1.8m affected at the bottom of the last housing slump.
New research from Standard & Poor’s, the ratings agency, coincides with evidence
that banks are aggressively seizing homes whose owners have slipped just a few
hundred pounds behind on their mortgage payments.
It is a further signal that the financial crisis is now infecting the real
economy as hundreds of thousands of families face the prospect of being unable
to move house because their home is worth less than the value of their mortgage.
Many more homeowners will now be afraid that the bank may suddenly repossess
their property. Repossessions have soared to 19,000 in the first half of the
year, up 40% on the previous six months. That figure is expected to rise to
26,000 in the second half of 2008.
Economists believe house prices will fall by up to 35% from their peak by 2010.
This compares with a drop of only 20% in the early 1990s.
Last night opposition politicians blamed Labour for encouraging a “culture of
indebtedness” that now threatens to cause an implosion in the housing market.
Philip Hammond, the shadow Treasury chief secretary, said: “We are now paying
the price for a decade of debt-fuelled boom, with hundreds of thousands of
people unable to sell their property, after being encouraged by the government
to overstretch themselves to get on the property ladder.”
Vince Cable, the Liberal Democrat finance spokesman, urged Gordon Brown to do
more to prevent unnecessary repossessions. “It genuinely must be a lender’s last
resort, which right now it certainly is not,” he said.
With official figures out this week expected to show Britain has fallen into
recession, Brown is planning a 1930s-style programme of public works, spending
billions on new schools, homes and transport projects. He has urged senior
colleagues to increase expenditure on big capital projects – despite forecasts
that tax revenues are about to collapse.
Brown’s ambitious plan is modelled on Franklin Roosevelt’s New Deal, which
helped drag America out of the Great Depression. A Whitehall source said: “We
cannot afford to risk the complete collapse of our construction industry. We
have to make sure that the skills have not been lost when we finally pull out of
Standard & Poor’s has calculated that by the end of the month 335,000 homes will
be worth less than their mortgages. The figure represents a rise of 260,000 in
Capital Economics, the City consultancy, expects up to 2m properties will be in
negative equity by 2010 — more than in the recession of the early 1990s.
Northern Rock, the bank nationalised this year, is said to be behind a wave of
aggressive repossessions. In the nine months to the end of September, the
state-owned lender made more than 2,000 seizures.
Esther Spick, from Surrey, is three months in arrears on her Northern Rock
mortgage. The lender has launched repossession proceedings, even though she owes
just £1,200. In one case reported to The Sunday Times by a housing charity, the
bank is trying to seize a home where the owner is just £800 in arrears, even
though he has about £40,000 of equity in the £180,000 property.
Chris Tapp, director of Credit Action, a debt charity, said: “What makes these
negative equity statistics so worrying is that they come at a time when banks
are behaving so unreasonably over repossessions.
“We are particularly dismayed with the inflexibility of Northern Rock. ”
Adam Sampson, chief executive of Shelter, the housing charity, said: “Northern
Rock is behaving very aggressively on repossessions, but it is not the only
lender acting like that.”
The Council of Mortgage Lenders said there were no industry guidelines for how
deeply in arrears a lender had to be for a home loan provider to be entitled to
launch repossession proceedings.
The government said last night it would bring forward laws forcing lenders to
offer alternative payment schemes before they were allowed to take back
possession of the property.
Northern Rock denied that it was overly aggressive. “Repossession proceedings
are only launched as a last resort,” it said.
The details of the prime minister’s extra spending on public works is expected
to be unveiled in the pre-budget report next month. Brown has already tasked his
new “enforcer”, the Cabinet Office minister, Liam Byrne, with compiling a list
of major construction projects at risk from the credit crunch that would benefit
from extra government support.
Brown’s handling of the financial crisis has failed to improve Labour’s
electoral prospects. Despite most voters saying he had performed well over the
past few weeks, only 13% said they were now more likely to vote Labour, an ICM
survey for the News of the World found.
Britain faces crisis
as negative equity to reach 2 million, STs, 19.10.2008,
Door to Door,
Foreclosure Knocks Here
October 19, 2008
The New York Times
By MANNY FERNANDEZ
At times, this stretch of 118th Avenue in South Jamaica, Queens, feels not so
much like a neighborhood but a memory of one.
A red-brick house with overgrown weeds in the yard is boarded shut. A house with
a dirty awning has a thick chain looping out from a hole in the door where a
deadbolt once was. On the front window of a vacant property around the corner,
someone has taped a sign warning that the water supply has been shut off and
antifreeze added to the sinks and toilets.
Newton and Ronda Whyte have gotten used to living next door to no one. “Every
two or three houses it’s empty,” said Ms. Whyte, 36, a nurse assistant. “It’s
not a good feeling. You see the weeds growing tall and the junk mail piling up.”
This area at 118th Avenue and 153rd Street is at the center of New York’s
foreclosure crisis. About 28 percent of the homes in this working-class
neighborhood just north of Kennedy Airport have been in some phase of
foreclosure since 2004, and its census tract leads the city in foreclosure
More than two years ago, most homes here were occupied and the neighborhood was
making strides against the drugs, violence and abandonment that had plagued it
in the past, residents and merchants said. But today they mostly talk about
decreasing property values, increasing crime, struggling small businesses and
fraying community bonds. They talk of leaving, and wonder whose house is next.
“It’s not even worth getting to know anybody because nobody is going to stay
around anyway,” said Fernando Espinal, 23, who grew up on 118th Avenue.
The gates are down for good at the Mega Deli Grocery at one end of the avenue.
Pansy Johnson, who owns Yaad Food, a nearby Caribbean restaurant, said she often
has to ask for a rent extension because her sales have decreased by nearly a
third. And there have been two burglaries of empty homes in foreclosure this
year in the area of 118th Avenue and 153rd Street, the police said.
The telltale signs that a house is empty come not from a bank or real estate
agent, but pizzerias and Chinese takeout restaurants: The length of time a house
has been abandoned can be measured by the number of old menus, fliers and junk
mail that collects on doors and stoops.
“It’s like a depression,” said Ms. Johnson, who is from the island of Jamaica,
and whose restaurant is near 118th Avenue and Sutphin Boulevard. “I’ve never
seen so much houses boarded up in all my life in this country. It’s so
desolated. It hurts the heart.”
This corner of South Jamaica is much like neighborhoods in other cities around
the country where foreclosure has spread like an epidemic. In many of those
places, a spate of subprime lending made it easy for people with modest incomes
and poor credit histories to buy homes — even as they increased their risk of
foreclosure with adjustable interest rates and other types of complicated and
This census tract — No. 288 in southeast Queens — had 226 foreclosure filings on
one- to four-family homes in the past five years, the highest in the city,
according to an analysis of housing data prepared for The New York Times by the
Furman Center for Real Estate and Urban Policy at New York University. In 2005,
69 percent of the homes purchased in the tract were bought with subprime
“What you see in that community is incredibly high rates of high-cost and
subprime lending,” said Vicki Been, director of the Furman Center.
Within Tract 288, four blocks — encompassing 118th Avenue between 155th Street
and Sutphin Boulevard, and 153rd Street between 118th and 119th Avenues — are
some of the hardest hit by foreclosures.
Thirty-nine of the roughly 140 properties on those blocks have been in various
stages of foreclosure since 2004, according to data on PropertyShark.com, a real
estate site. Once a foreclosure petition is filed, the owner and lender can work
out a settlement. But if they do not, the home can be repossessed and sold at
The disposition of the foreclosure filings and scheduled foreclosure auctions of
the 39 homes is unclear. About a dozen are vacant, blending in with other empty
properties on those blocks. Two homes have eviction notices posted on them and
others are undergoing renovations.
People here seem not to have moved out so much as vanished.
The unlocked screen doors of unoccupied homes sway in the breeze. At a red-brick
home at 152-09 118th Avenue, the front door and the living room window are
boarded up, but the DirecTV satellite dish remains, as does the message that a
former occupant traced into the top step’s wet concrete long ago: three hearts
and the words “Dez-n-Duke.” A foreclosure auction on the property is scheduled
Despite the tightness that comes from living side by side in mostly narrow
two-story homes, people largely keep to themselves. Few ever know for certain
that neighbors are at risk of losing their homes. Departures happen quickly,
Newton and Ronda Whyte remember the man who lived next to them for years in the
yellow house at 152-37 118th Avenue. Mr. Whyte called him Trini, because he was
from Trinidad, but he never learned the man’s full name. The house the man left
behind a few months ago, like the other foreclosed houses on these four blocks,
quickly developed the feel of an abandoned property.
On the grass of their former neighbor’s small yard, next to the “For Sale” sign,
someone stuck a placard advertising the “New York Foreclosure Showcase” at the
Long Island Marriott Hotel in Uniondale. The sign is so big and so close to the
Whytes’ house that some of Mr. Whyte’s visiting relatives thought that he was
the one at risk of foreclosure.
“It’s a reminder of what’s staring us in the face,” said Ms. Whyte, who has
lived on 118th Avenue with her husband and two children for 12 years.
Many of the homes on these four blocks are squeezed onto narrow lots no bigger
than 1,350 square feet. At one end of 118th Avenue is Baisley Pond, a swath of
lush greenery that gives the area a serene suburban feel.
In 1999, the median household income in Tract 288 was $44,348. Residents, many
of them African-American, or of Guyanese or Jamaican descent, take pride in
sweeping their stretch of sidewalk. Their ranks include custodians, nurses and
Adeline Marshall, 66, broom in hand one recent afternoon, said the neighborhood
had come far since 1991, when she bought a two-bedroom house on 153rd Street for
Back then, there were no sidewalks, just dirt. One of the lots at the corner was
trash-strewn and vacant. In July 1995, gunfire erupted during a basketball
tournament at Baisley Pond Park, killing two spectators. Seven years earlier,
also at the park, a high school basketball coach volunteering as a referee was
beaten to death after drug gangs bet thousands of dollars on the game and the
referee made a call someone did not like.
Ms. Marshall, a retired practical nurse, said things had started to turn around
in more recent years. The city installed sidewalks and pavement. A new residence
went up on the once-empty corner lot. The population in Tract 288 grew to 4,300
in 2000 from 3,400 in 1990.
But now, Ms. Marshall and other residents said, the foreclosures have stalled
the neighborhood’s progress.
William Knight’s 15-year-old son found a drug user’s syringe in the yard of the
empty house next door on 118th Avenue in June. “In the one year being here, I’ve
watched it just kind of spiral down,” said Mr. Knight, a civil engineer.
“There’s definitely less people, and due to less people it brings the negative
On a recent Tuesday afternoon on 153rd Street, the smell of marijuana lingered
in the air. Residents complain that the empty homes have encouraged people from
other neighborhoods to loiter on the street, drinking beer and making noise at
A few months ago, Ms. Marshall’s glass storm door was shattered by a gunshot.
“Look at the sign,” Ms. Marshall said, pointing to the Foreclosure Showcase
notice in the yard of the empty yellow house. “What am I going to do? You think
I want to stay here? I want to sell, too.”
Door to Door,
Foreclosure Knocks Here, NYT, 18.10.2008,
Building Flawed American Dreams
October 19, 2008
The New York Times
By DAVID STREITFELD and GRETCHEN MORGENSON
SAN ANTONIO — A grandson of Mexican immigrants and a former mayor of this
town, Henry G. Cisneros has spent years trying to make the dream of
homeownership come true for low-income families.
As the Clinton administration’s top housing official in the mid-1990s, Mr.
Cisneros loosened mortgage restrictions so first-time buyers could qualify for
loans they could never get before.
Then, capitalizing on a housing expansion he helped unleash, he joined the
boards of a major builder, KB Home, and the largest mortgage lender in the
nation, Countrywide Financial — two companies that rode the housing boom,
drawing criticism along the way for abusive business practices.
And Mr. Cisneros became a developer himself. The Lago Vista development here in
his hometown once stood as a testament to his life’s work.
Joining with KB, he built 428 homes for low-income buyers in what was a
neglected, industrial neighborhood. He often made the trip from downtown to ask
residents if they were happy.
“People bought here because of Cisneros,” says Celia Morales, a Lago Vista
resident. “There was a feeling of, ‘He’s got our back.’ ”
But Mr. Cisneros rarely comes around anymore. Lago Vista, like many communities
born in the housing boom, is now under stress. Scores of homes have been
foreclosed, including one in five over the last six years on the community’s
longest street, Sunbend Falls, according to property records.
While Mr. Cisneros says he remains proud of his work, he has misgivings over
what his passion has wrought. He insists that the worst problems developed only
after “bad actors” hijacked his good intentions but acknowledges that “people
came to homeownership who should not have been homeowners.”
They were lured by “unscrupulous participants — bankers, brokers, secondary
market people,” he says. “The country is paying for that, and families are hurt
because we as a society did not draw a line.”
The causes of the housing implosion are many: lax regulation, financial
innovation gone awry, excessive debt, raw greed. The players are also varied:
bankers, borrowers, developers, politicians and bureaucrats.
Mr. Cisneros, 61, had a foot in a number of those worlds. Despite his qualms, he
encouraged the unprepared to buy homes — part of a broad national trend with
dire economic consequences.
He reflects often on his role in the debacle, he says, which has changed
homeownership from something that secured a place in the middle class to
something that is ejecting people from it. “I’ve been waiting for someone to put
all the blame at my doorstep,” he says lightly, but with a bit of worry, too.
The Paydays During the Boom
After a sex scandal destroyed his promising political career and he left
Washington, he eventually reinvented himself as a well-regarded advocate and
builder of urban, working-class homes. He has financed the construction of more
than 7,000 houses.
For the three years he was a director at KB Home, Mr. Cisneros received at least
$70,000 in pay and more than $100,000 worth of stock. He also received $1.14
million in directors’ fees and stock grants during the six years he was a
director at Countrywide. He made more than $5 million from Countrywide stock
options, money he says he plowed into his company.
He says his development work provides an annual income of “several hundred
thousand” dollars. All told, his paydays are modest relative to the windfalls
some executives netted in the boom. Indeed, Mr. Cisneros says his mistake was
not the greed that afflicted many of his counterparts in banking and housing; it
was unwavering belief.
It was, he argues, impossible to know in the beginning that the federal push to
increase homeownership would end so badly. Once the housing boom got going, he
suggests, laws and regulations barely had a chance.
“You think you have a finely tuned instrument that you can use to say: ‘Stop!
We’re at 69 percent homeownership. We should not go further. There are people
who should remain renters,’ ” he says. “But you really are just given a
sledgehammer and an ax. They are blunt tools.”
From people dizzily drawing home equity loans out of increasingly valuable
houses to banks racking up huge fees, few wanted the party to end.
“I’m not sure you can regulate when we’re talking about an entire nation of 300
million people and this behavior becomes viral,” Mr. Cisneros says.
Homeownership has deep roots in the American soul. But until recently getting a
mortgage was a challenge for low-income families. Many of these families were
minorities, which naturally made the subject of special interest to Mr.
Cisneros, who, in 1993, became the first Hispanic head of the Department of
Housing and Urban Development.
He had President Clinton’s ear, an easy charisma and a determination to increase
a homeownership rate that had been stagnant for nearly three decades.
Thus was born the National Homeownership Strategy, which promoted ownership as
patriotic and an easy win for all. “We were trying to be creative,” Mr. Cisneros
Under Mr. Cisneros, there were small and big changes at HUD, an agency that
greased the mortgage wheel for first-time buyers by insuring billions of dollars
in loans. Families no longer had to prove they had five years of stable income;
three years sufficed.
And in another change championed by the mortgage industry, lenders were allowed
to hire their own appraisers rather than rely on a government-selected panel.
This saved borrowers money but opened the door for inflated appraisals. (A later
HUD inquiry uncovered appraisal fraud that imperiled the federal mortgage
“Henry did everything he could for home builders while he was at HUD,” says
Janet Ahmad, president of Homeowners for Better Building, an advocacy group in
San Antonio, who has known Mr. Cisneros since he was a city councilor. “That
laid the groundwork for where we are now.”
Mr. Cisneros, who says he has no recollection that appraisal rules were relaxed
when he ran HUD, disputes that notion. “I look back at HUD and feel my hands
were clean,” he says.
Lenders applauded two more changes HUD made on Mr. Cisneros’s watch: they no
longer had to interview most government-insured borrowers face to face or
maintain physical branch offices. The industry changed, too. Lenders sprang up
to serve those whose poor credit history made them ineligible for lower-interest
“prime” loans. Countrywide, which Angelo R. Mozilo co-founded in 1969, set up a
subprime unit in 1996.
Mr. Cisneros met Mr. Mozilo while he was HUD secretary, when Countrywide signed
a government pledge to use “proactive creative efforts” to extend homeownership
to minorities and low-income Americans.
He met Bruce E. Karatz, the chief executive of KB Home, when both were helping
Los Angeles rebuild after the Northridge earthquake in 1994.
There were real gains during the Clinton years, as homeownership rose to 67.4
percent in 2000 from 64 percent in 1994. Hispanics and African-Americans were
the biggest beneficiaries. But as the boom later gathered steam, and as the Bush
administration continued the Clinton administration’s push to amplify
homeownership, some of those gains turned out to be built on sand.
Mr. Cisneros left government in 1997 after revelations that he had lied to
federal investigators about payments to a former mistress. In the following
years, HUD continued to draw attention in the news media and among consumer
advocates for an overly lenient posture toward the housing industry.
In 2000, Mr. Cisneros returned to San Antonio, where he formed American
CityVista, a developer, in partnership with KB, and became a KB director. KB’s
board also included James A. Johnson, a prominent Democrat and the former chief
executive of Fannie Mae, the mortgage giant now being run by the government. Mr.
Johnson did not return a phone call seeking comment.
It made for a cozy network. Fannie bought or backed many mortgages received by
home buyers in the KB Home/American CityVista partnership. And Fannie’s biggest
mortgage client was Countrywide, whose board Mr. Cisneros had joined in 2001.
Because American CityVista was privately held, Mr. Cisneros’s earnings are not
disclosed. He held a 65 percent stake, and KB had the rest. In 2002, KB paid
$1.24 million to American CityVista for “services rendered.”
‘A Little Too Ambitious’
One of American CityVista’s first projects, unveiled in late 2000, was Lago
Vista — Spanish for “Lake View.” The location was unusual: San Antonio’s proud
and insular South Side, a Hispanic area home to secondhand car dealers, light
industry and pawnshops.
Mr. Cisneros and KB pledged to transform an overgrown patch of land into a
showcase. Homes were initially priced from $70,000 to about $95,000, and Mr.
Cisneros promised that Lago Vista would be ringed with jogging paths and maple
The paths were never built, and few trees provide shade from the Texas sun. The
adjoining “lake” — at one point a run-off pit for an asphalt plant — is fenced
off, a hazard to neighborhood children. The houses are gaily painted in pink,
blue, yellow or tan, and most owners keep their yards green and tidy.
KB considers Lago Vista a “model community,” a spokeswoman said.
To get things rolling in Lago Vista, traditional bars to homeownership were
lowered to the ground. Fannie Mae, CityVista and KB promoted a program allowing
police officers, firefighters, teachers and others to get loans with nothing
down and no closing costs.
KB marketed its developments in videos. In one from 2003, Mr. Karatz declared:
“One of the greatest misconceptions today is people who sit back and think, ‘I
can’t afford to buy.’ ” Mr. Cisneros appeared — identified as a former HUD
director — saying the time was ripe to buy a home. Many agreed.
Victor Ramirez and Lorraine Pulido-Ramirez bought a house in Lago Vista in 2002.
“This was our first home. I had nothing to compare it to,” Mr. Ramirez says. “I
was a student making $17,000 a year, my wife was between jobs. In retrospect,
how in hell did we qualify?”
The majority of buyers in Lago Vista “were duped into believing it was easier
than it was,” Mr. Ramirez says. “The attitude was, ‘Sign here, sign here, don’t
read the fine print.’ ” He added that some fault lay with buyers: “We were
definitely willing victims.” (The Ramirez family veered close to foreclosure,
but the couple now have good jobs and can make their payments.)
KB and Mr. Cisneros eventually built more than a dozen developments, primarily
in Texas. But the shine slowly came off Lago Vista.
“It started off fabulously,” Mr. Karatz recalled. Then sales slowed
considerably. “It was probably, looking back, a little too ambitious to think
that there would be sufficient local demand.”
And then the foreclosures started. “A lot of people got approved for big
amounts,” says Patricia Flores, another Lago Vista homeowner. “They bit off more
than they could chew.” Families split up under the strain of mortgage payments.
One residence had so much marital turmoil that neighbors nicknamed it “The House
of Broken Love.”
Some homes were taken over and sold at a loss by HUD, which had insured them. KB
was also a mortgage lender, a business many home builders pursued because it was
so profitable. At times, it was also problematic.
Officials at HUD uncovered problems with KB’s lending. In 2005, about two years
after Mr. Cisneros left the KB board, the agency filed an administrative action
against KB for approving loans based on overstated or improperly documented
borrower income, and for charging excessive fees. Because HUD does not specify
where improprieties take place, it is not clear if this occurred at Lago Vista.
KB Home paid $3.2 million to settle the HUD action without admitting liability
or fault, one of the largest settlements collected by the agency’s mortgagee
review board. Shortly afterward, KB sold its lending unit to Countrywide. Then
they set up a joint venture: KB installed Countrywide sales representatives in
By 2007, almost three-quarters of the loans to KB buyers were made by the joint
venture. In Lago Vista, residents secured loans from a spectrum of federal
agencies and lenders.
During years of heady growth, and then during a deep financial slide,
Countrywide became a lightning rod for criticism about excesses and abuses
leading to the housing bust — which Countrywide routinely brushed off.
Mr. Cisneros says he was never aware of improprieties at KB or Countrywide, and
worked with them because he was impressed by Mr. Karatz and Mr. Mozilo. Mr.
Mozilo could not be reached for comment.
Still, Countrywide expanded subprime lending aggressively while Mr. Cisneros
served on its board. In September 2004, according to documents provided by a
former employee, lending audits in six of Countrywide’s largest regions showed
about one in eight loans was “severely unsatisfactory” because of shoddy
HUD required such audits and lenders were expected to address problems. Mr.
Cisneros was a member of the Countrywide committee that oversaw compliance with
legal and regulatory requirements. But he says he did not recall seeing or
receiving the reports.
Nor, he says, was there ever a board vote about the wisdom of subprime lending.
“The irresistible temptation to engage in subprime was Countrywide’s fatal
error,” he says. “I fault myself for not having seen it and, since it was not
something I could change, having left.”
Mr. Cisneros left Countrywide’s board last year. At the time, he expressed
“enormous confidence in the leadership.” In 2003, Mr. Cisneros ended his
partnership with KB because, he says, he felt constrained working with just one
builder. He formed a new company with the same mission, CityView, that has
raised $725 million.
Mr. Karatz has a different recollection of why the partnership ended.
“It didn’t become an important part of KB’s business,” he says. “It was
profitable but I don’t think as profitable in those initial years as Henry’s
group wanted it to be.”
Troubles in Lago Vista
Today in Lago Vista, many are just trying to get by. Residents say crime has
risen, and with association dues unpaid, they cannot hire security. Salvador
Gutierrez, a truck driver, woke up recently to see four men stealing the tires
off his pickup. Seventeen houses are for sale, but there are few buyers.
Hugo Martinez, who got a pair of Countrywide loans to buy a two-bedroom house
with no down payment, recently lost his job with a car dealership. He has a
lower-paying job as a mechanic and can’t refinance or sell his house.
“They make it easy when you buy,” Mr. Martinez says. “But after a while, the
interest rate goes up. KB Home says they cannot help us at all.”
Five years ago, Carlo Lee and Patricia Reyes bought their first home, a
three-bedroom house in Lago Vista.
After Mrs. Reyes became ill last year and lost her job, they fell behind on
their payments. Last month, Mr. Reyes was laid off from one of his jobs,
assembling cabinets. He still works part time at a hospital, but unless the
couple come up with missed payments and fees, they will lose their home.
“Everyone isn’t happy here in Lago Vista,” Mr. Reyes says. “Everyone has a lot
Countrywide was bought recently at a fire-sale price by Bank of America. Mr.
Cisneros describes Mr. Mozilo as “sick with stress — the final chapter of his
life is the infamy that’s been brought on him, or that he brought on himself.”
Mr. Karatz was forced out of KB two years ago amid a compensation scandal. Last
month, without admitting or denying the allegations, he settled government
charges that he illegally backdated stock options worth $6 million.
For his part, Mr. Cisneros says he is proud of Lago Vista. “It is inaccurate to
say that we put people into homes that they couldn’t afford,” he says. “No one
was forcing people into homes.”
He also remains bullish on home building, despite the current carnage.
“We’re not selling cigarettes,” he says. “We’re not drawing people into casino
gambling. We’re building the homes they’re going to raise their families in.”
David Streitfeld reported from San Antonio,
and Gretchen Morgenson from New
Building Flawed American
Dreams, NYT, 19.10.2008,
Prices Seem Far From Bottom
The New York Times
By VIKAS BAJAJ
American housing market, where the global economic crisis began, is far from
Home prices across much of the country are likely to fall through late 2009,
economists say, and in some markets the trend could last even longer depending
on the severity of the anticipated recession.
In hard-hit areas like California, Florida and Arizona, the grim calculus is the
same: More and more homes are going up for sale, but fewer and fewer people are
willing or able to buy them.
Adding to the worries nationwide are rising unemployment, falling wages and
escalating mortgage rates — all of which will reduce the already diminished pool
of would-be buyers.
“The No. 1 thing that drives housing values is incomes,” said Todd Sinai, an
associate professor of real estate at the Wharton School at the University of
Pennsylvania. “When incomes fall, demand for housing falls.”
Despite the government’s move to bolster the banking industry, home loan rates
rose again on Tuesday, reflecting concern that the Treasury will borrow heavily
to finance the rescue.
On Wednesday, the average rate for 30-year fixed rate mortgages was 6.75
percent, up from 6.06 percent last week. While banks are moving aggressively to
sell foreclosed properties, the number of empty homes is hovering near its
highest level in more than half a century.
As of June, 2.8 percent of homes previously occupied by an owner were vacant.
Nearly 1 in 10 rentals was without a tenant. Both numbers are near their highest
levels since 1956, the earliest year for which the Census Bureau has such data.
At the same time, the number of people who are losing jobs or seeing their
incomes decline is rising. The unemployment rate has climbed to 6.1 percent,
from 4.4 percent at the end of 2007, and wages for those who still have a job
have barely kept up with inflation.
In New York and other cities that rely heavily on the financial sector,
economists expect that job losses will increase and that pay heavily tied to
year-end bonuses will decline significantly.
One reliable proxy of housing values — the ratio of home prices to rents —
indicates that in many cities prices are still too high relative to historical
In Miami, for instance, home prices are about 22 times annual rents, according
to analysis by Moody’s Economy.com. The average figure for the last 20 years is
just 15 times annual rents. The difference between those two numbers suggests
that a home valued at $500,000 today might be worth only $341,000 based on the
long-term relationship between prices and rents.
The price-to-rent ratio, which provides one measure of how much of a premium
home buyers place on owning rather than renting, spiked across the country
earlier this decade.
It increased the most on the coasts and somewhat less in the middle of the
country. Economy.com’s calculations show that while it remains elevated in many
places, the ratio has fallen sharply to more normal levels in places like
Sacramento, Dallas and Riverside, Calif.
The current housing downturn is much more national in scope and severe than any
other in the postwar period, partly because of the proliferation of risky
lending practices. Today, foreclosures are running ahead of the downturn in the
economy, a reversal of previous housing slumps.
“We are in uncharted waters,” said Brian A. Bethune, an economist at Global
Insight, a research firm.
Colleen Pestana, a real estate agent in Orange County in California, said many
people losing their homes in Southern California used to work at mortgage and
real estate companies. Many of them bet heavily on real estate by upgrading to
bigger houses every few years. Now, many are losing their homes.
At the same time, Ms. Pestana said, her clients who are looking to buy are
having a harder time lining up financing. One of her clients recently had to
give up on a home after the lender that had offered a pre-approved loan changed
its mind — a frequent occurrence, according to real estate agents and mortgage
“I am working harder than I have ever had to work to get a deal together and
keep it together,” said Ms. Pestana, who has been a real estate agent for seven
To cushion themselves from potential losses if homes lose value, Fannie Mae and
Freddie Mac, the mortgage finance companies that the government took over in
September, have increased fees on loans made to borrowers who have good but not
excellent credit records, even those who are making down payments as big as 30
Those higher fees are generally invisible to borrowers because banks factor them
into mortgage interest rates. While the national average rate for a 30-year
fixed-rate mortgage is now 6.75 percent, according to HSH Associates, mortgage
brokers say the rates for many borrowers in the Southwest or Florida can be as
high as 8 percent, especially for so-called jumbo loans that are too big to be
sold to Fannie Mae and Freddie Mac. (Those loan limits vary by area from
$417,000 to roughly $650,000.)
Higher interest rates result in bigger monthly payments, pricing some potential
buyers out of the market. For example, monthly payments are $2,700 on a 6
percent 30-year, fixed-rate loan of $450,000. If the interest rate rises to 7
percent, those monthly payments jump to $3,000. All things being equal, when
rates rise prices generally fall.
This month, Fannie and Freddie canceled a fee increase that would have applied
to markets where home prices are falling, but the companies still have many
other fees in place. In an effort to help drive down rates, the Treasury
Department has announced plans to buy mortgage-backed securities issued by
Fannie and Freddie. The government also recently increased the amount of loans
the companies can buy and hold.
Still, those efforts will take time to have an impact and it is not clear
whether they will be sufficient to get banks to lend more freely, especially in
areas where jumbo loans make up a bigger percentage of lending, like New York
and parts of California and Florida. Economists say that prices in those places
will probably fall further.
In some of those places, price declines are being driven by a sharp increase in
sales of foreclosed homes.
Hudson & Marshall, a Dallas-based auctioneer that holds sales for lenders,
reports that banks are accepting prices that they refused to consider just 12
months earlier. In a recent auction of 110 foreclosed homes in the Las Vegas
area, for instance, the auctioneer’s clients accepted 90 percent of the bids
submitted by buyers, up from 60 percent a year earlier, said David T. Webb, a
co-owner of the company.
Single-family home prices in Las Vegas have already fallen 34 percent from their
peak in the summer of 2006, according to the Standard & Poor’s Case-Shiller home
price index. Prices in San Diego have fallen 31 percent since late 2005.
While those declines have been painful to homeowners in those cities, economists
said the quick decline might help the markets reach bottom faster than in
previous housing cycles, said Edward E. Leamer, an economist at the University
of California, Los Angeles. In a previous boom, home prices peaked in the Los
Angeles area in 1990 but did not hit bottom until 1996. Prices remained near
that low for more than a year before starting to climb again.
“In some areas of California, we are really at appropriate levels,” Mr. Leamer
said of current home prices. But he added: “The risk is that we are going to get
some overshooting, meaning that prices will be lower than they ought to be.”
In Florida, Jack McCabe, a real estate consultant, said that while some cities,
like Fort Myers, are showing tentative signs of a rebound, others like Miami and
Fort Lauderdale are still under pressure. Two homes on his street in Fort
Lauderdale that sold for about $730,000 apiece in 2005 recently sold for
$400,000 — a 44 percent decline.
“The rocket has run out of fuel, and now it’s plunged back down to earth,” he
Tara Siegel Bernard contributed reporting.
Home Prices Seem Far From Bottom, NYT, 16.10.2008,
Rescue to Stabilize Lending,
U.S. Takes Over Mortgage Finance Titans
The New York Times
By STEPHEN LABATON and EDMUND L. ANDREWS
— The Bush administration seized control of the nation’s two largest mortgage
finance companies on Sunday, seeking to shrink drastically their outsize
influence on Wall Street and on Capitol Hill while at the same time counting on
them to pull the nation out of its worst housing crisis in decades.
The bailout plan for the companies, Fannie Mae and Freddie Mac, a seismic event
in a year of repeated financial crises followed by aggressive federal
intervention, places the companies in a government conservatorship, much like a
bankruptcy reorganization. The plan also replaces the management of the
The rescue package represents an extraordinary federal intervention in private
enterprise. It could become one of the most expensive financial bailouts in
American history, though it will not involve any immediate taxpayer loans or
The Treasury secretary, Henry M. Paulson Jr., who engineered the plan, would not
say how much capital the government might eventually have to provide, or what
the ultimate cost to taxpayers might be. Two months ago, the Congressional
Budget Office gave a rough estimate of $25 billion. One senior government
official, speaking on the condition of anonymity, signaled on Sunday that even
that figure was optimistic.
Mr. Paulson said Sunday that it was important to rescue the mortgage giants
because a failure of either company would cause turmoil in financial markets in
the United States and around the world.
“This turmoil would directly and negatively impact household wealth: from family
budgets, to home values, to savings for college and retirement,” he said. “A
failure would affect the ability of Americans to get home loans, auto loans and
other consumer credit and business finance. And a failure would be harmful to
economic growth and job creation.”
The plan received wide bipartisan support on Sunday, from Congressional
lawmakers and both presidential campaigns.
As part of the plan, the chief executives of both companies were replaced.
Herbert M. Allison Jr., the former chairman of TIAA-CREF, the huge pension fund
for teachers that also offers mutual funds, will take over Fannie Mae and
succeed Daniel H. Mudd. At Freddie Mac, David M. Moffett, currently a senior
adviser at the Carlyle Group private equity firm, succeeds Richard F. Syron. Mr.
Mudd and Mr. Syron, however, will stay on during a transition period.
The plan also commits the government to provide as much as $100 billion to each
company to backstop any shortfalls in capital. It enables the Treasury to
ultimately buy the companies outright at little cost. It bans them from lobbying
the government, putting an end to their ability to use their political machine
on Capitol Hill.
It also eliminates dividend payments to current shareholders while protecting
the principal and interest payments on the debt, now held by foreign central
banks, financial institutions, pensions funds and others.
The Treasury will force both companies to shrink their portfolios over the long
term; they now hold or guarantee about half of the country’s mortgages. In
addition, the government plans to buy significant amounts of their
mortgage-backed securities on the open market, beginning with the purchase of $5
billion worth this month. This step, never before undertaken by the government,
could begin to restore some confidence in the credit markets and lead to lower
interest rates for home mortgages.
For the companies, the takeover caps an ignominious downfall. Fannie was created
during the depths of the Great Depression, and Freddie in 1970, to help make
mortgages more affordable for homeowners. The companies buy billions of dollars
in mortgages each month from commercial lenders. Some are sold to investors as
mortgage-backed securities; others are held by the companies in their own
The plan represents a cease-fire in a decades-long ideological battle over the
proper role of the companies. Free-market conservatives see the companies as
extensions of “big government,” while Democrats have protected them as the main
vehicle to promote affordable housing for middle- and lower-income people.
Alan Greenspan, the former Federal Reserve chairman, and Lawrence H. Summers, a
Treasury secretary under President Bill Clinton, along with many other critics,
have long maintained that the companies were too powerful politically and
financially, and that their huge portfolios posed enormous risks to the
Moreover, these critics have complained, the companies have used their ability
to borrow at low interest rates to dominate the mortgage-finance market,
usurping the role of other financial institutions, which do not have the same
Free-market adherents have warned of impending disaster as Fannie and Freddie
used an implicit government backing to borrow at will, with only a tiny sliver
of capital to protect them from nasty surprises like the recent sharp decline in
housing prices and rise in foreclosures.
Mr. Paulson has sought to avoid taking sides in the debate, but in recent months
came to the conclusion that the companies’ conflicting missions of providing
federally backed financing for affordable housing while serving shareholders
“Market discipline is best served when shareholders bear both the risk and the
reward of their investment,” Mr. Paulson said on Sunday. “While conservatorship
does not eliminate the common stock, it does place common shareholders last in
terms of claims on the assets of the enterprise.”
Holders of the companies’ common stock will not fare well. The plan suspends
their dividend payments and holds the potential to make their shares virtually
worthless if the government chooses to exercise its right to buy the common
stock. The stock of both companies, which traded above $60 a share last year,
had fallen below $10 a share recently. Their shares will continue to trade and
could fall further as a result of the government seizure.
Mr. Paulson made clear that the solution put forward on Sunday would only defer
the most important decisions about the mission of the companies for the next
president and Congress.
At a news conference on Sunday, Mr. Paulson said: “There is a consensus today
that these enterprises pose a systemic risk and they cannot continue in their
current form. Government support needs to be either explicit or nonexistent, and
structured to resolve the conflict between public and private purposes.”
The plan requires the companies to shrink their portfolios long after the
administration leaves, officials acknowledged, adding that they hoped to prod
Congress into deciding what the role of the companies should be.
Hoping to limit potential taxpayer losses and gain any financial windfall if the
companies are restored to profitability, the administration, in exchange for the
investment commitment, will receive so-called stock warrants, or purchase
rights, for up to 80 percent of the companies’ common shares at less than $1 a
share. In after-hours trading on Sunday, Freddie Mac fell $1.06, or nearly 21
percent while Fannie Mae dropped $1.54, or 22 percent.
The companies agreed to provide the government with $1 billion of new preferred
senior stock, which will pay the Treasury a dividend of at least 10 percent a
year, as well as an unspecified quarterly payment to compensate the Treasury for
any taxpayer money injected into the companies.
The companies will be allowed to “modestly increase” the size of their existing
investment portfolios until the end of 2009, which means they can use some of
their new taxpayer-supplied capital to buy and hold new mortgages in investment
But in a strong indication of Mr. Paulson’s wish to wind down the companies’
portfolios, drastically shrink their role and perhaps eliminate their unique
status altogether, the plan calls for the companies to start reducing their
investment portfolios 10 percent a year, beginning in 2010.
In addition, the Treasury Department will create a so-called Secured Lending
Credit Facility, a backup source of borrowing for the companies in the event
that they cannot borrow enough money on the open market to finance their main
business of buying mortgages and reselling them as pools of mortgage-backed
While the government takeover seemed to catch some financial experts by
surprise, Treasury officials appeared to have little choice, with the credit
markets in a tailspin and investors reluctant to buy mortgages with even a hint
of risk. Fannie and Freddie now guarantee about 70 percent of all new home
loans, said Mr. Lockhart, the chief regulator of the companies.
The initial reaction to the plan was mostly positive. Senator John McCain, the
Republican nominee for president, said on CBS’s “Face the Nation” on Sunday that
he supported the Treasury move, but he also implicitly criticized the Bush
“It’s an example of cronyism, special interest, lobbyists,” he said, adding that
the companies needed “more regulation, more oversight, more transparency, more
of everything, and frankly, a dramatic reduction in what they do.”
Senator Joseph R. Biden Jr., the Democratic nominee for vice president, said on
NBC’s “Meet the Press” Sunday that he had spoken to Mr. Paulson on Saturday
night, and that he thought the plan had a good chance of succeeding. “It’s not
an official reorganization. It will be left to the next administration and the
Congress to make those judgments,” Mr. Biden said.
After being briefed by Mr. Paulson, the billionaire investor Warren E. Buffett
said: “Secretary Paulson has made exactly the right decision for the country. He
is minimizing the problem of moral hazard and maximizing the benefits for the
housing market and for the smooth functioning of financial markets.”
Democratic and Republican lawmakers also spoke approvingly of the decision. They
said that restoring stability to the financial markets was the top priority. But
some longtime critics of the companies complained that their warnings had gone
unheeded for too long.
“Fannie and Freddie were allowed to grow too quickly and for too long without
the strong oversight required of such government chartered firms,” said Senator
John E. Sununu, Republican of New Hampshire, who is facing a tough campaign for
Asian stock markets rallied at the opening on Monday after the Treasury’s
announcement. The Tokyo market rose 2.8 percent and Australia’s market jumped
Futures contracts on the Standard & Poor’s 500-stock index jumped more than 2
percent in early Asian trading as investors concluded that the decision had
strengthened the prospects for American businesses, particularly banks, and for
the American economy.
The dollar and yen weakened against the euro and the British pound by late
Monday morning in Asia as investors began to conclude that European economies
might not be in as grave danger as they had seemed last week.
Treasury officials emphasized that the companies would open for business as
usual on Monday and that, at least for now, almost nothing would change in their
normal course of business.
Keith Bradsher contributed reporting from Hong Kong.
In Rescue to Stabilize Lending, U.S. Takes Over Mortgage
Finance Titans, NYT, 8.9.2008,
No One Lives There Anymore
August 31, 2008
The New York Times
Across the United States, neighborhoods are littered with an estimated
900,000 vacant homes, the result of foreclosures, bank repossessions and
abandonment. And with defaults rising nationwide, the number is expected to grow
well into next year.
Such blight is contagious. Empty houses pose fire and health hazards, attract
crime and prolong the housing slump by depressing the value of nearby homes and
adding to the nation’s already bloated unsold inventory. No one is immune. Even
if your neighborhood looks fine — and you are financially secure — foreclosures
in your metropolitan area mean less property tax revenue and, as the downturn
deepens, less state sales tax revenue.
If the hardest-hit communities do not get help soon, the damage may be
irreparable. Most foreclosed houses would sell eventually, but not in time to
halt the decline in the quality of life that is already under way, or the
fracturing of the areas’ tax base.
The federal government is only limping to the rescue. The Department of Housing
and Urban Development is expected to release a plan next month for funneling
nearly $4 billion to states and cities, mainly to buy and redevelop foreclosed
The sum is far too small to have a broad impact. Properly targeted, it could
stanch the decline in some of the neediest areas, and ideally, begin to revive
them by attracting private investment. Success stories could serve as examples
for other communities, when, as is likely, a future Congress has to provide more
Success is not assured. The White House opposed the redevelopment effort as a
bailout of speculators. It finally dropped its objection, but Congress must
guard against delay or any other political games.
HUD must avoid the temptation to spread the money far and wide, an approach that
would score points with varied constituencies but would fail to target the
neediest areas. To make sure the money goes where it is needed most, HUD should
share the data it is using to devise the distribution formula. State and local
officials must also carefully target the money they receive.
Even if government officials perform well, the redevelopment effort could still
fail. The law requires that the local governments buy up foreclosed houses at a
price that is below the current market value. That could still be a good deal
for sellers — generally lenders or mortgage firms — since property values are
continuing to decline. But if lenders are not willing to take a loss upfront,
the sales will not go through and the unspent money will revert to the Treasury.
If the mortgage industry is not ready to deal, Congress and state and local
officials should assert the public interest, giving homeowners and communities
more leeway to counter the industry’s stance. Localities could raise the costs
for registering empty homes and the charges and fines for maintaining them,
increasing the incentive for a quick sale.
The best outcome would be for government officials and lenders to make deals,
soon, that strike a balance between the best possible prices and the highest
possible public good.
No One Lives There
Anymore, NYT, 31.8.2008,
One in seven homeowners
could be victims of
· Drop in property prices could be as sharp as 35%
· Credit agency warns of return to crisis of early 90s
Thursday July 31 2008
Larry Elliott, economics editor
Britain is on course for a repeat of the negative equity
crisis of the early 1990s as a further year of tumbling house prices leaves one
in seven homeowners in a property worth less than their mortgage, the ratings
agency Standard & Poor's warned yesterday.
In a report on the state of the housing market, the company punctured optimism
about a soft landing when it predicted that a further 17% drop in the cost of
the average home would prompt a rise from 70,000 to 1.7 million in negative
equity cases - equalling the peak of the housing market meltdown of the early
Andrew South, a credit analyst at S&P, said: "The downward trend in UK house
prices now seems well established, and we expect prices to continue falling in
the near term."
The rapid increase in house prices during the decade-long upswing has meant that
only a fraction of mortgage payers - 0.6% - are currently in negative equity.
But in recent months house prices have been falling at the sharpest rate on
record and S&P said that for every further percentage point fall in the cost of
property, 0.5%-1.5% of borrowers (between 60,000 and 180,000) could enter
negative equity. Noting that the trough in the cycle would not be reached until
2009, S&P said: "At this point, we expect 1.7 million borrowers - around 14% -
would be in negative equity."
Other forecasters are even gloomier than S&P, with the consultancy firm Capital
Economics predicting a 35% drop in house prices from their peak last year.
Liberal Democrat Treasury spokesman Vince Cable said: "When I warned of this
degree of negative equity a few months ago I was accused of excessive
scaremongering. But the idea of nearly two million homeowners facing negative
equity is now regarded as mainstream by many experts."
A return to the negative equity levels of the early 1990s would put additional
pressure on the government to help homeowners. Alistair Darling received an
interim report this week on the mortgage market from the former HBOS chief Sir
James Crosby, and is expected to come up with proposals in the autumn pre-budget
Some mortgage providers have been taking advantage of more stable conditions in
the City's money markets to reduce home loan costs marginally over the past few
weeks, but a cut in the bank rate from the Bank of England is considered highly
unlikely while inflation is rising.
It discussed raising interest rates at its meeting this month and cheaper
borrowing costs are seen as off the agenda until late 2008 at the earliest.
S&P said borrowers in the buy-to-let and sub-prime sectors were most at risk
from negative equity. "A further 17% decline in house prices could put around
24% of non-conforming borrowers into negative equity, compared with only 13% of
The predictions by S&P came as the British Bankers' Association (BBA) published
statistics suggesting that the industry was not returning to the record level of
repossessions of 1992, when 75,500 homes were taken back by lenders.
The statistics, which cover 25 years of banking to the end of last year, showed
that 27,000 homes were repossessed last year.
There are predictions that repossessions could reach 45,000 by the end of this
year, which would represent 12 out of every 10,000 properties that have a
The BBA statistics reflect the impact of the credit crunch. By the end of 2007,
mortgage lending had fallen by 17%, although the average value of a loan had
increased by 10% to £153,900.
Back to the 90s?
of owners may be in negative equity by 2009, says Standard & Poor's
Number of people this would affect, the same as in the early 1990s
Number of homes repossessed in 1992, when the crash was at its height
Number predicted for 2008, 12 out of every 10,000 mortgaged properties
Housing crisis: One
in seven homeowners could be victims of negative equity, G, 31.7.2008,
Bush Signs Housing Bill
July 30, 2008 8:08 a.m.
WASHINGTON -- President George W. Bush on Wednesday signed a massive housing
bill intended to provide mortgage relief for 400,000 struggling U.S. homeowners
and to stabilize financial markets.
Mr. Bush signed the bill without any fanfare or signing ceremony, affixing his
signature to the measure he once threatened to veto in the White House's Oval
Office in the early morning hours. He was surrounded by top administration
officials, including Treasury Secretary Henry Paulson and Housing Secretary
"We look forward to put in place new authorities to improve confidence and
stability in markets," White House spokesman Tony Fratto said. He added that the
Federal Housing Administration would begin right away to implement new policies
"intended to keep more deserving American families in their homes."
The measure, regarded as the most significant U.S. housing legislation in
decades, lets homeowners who cannot afford their payments refinance into more
affordable government-backed loans rather than losing their homes. It offers a
temporary financial lifeline to troubled mortgage companies Fannie Mae and
Freddie Mac, and tightens controls over the two government-sponsored businesses.
The House of Representatives passed the bill a week ago; the Senate voted
Saturday to send it to the president.
Mr. Bush didn't like the version emerging from Congress, and initially said he
would veto it, particularly over a provision containing $3.9 billion in
neighborhood grants. He contended the money would benefit lenders who helped
cause the mortgage meltdown, encouraging them to foreclose rather than work with
borrowers. But he withdrew that threat early last week, saying hurting
homeowners couldn't wait -- and even blaming the Democratic Congress' delays in
action for forcing an imperfect solution.
Meanwhile, many Republicans, particularly those from areas hit hardest by
housing woes, were eager to get behind a housing rescue as they looked ahead to
tough re-election contests. Mr. Paulson's request for the emergency power to
rescue Fannie Mae and Freddie Mac helped push through the measure. So did the
creation of a regulator with stronger reins on the government-sponsored
companies, which Republicans have long sought.
Democrats won cherished priorities in the bargain: the aid for homeowners, a
permanent affordable housing fund financed by Fannie Mae and Freddie Mac, and
the $3.9 billion in neighborhood grants.
Bush Signs Housing
Bill, WSJ, 30.7.2008,
Worst Fears Ease, for Now,
on Mortgage Giants’ Fate
July 12, 2008
The New York Times
By STEPHEN LABATON
WASHINGTON — A day that began with a stomach-churning drop in
stock prices for the two largest mortgage finance companies ended with a measure
of relief, after government officials and lawmakers managed to calm investors
worried about the health of the two companies.
Bush administration officials had worked into the early morning hours on Friday
drawing up contingency plans to rescue the companies, Fannie Mae and Freddie
Mac, should their financial plight worsen. And when both companies’ stocks fell
50 percent initially, some investors feared the worst.
But by the end of the day, the shares rebounded after both were able to easily
continue the regular borrowing of money they need to finance their day-to-day
operations and keep the nation’s mortgage machinery humming.
If Fannie and Freddie had been cut off from borrowing by other financial
institutions, the government might have been forced to step in and support them.
Still, the modest relief on Friday was tempered by concerns over what might
unfold in coming weeks, should the housing market’s woes continue and further
weaken the finances of Fannie and Freddie.
Uncertainty about the financial stability of the companies, which lie at the
heart of the nation’s housing market, underscored their size and complexity.
Both companies, which already have suffered $11 billion in losses in the last
nine months, could report new quarterly losses in August if foreclosures
The financial markets continue to show signs of stress, underscored by the
decline in the Dow Jones industrial average, which fell below 11,000 on Friday
for the first time in two years before closing at 11,100.54, down 1.1 percent.
Shares of Freddie Mac closed at $7.75, down more than 45 percent for the week.
Fannie Mae settled at $10.25, a 30 percent slide for the week. And a fresh sign
of industry problems emerged on Friday when the Federal Deposit Insurance
Corporation seized IndyMac Bank, making it the largest bank to fail since the
The company, an offshoot of Countrywide Financial and once one of the nation’s
largest independent mortgage lenders, was a major issuer of subprime loans.
After meeting with his economic policy team on Friday morning, President Bush
said that he had been briefed about the problems confronting Fannie and Freddie
by the Treasury secretary, Henry M. Paulson Jr.
“Freddie Mac and Fannie Mae are very important institutions,” the president
said. “He assured me that he and Ben Bernanke will be working this issue very
hard,” referring the chairman of the Federal Reserve.
Earlier in the day, Mr. Paulson sought to calm investors concerned that the
stock of Fannie and Freddie could be wiped out if the government took over one
or both of the companies and placed them under the control of a conservator, as
the law permits. The administration has prepared such a plan if the companies
continue to decline, people briefed on the plan have said.
“Today our primary focus is supporting Fannie Mae and Freddie Mac in their
current form as they carry out their important mission,” Mr. Paulson said.
Officials said Mr. Paulson wanted to convey the message that even under a
conservatorship, the companies would not be nationalized. Instead, a conservator
would have to prepare a plan to restore the company to financial health, much
like a company in Chapter 11 bankruptcy proceedings.
Federal Reserve officials took pains to dismiss rumors swirling through the
markets and in Washington that the central bank was considering a new program to
lend money directly to the companies through its so-called discount window. The
Fed began two such programs to lend money to the nation’s largest investment
banks last March.
“Fed officials are following the situation closely,” said Michelle A. Smith, the
Fed’s chief spokeswoman. “We’ve had no discussions with the companies about the
discount window. We don’t discuss the range of options we are considering.”
After a flurry of phone calls with administration and Fed officials, senior
Democrats in Congress also said they were persuaded that the steep declines in
the stock of the two companies did not reflect new underlying financial
problems, and that the companies had the financial wherewithal to get through
the turmoil. Their comments went far beyond the cautiously worded assurances by
senior officials earlier in the week that had done little to calm the markets.
“There is a sort of a panic going on and that’s not what ought to be,” said
Senator Christopher J. Dodd, the Connecticut Democrat who heads the Senate
banking committee. “The facts don’t warrant that reaction, in my view.”
Mr. Dodd said that he was persuaded by conversations with Mr. Paulson and Mr.
Bernanke that the two companies “are fundamentally sound and strong.”
He said that housing legislation the Senate approved on Friday evening, part of
which would overhaul the regulation of Fannie and Freddie, could be completed by
Congress and signed into law by President Bush by next week. The measure,
sponsored by Mr. Dodd, must go back to the House to be reconciled with its
version adopted in May.
Investors, left dizzy by the rapid-fire turns in Freddie and Fannie’s shares,
suffered through one of the most volatile days in the market since the Bear
Stearns debacle in March.
The day began darkly with investors confronting figures that once seemed
unthinkable: Freddie Mac’s stock was down a whopping 50 percent, with Fannie Mae
not far behind. As rumors of a government bailout made their way across trading
desks, Mr. Paulson’s statement — suggesting that no government takeover of
Fannie and Freddie was imminent — seemed to only increase the uncertainty.
“Paulson jumped in earlier today and tried to be reassuring, but in many ways it
backfired,” Edward Yardeni, an investment strategist, said. “He really didn’t
say anything that he hadn’t before.”
But some investors saw the depressed shares as a buying opportunity. At the
close, Freddie finished down just 3 percent, a relief to investors who had
feared the worst. Fannie, however, sold off 22 percent of its value.
As they watched the markets, senior officials at the Treasury and the Federal
Reserve were described on Friday as being less fixated on the stock prices of
Fannie and Freddie and more interested in the companies’ ability to raise money
to continue to fund their daily operations and buy new mortgages from banks and
The two companies already own or guarantee more than $5 trillion in mortgages.
They need to borrow money constantly so they can buy mortgages from lenders,
repackage them as securities and sell them to investors.
Fannie and Freddie hold some of the mortgages they buy in their own investment
portfolios; the rest are sold to pension funds, mutual funds and other
investors, with Fannie and Freddie guaranteeing each mortgage against default by
the homeowner. Officials noted that the companies’ ability to raise money had
improved in recent months, including on Friday, allowing the companies to borrow
at rates close to those of the United States Treasury.
One interpretation of this is that the debt markets believe that the federal
government will take steps to bail out the companies should they become
insolvent. Moreover, the insurance premiums that are paid by the buyers of the
debt securities issued by the companies declined significantly on Friday, a sign
that the markets do not believe the companies are on the brink of failure.
“In these volatile markets, share price is not the most reliable measure for
judging Fannie and Freddie and will not dictate the responses by the
regulators,” said Senator Charles E. Schumer, Democrat of New York, who has held
discussions all week with senior administration officials. “Rather, the
regulators are closely watching the performance of the companies’ bonds, and how
their yields compare to U.S. Treasuries. Right now, Freddie and Fannie bonds are
trading closer to Treasuries than they were in March after the Bear Stearns
collapse, a reassuring signal.”
It was a crushing liquidity problem — as lenders called in existing loans and
refused to lend any more — that ultimately prompted the government to rescue
Bear Stearns last March from possible bankruptcy.
Normally, when a company’s stock price plunges to dangerously low levels, the
company also has significant problems raising money in the debt markets because
borrowers fear that they may not be repaid. But in a perverse cycle, the news
this week that the government was considering putting them into a
conservatorship has had the effect of making the debt of those companies more
Fannie Mae, founded in 1938, was originally called the Federal National Mortgage
Association, but adopted its nickname as a formal title in the 1990s. Its
younger and smaller sibling, Freddie Mac, was begun in 1970.
Michael M. Grynbaum
contributed reporting from New York.
Worst Fears Ease, for
Now, on Mortgage Giants’ Fate, NYT, 12.7.2008,
take an emotional toll on homeowners
14 May 2008
By Stephanie Armour
On a brisk day last fall in Prineville, Ore., Raymond and Deanna Donaca faced
the unthinkable: They were losing their home to foreclosure and had days to move
For more than two decades, the couple had lived in their three-level house,
where the elms outside blazed with yellow shades of fall and their four golden
retrievers slept in the yard. The town had always been home, with a lazy river
and rolling hills dotted by gnarled juniper trees.
Yet just before lunch on Oct. 23, the Donacas closed all their home's doors
except the one to the garage and left their 1981 Cadillac Eldorado running.
Toxic fumes filled the home. When sheriff's deputies arrived at about 1 p.m.,
they found the body of Raymond, 71, on the second floor along with three dead
dogs. The body of Deanna, 69, was in an upstairs bedroom, close to another dead
"It is believed that the Donacas committed suicide after attempts to save their
home following a foreclosure notice left them believing they had few options,"
the Crook County Sheriff's Office said in a report.
Their suicides were a tragic extreme, but the Donacas' case symbolizes how the
housing crisis is wrenching the emotional lives of legions of homeowners. The
escalating pace of foreclosures and rising fears among some homeowners about
keeping up with their mortgages are creating a range of emotional problems,
mental-health specialists say. Those include anxiety disorders, depression and
addictive behaviors such as alcoholism and gambling. And, in a few cases,
Crisis hotlines are reporting a surge in calls from frantic homeowners. The
American Psychological Association (APA) and other mental-health groups are
publishing tips on how to handle the emotional stress triggered by the real
estate meltdown. Psychologists say they're seeing more drinking, domestic
violence and marital problems linked to mortgage concerns — as well as children
trying to cope with extreme anxiety when their families are forced to move.
"They're depressed, anxious. It's affected marriages, relationships," says
Richard Chaifetz, CEO of ComPsych, a Chicago-based employee-assistance firm that
is counseling homeowners over mortgage fears. "People tend to catastrophize, and
that leads to depression. Suicide rates go up. We see an increase in drinking,
outbursts at work, violence toward kids. Before, their houses were like ATMs,"
as they rose in value. "Now, they feel trapped like a rat in a corner."
Foreclosure filings surged 65% in April compared with the same month last year,
according to a report Wednesday by RealtyTrac. One in every 519 households
received a foreclosure filing last month, and the number of homes with
foreclosure activity in April was the highest monthly total since RealtyTrac
began issuing the report in January 2005.
Don Donaca, Raymond's brother, says it's hard to understand the suicide, but he
thinks the pending foreclosure led to their deaths.
"He got so deep in debt he couldn't figure out what else to do," says Don, 74, a
retired sawmill worker in Prineville. "I guess a guy would have to walk a few
miles in his shoes to understand."
Financial concerns at the top
Many other homeowners are at risk of less-severe, but still significant,
psychological distress: One in seven homeowners worry that they won't be able to
make their mortgage payments on time over the next six months, according to an
April Associated Press-AOL Money & Finance poll, and more than one-quarter fear
their home will decline in value during the next two years.
ComPsych says financial concerns are now the top issue the firm's counselors are
hearing in calls from clients. Calls about financial worries have surged 20%
over last year; those related to mortgage problems have doubled.
"It's escalated to the No. 1 issue because of the housing crisis," Chaifetz
Half of Americans identify housing costs, such as rent or mortgage payments, as
significant sources of stress, particularly on the East and West coasts, a 2007
survey by the APA says. Sixty-one percent in the West, and 55% in the East
(compared with 47% in the Midwest and 43% in the South) reported housing costs
as a very or somewhat significant source of stress.
"The problem affects the whole spectrum, not just people losing their homes,"
says LeslieBeth Wish, a psychologist and social worker in Sarasota, Fla. "The
stress exacerbates what is already there. It brings to the surface problems that
were often already there, like marital problems. There is so much blaming people
for the situations they're in, and that adds to it."
One of Wish's patients was semiretired when she bought a home in 2005 in
southwest Florida as an investment that she hoped to "flip," turning a profit.
The woman now owes more than the house is worth and can't sell it.
Wish says her client has developed anxiety, dwelling on her financial situation
from the time she wakes up to the time she goes to sleep. Other clients, Wish
says, are reporting physical symptoms such as headaches and stomach pains
stemming from anxiety over their mortgage situation.
ComPsych's counselors are hearing similar stories of the mental-health toll
caused by the housing slump. At the request of USA TODAY, ComPsych's spokeswoman
Jennifer Hudson queried counselors to come up with examples of the types of
employees they're helping. One couple were going through a divorce, and the wife
told ComPsych counselors that financial stress was the final trigger. They had
maxed out their credit cards and were living off credit in hopes that they could
keep their house. Another woman called because she suspected her husband was
gambling again, apparently hoping to win big so they could repair their
financial mess. She was afraid they were going to have to move in with her
parents, ComPsych says.
For Gary Sweredoski of Myrtle Beach, S.C., the threat of losing his home to
foreclosure has taken both a physical and an emotional toll. In 2007,
Sweredoski, who had no health insurance, underwent triple bypass surgery and
wound up with more than $300,000 in medical bills. Then Sweredoski, 60, a real
estate broker, saw his business suffer as the housing market crashed.
Today, he and his wife, Irene, struggle to make the mortgage payment on the
dream home they built in Myrtle Beach and are trying to stave off foreclosure.
Like many other homeowners struggling with the financial consequences of the
housing slump, Gary says the emotional pain can be severe.
Standing on his deck overlooking a lake where ducks swim and bobbing pontoon
boats drift by, he says such circumstances "shatter your pride and become very
humiliating, even though the circumstances are not of our making.
"The situation keeps you up at night, preventing you from getting the rest you
need. A lot of the depression that I feel, I do in private," he says.
"It angers you. It frustrates you. It has a large bearing on your emotional
state. When the thought of losing a home looms, you lose more than a building.
You lose what you worked for so many years, all of the equity that you have
accumulated over the years. It's humbling. It affects us deeply."
Rising depression, suicide rates
Historically, research shows, rates of depression and suicide tend to climb
during times of economic tumult.
In an article published in 2005 by Cambridge University Press, researchers
compared suicide data in Australia from January 1968 through August 2002 with
economic problems such as unemployment and mortgage interest rates. The study
found that economic trends are closely associated with suicide risk, with men
showing a heightened risk of suicide in the face of economic adversity.
"For some people, suicide is the rational option when they see no future," says
Ken Siegel, a psychologist in Beverly Hills. "One's house is very much a
projection of one's self. To have a home taken away is tantamount to having part
of yourself taken away. There is embarrassment. For many, it's overwhelmingly
In the most severe cases, as with the Donacas, authorities have linked suicides
with the financial stress of foreclosures. On Oct. 25, 2007, James Hahn, 39, a
chemist in north Houston, was facing foreclosure and had to vacate his home.
When deputies arrived with eviction papers, Hahn engaged them and a SWAT team in
a standoff that lasted more than 10 hours. It ended in the early morning when
Hahn shot himself inside his home, according to a Houston Police Department
"Suicides are very much tied to the economy," says Kathleen Hall, founder and
CEO of The Stress Institute in Atlanta. "It's a public-health issue."
In many cases, psychiatrists say, financial stresses, such as those caused by
the mortgage crisis, tend to bring pre-existing mental-health issues to the
surface. Studies also show a strong connection between financial distress and
emotional stress, including anxiety, depression, insomnia and migraines.
"Often, there is a dilemma of not being able to afford private mental-health
treatment in the midst of a financial crisis," says Joseph Weiner, a
psychiatrist and chief of consultation psychiatry at North Shore University
Hospital in Manhasset, N.Y. "Children will likely feel the parents' tension
around financial stress. This could cause feelings of helplessness and anxiety
in the child. Sometimes, young children blame themselves for their parents'
Jennifer Paschal, 36, of Woodstock, Ga., has tried to ease the effect of the
foreclosure of her home on her children, Bailey, 12, and Trent, 9. But she says
they've been deeply pained. After 13 years of marriage, Paschal is going through
a divorce. The divorce and medical bills led the family to lose its home to
foreclosure in April. Paschal couldn't afford the $1,300 monthly mortgage
payment on her $45,000 annual salary as a day care center director.
The home is a six-bedroom house on an acre of land, with a trampoline in the
backyard, blooming pink azaleas and rose bushes, and a muddy creek where Trent
and Bailey would catch frogs and play with their two dogs, a retriever and a
Before they left, Paschal took the children to their rooms and told them to fill
a box with whatever they wanted to take with them. They moved in July to a
two-bedroom, $900-a-month apartment. The "for sale" sign on the house they lost
to foreclosure went up this month. When she saw a picture of it, Paschal says,
The children are suffering, too. Trent worries about money. Recently, at the
grocery store, he told his mother not to buy milk because it cost $4. He begs
his mother to get a house again, saying that he's old enough now to cut the
"It's hard," Paschal says. "I think they see things very differently now. My son
asked me how much money I have, and I told him not to worry about it. We had to
give away our Lab and our bird dog (because it seemed unfair to keep them in
such a small apartment). That killed my son. That tore him apart, big time."
In the new apartment, Paschal doesn't sleep well. After she goes to bed, she
hears Trent scurry out of his bed to make sure all the doors are locked. Then
Trent comes to her room and quietly tells his mother she can sleep now because
everything is safe.
Foreclosures take an
emotional toll on homeowners, UT, 14.5.2008,
The Foreclosure Machine
March 30, 2008
The New York Times
By GRETCHEN MORGENSON and JONATHAN D. GLATER
NOBODY wins when a home enters foreclosure — neither the
borrower, who is evicted, nor the lender, who takes a loss when the home is
resold. That’s the conventional wisdom, anyway.
The reality is very different. Behind the scenes in these dramas, a small army
of law firms and default servicing companies, who represent mortgage lenders,
have been raking in mounting profits. These little-known firms assess legal fees
and a host of other charges, calculate what the borrowers owe and draw up the
documents required to remove them from their homes.
As the subprime mortgage crisis has spread, the volume of the business has
soared, and firms that handle loan defaults have been the primary beneficiaries.
Law firms, paid by the number of motions filed in foreclosure cases, have
sometimes issued a flurry of claims without regard for the requirements of
bankruptcy law, several judges say.
Much as Wall Street’s mortgage securitization machinery helped to fuel
questionable lending across the United States, default, or foreclosure,
servicing operations have been compounding the woes of troubled borrowers. Court
documents say that some of the largest firms in the industry have repeatedly
submitted erroneous affidavits when moving to seize homes and levied improper
fees that make it harder for homeowners to get back on track with payments.
Consumer lawyers call these operations “foreclosure mills.”
“They get paid by the volume and speed with which they process these
foreclosures,” said Mal Maynard, director of the Financial Protection Law
Center, a nonprofit firm in Wilmington, N.C.
John and Robin Atchley of Waleska, Ga., have experienced dubious foreclosure
practices at first hand. Twice during a four-month period in 2006, the Atchleys
were almost forced from their home when Countrywide Home Loans, part of
Countrywide Financial, and the law firm representing it said they were
delinquent on their mortgage. Countrywide’s lawyers withdrew their motions to
seize the Atchleys’ home only after the couple proved them wrong in court.
The possibility that some lenders and their representatives are running
roughshod over borrowers is of increasing concern to bankruptcy judges
overseeing Chapter 13 cases across the country. The United States Trustee
Program, a unit of the Justice Department that oversees the integrity of the
nation’s bankruptcy courts, is bringing cases against lenders that it says are
abusing the bankruptcy system.
Joel B. Rosenthal, a United States bankruptcy judge in the Western District of
Massachusetts, wrote in a case last year involving Wells Fargo Bank that rising
foreclosures were resulting in greater numbers of lenders that “in their rush to
foreclose, haphazardly fail to comply with even the most basic legal
requirements of the bankruptcy system.”
Law firms and default servicing operations that process large numbers of cases
have made it harder for borrowers to design repayment plans, or workouts,
consumer lawyers say. “As I talk to people around the country, they all
unanimously state that the foreclosure mills are impediments to loan workouts,”
Mr. Maynard said.
LAST month, almost 225,000 properties in the United States were in some stage of
foreclosure, up nearly 60 percent from the period a year earlier, according to
RealtyTrac, an online foreclosure research firm and marketplace.
These proceedings generate considerable revenue for the firms involved: eviction
and appraisal charges, late fees, title search costs, recording fees, certified
mailing costs, document retrieval fees, and legal fees. The borrower, already in
financial distress, is billed for these often burdensome costs. While much of
the revenue goes to the law firms hired by lenders, some is kept by the
servicers of the loans.
Fidelity National Default Solutions, a unit of Fidelity National Information
Services of Jacksonville, Fla., is one of the biggest foreclosure service
companies. It assists 19 of the top 25 residential mortgage servicers and 14 of
the top 25 subprime loan servicers.
Citing “accelerating demand” for foreclosure services last year, Fidelity
generated operating income of $443 million in its lender processing unit, a 13.3
percent increase over 2006. By contrast, the increase from 2005 to 2006 was just
1 percent. The firm is not associated with Fidelity Investments.
Law firms representing lenders are also big beneficiaries of the foreclosure
surge. These include Barrett Burke Wilson Castle Daffin & Frappier, a 38-lawyer
firm in Houston; McCalla, Raymer, Padrick, Cobb, Nichols & Clark, a 37-member
firm in Atlanta that is a designated counsel to Fannie Mae; and the Shapiro
Attorneys Network, a nationwide group of 24 firms.
While these private firms do not disclose their revenues, Wesley W. Steen, chief
bankruptcy judge for the Southern District of Texas, recently estimated that
Barrett Burke generated between $9.7 million and $11.6 million a year in its
practice. Another judge estimated last year that the firm generated $125,000
every two weeks — or $3.3 million a year — filing motions that start the process
of seizing borrowers’ homes.
Court records from 2007 indicate that McCalla, Raymer generated $10.4 million a
year on its work for Countrywide alone. In 2005, some McCalla, Raymer employees
left the firm and created MR Default Services, an entity that provides
foreclosure services; it is now called Prommis Solutions.
For years, consumer lawyers say, bankruptcy courts routinely approved these
firms’ claims and fees. Now, as the foreclosure tsunami threatens millions of
families, the firms’ practices are coming under scrutiny.
And none too soon, consumer lawyers say, because most foreclosures are
uncontested by borrowers, who generally rely on what the lender or its
representative says is owed, including hefty fees assessed during the
foreclosure process. In Georgia, for example, a borrower can watch his home go
up for auction on the courthouse steps after just 40 days in foreclosure,
leaving relatively little chance to question fees that his lender has levied.
A recent analysis of 1,733 foreclosures across the country by Katherine M.
Porter, associate professor of law at the University of Iowa, showed that
questionable fees were added to borrowers’ bills in almost half the loans.
Specific cases inching through the courts support the notion that figures
supplied by lenders are often incorrect. Lawyers representing clients who have
filed for Chapter 13 bankruptcy, the program intended to help them keep their
homes, say it is especially distressing when these numbers are used to evict
“If the debtor wants accurate information in a bankruptcy case on her mortgage,
she has got to work hard to find that out,” said Howard D. Rothbloom, a lawyer
in Marietta, Ga., who represents borrowers. That work, usually done by a lawyer,
Mr. Rothbloom represents the Atchleys, who almost lost their home in early 2006
when legal representatives of their loan servicer, Countrywide, incorrectly told
the court that the Atchleys were 60 days delinquent in Chapter 13 plan payments
two times over four months. Borrowers can lose their homes if they fail to make
After the Atchleys supplied proof that they had made their payments on both
occasions, Countrywide withdrew its motions to begin foreclosure. But the
company also levied $2,793 in fees on the Atchleys’ loan that it did not
explain, court documents said. “Every paycheck went to what they said we owed,”
Robin Atchley said. “And every statement we got, the payoff was $179,000 and it
never went down. I really think they took advantage of us.”
The Atchleys, who have four children, sold the house and now rent. Mrs. Atchley
said they lost more than $23,000 in equity in the home because of fees levied by
The United States Trustee sued Countrywide last month in the Atchley case,
saying its pattern of conduct was an abuse of the bankruptcy system. Countrywide
said that it could not comment on pending litigation and that privacy concerns
prevented it from discussing specific borrowers.
A generation ago, home foreclosures were a local business, lawyers say. If a
borrower got into trouble, the lender who made the loan was often a nearby bank
that held on to the mortgage. That bank would hire a local lawyer to try to work
with the borrower; foreclosure proceedings were a last resort.
Now foreclosures are farmed out to third-party processors who hire local counsel
to litigate. Lenders negotiate flat-fee arrangements to try to keep legal bills
AN unfortunate result, according to several judges, is a drive to increase
revenue by filing more motions. Jeff Bohm, a bankruptcy judge in Texas who
oversaw a case between William Allen Parsley, a borrower in Willis, Tex., and
legal representatives for Countrywide, said the flat-fee structure “has fostered
a corrosive ‘assembly line’ culture of practicing law.” Both McCalla, Raymer and
Barrett Burke represented Countrywide in the matter.
Gee Aldridge, managing partner at McCalla, Raymer, called the Parsley case
unique. “It is the goal of every single one of my clients to do whatever they
can do to keep borrowers in their homes,” he said. Officials at Barrett Burke
did not return phone calls seeking comment.
In a statement, Countrywide said it recognized the importance of the efficient
functioning of the bankruptcy system. It said that servicing loans for borrowers
in bankruptcy was complex, but that it had improved its procedures, hired new
employees and was “aggressively exploring additional technology solutions to
ensure that we are servicing loans in a manner consistent with applicable
guidelines and policies.”
The September 2006 issue of The Summit, an in-house promotional publication of
Fidelity National Foreclosure Solutions, another unit of Fidelity, trumpeted the
efficiency of its 18-member “document execution team.” Set up “like a production
line,” the publication said, the team executes 1,000 documents a day, on
OTHER judges are cracking down on some foreclosure practices. In 2006, Morris
Stern, the federal bankruptcy judge overseeing a matter involving Jenny Rivera,
a borrower in Lodi, N.J., issued a $125,000 sanction against the Shapiro & Diaz
firm, which is a part of the Shapiro Attorneys Network. The judge found that
Shapiro & Diaz had filed 250 motions seeking permission to seize homes using
pre-signed certifications of default executed by an employee who had not worked
at the firm for more than a year.
In testimony before the judge, a Shapiro & Diaz employee said that the firm used
the pre-signed documents beginning in 2000 and that they were attached to “95
percent” of the firm’s motions seeking permission to seize a borrower’s home.
Individuals making such filings are supposed to attest to their accuracy. Judge
Stern called Shapiro & Diaz’s use of these documents “the blithe implementation
of a renegade practice.”
Nelson Diaz, a partner at the firm, did not return a phone call seeking comment.
Butler & Hosch, a law firm in Orlando, Fla., that is employed by Fannie Mae, has
also been the subject of penalties. Last year, a judge sanctioned the firm
$33,500 for filing 67 faulty motions to remove borrowers from their homes. A
spokesman for the firm declined to comment.
Barrett Burke in Texas has come under intense scrutiny by bankruptcy judges.
Overseeing a case last year involving James Patrick Allen, a homeowner in
Victoria, Tex., Judge Steen examined the firm’s conduct in eight other
foreclosure cases and found problems in all of them. In five of the matters,
documents show, the firm used inaccurate information about defaults or failed to
attach proper documentation when it moved to seize borrowers’ homes. Judge Steen
imposed $75,000 in sanctions against Barrett Burke for a pattern of errors in
the Allen case.
A former Barrett Burke lawyer, who requested anonymity to avoid possible
retaliation from the firm, said, “They’re trying to find a fine line between
providing efficient, less costly service to the mortgage companies” and not
harming the borrower.
Both he and another former lawyer at the firm said Barrett Burke relied heavily
on paralegals and other nonlawyer employees in its foreclosure and bankruptcy
practices. For example, they said, paralegals prepared documents to be filed in
bankruptcy court, demanding that the court authorize foreclosure on a borrower’s
home. Lawyers were supposed to review the documents before they were filed. Both
former Barrett lawyers said that with at least 1,000 filings a month, it was
hard to keep up with the volume.
This factory-line approach to litigation was one reason he decided to leave the
firm, the first lawyer said. “I had questions,” he added, “about whether doing
things efficiently was worth whatever the cost was to the consumer.”
James R. and Tracy A. Edwards, who are now living in New Mexico, say they have
had problems with questionable fees charged by Countrywide and actions by
Barrett Burke. In one month in 2002, when the couple lived in Houston,
Countrywide Home Loans withdrew three monthly mortgage payments from their bank
account, Mrs. Edwards said, leaving them unable to pay other bills. The family
filed for bankruptcy to try to keep their home, cars and other assets.
Filings in the bankruptcy case of the Edwards family show that on at least three
occasions, Countrywide’s lawyers at Barrett Burke filed motions contending that
the borrowers had fallen behind. The firm subsequently withdrew the motions.
“They kept saying we owed tons and tons of fees on the house,” Mrs. Edwards
said. Tired of this battle, the family gave up the Houston house and moved to
one in Rio Rancho, N.M., that they had previously rented out.
Countrywide tried to foreclose on that house, too, contending that Mr. and Mrs.
Edwards were behind in their payments. Again, Mrs. Edwards said, the culprit was
a raft of fees that Countrywide had never told them about — and that were
related to their Texas home. Mrs. Edwards says that she and her husband plan to
sue Countrywide to block foreclosure on their New Mexico home.
Pamela L. Stewart, president of the Houston Association of Debtor Attorneys,
said she has become skeptical of lenders’ claims of fees owed. “I want to see
documents that back up where these numbers are coming from,” Ms. Stewart said.
“To me, they’re pulled out of the air.”
An inaccurate mortgage payment history supplied by Ameriquest, a mortgage lender
that is now defunct, was central to a case last year in federal bankruptcy court
in Massachusetts. “Ameriquest is simply unable or unwilling to conform its
accounting practices to what is required under the bankruptcy code,” Judge
Rosenthal wrote. He awarded the borrower $250,000 in emotional-distress damages
and $500,000 in punitive damages.
Fidelity National Information Services has also been sued. A complaint filed on
behalf of Ernest and Mattie Harris in federal bankruptcy court in Houston
contends that Fidelity receives kickbacks from the lawyers it works with on
The case shines some light on the complex relationships between lenders and
default servicers and the law firms that represent them. The Harrises’ loan
servicer is Saxon Mortgage Services, a Morgan Stanley unit, which signed an
agreement with Fidelity National Foreclosure Solutions. Under it, Fidelity was
to provide foreclosure and bankruptcy services on loans serviced by Saxon, as
well as to manage lawyers acting on Saxon’s behalf. The agreement also specified
that Saxon would pay the fees of the lawyers managed by Fidelity.
But Fidelity also struck a second agreement, with an outside law firm, Mann &
Stevens in Houston, which spelled out the fees Fidelity was to be paid each time
the law firm made filings in a case. Mann & Stevens, which did respond to phone
calls, represented Saxon in the Harrises’ bankruptcy proceedings.
According to the complaint, Mann & Stevens billed Saxon $200 for filing an
objection to the borrowers’ plan to emerge from bankruptcy. Saxon paid the $200
fee, then charged that amount to the Harrises, according to the complaint. But
Mann & Stevens kept only $150, paying the remaining $50 to Fidelity, the
This arrangement constitutes improper fee-sharing, the Harrises argued. Texas
rules of professional conduct bar fee-sharing between lawyers and nonlawyers
because that could motivate them to raise prices — and the Harrises argue that
this is why the law firm charged $200 instead of $150. And under these rules,
sharing fees with someone who is not a lawyer creates a risk that the financial
relationship could affect the judgment of the lawyer, whose duty is to the
client. Few exceptions are permitted — like sharing court-awarded fees with a
nonprofit organization or keeping a retirement plan for nonlawyer employees of a
“If it’s fee-sharing, and if it doesn’t fall into those categories, it sounds
wrong,” said Michael S. Frisch, adjunct professor of law at Georgetown
University. Greg Whitworth, president of loan portfolio solutions at Fidelity,
defended the arrangement, saying it was not unusual for a company to have an
intermediary manage outside law firms on its behalf.
The Harrises contend that the bankruptcy-related fees charged by the law firms
managed by Fidelity “are inflated by 25 to 50 percent.” The agreement between
Fidelity and the law firm is also hidden, according to their complaint, so a
presiding judge sees only the lender and the law firm, not the middleman.
Fidelity said the money it received from the law firm was not a kickback, but
payments for services, just as a law firm would pay a copying service to
duplicate documents. In response to the complaint, Fidelity asserted in a court
filing that the Harrises’ claims were “nothing more than scandalous, hollow
But the Fidelity fee schedule shows a charge for each action taken by the law
firm, not a fee per page or kilobyte. And Fidelity’s contract appears to
indemnify Saxon if the arrangement between Fidelity and its law firm runs afoul
of conduct rules.
Mr. Whitworth of Fidelity said that the arrangement with Mann & Stevens did not
constitute fee sharing, because Fidelity was to be paid by that law firm even if
the law firm itself was not paid.
He also said that by helping a servicer manage dozens or even hundreds of law
firms, Fidelity lowered the cost of foreclosure or bankruptcy proceedings, to
the benefit of the law firm, the servicer and the borrower. “Both parties want
us to be in the middle here,” Mr. Whitworth said, referring to law firms and
mortgage servicing companies.
THE Fidelity contract attached to the complaint also hints at the money each
motion generates. Foreclosures earn lawyers fees of $500 or more under the
contract; evictions generate about $300. Those fees aren’t enormous if they
require a substantial amount of time. But a few thousand such motions a month,
executed by lawyers’ employees, translates into many hundreds of thousands of
dollars in revenue to the law firm — and the lower the firm’s costs, the greater
“Congress needs to enact a national foreclosure bill that sets a uniform
procedure in every state that provides adequate notice, due process and
transparency about fees and charges,” said O. Max Gardner III, a consumer lawyer
in Shelby, N.C. “A lot of this stuff is such a maze of numbers and complex
organizational structure most lawyers can’t get through it. For the average
consumer, it is mission impossible.”
Machine, NYT, 30.3.2008,
Home Sweet Investment
March 18, 2008
The New York Times
By ALEX TABARROK
FEAR is ruling the financial markets. Billions of dollars have
been lost in mortgage-related investments. The Federal Reserve worked madly over
the weekend to engineer a takeover of Bear Stearns and avert a systemic
meltdown. But the big fear remains. How low will house prices go?
If prices continue to fall, mortgage defaults will move well beyond the subprime
sector. Trillions of dollars in losses for investors are not impossible. But
that doesn’t mean they are inevitable.
In 1997, inflation-adjusted house prices were close to their average levels over
the previous half-century. Only four years later, the price of the average home
nationwide exceeded anything ever seen before in the United States. Prices
continued to rise for another five years, peaking in 2006 at nearly twice the
average price in 1997 (as can be seen on the graph on the bottom right, which is
based on data collected by the Yale economist Robert Shiller). If house prices
are heading back to the levels seen in 1997, then we are facing catastrophe.
But there are good reasons to believe that much of the increase in prices was a
rational response to changes in fundamental factors like interest rates and
supply. The deeper fundamentals continue to suggest strong housing prices for
Sure, speculation did run rampant toward the end of the housing boom. (The debut
of the reality television show “Flip That House” on Discovery Home Channel,
followed shortly by “Flip This House” on A&E, was a clear sign that the boom’s
end was near.) Prices will fall further, especially in the speculative
developments built on the outskirts of the major cities. So yes, we overshot the
Still, especially in coastal areas where zoning regulations have restricted the
supply of land that developers can build on, house prices were driven up by
increasing population, low interest rates and strong economic growth.
More and more people want to live on the coasts, but land is hard to come by in
places like Manhattan and San Francisco. Cities and regions built on ideas —
like Boston, Los Angeles, New York and the San Francisco Bay Area — have grown
even as areas built on manufacturing, like Detroit and the Rust Belt, have
declined. And of course, government isn’t getting any smaller, so Washington and
its suburbs, another hot spot of rising house prices during the boom, will
continue to grow.
Even in places where land seems plentiful, zoning and other land-use regulations
have made it scarce. To meet demand, we should encourage high-density
development, but homeowners fought to restrict housing supply when house prices
were increasing. Now that house prices are falling, the incentives of owners to
restrict supply are even stronger.
Several studies estimate that the average house prices of 2004 were close to
fundamental levels, so we may see prices stabilize near that level.
Granted, a catastrophe is not impossible — it did happen in Japan. House prices
shot up in Japan in the late 1980s, and by 1999 they had collapsed. The graph on
the top right, of Japanese and American house prices, does make for a worrying
comparison. (The data come from the Standard & Poor’s/Case-Shiller national home
price index and a similar index for Japan.)
But the resemblance isn’t as close as the graph makes it appear. The Japanese
run-up in home prices was faster and reached higher levels than the one in the
United States. In addition, the Japanese population at the time wasn’t growing,
and today it’s shrinking. (None of the major presidential candidates favor
drastic reductions in immigration, so population growth in the United States
will continue.) As a result of these and other problems, the Japanese economy
was moribund from 1992 to 2002, which kept housing prices low.
There are two very real problems for the housing market: tougher credit
conditions and slower growth. Here the United States faces a self-fulfilling
If the financial markets can predict where and when house prices will stabilize,
then credit conditions can quickly return to normal, the economy can expand and
house prices will indeed stabilize.
But if the financial markets remain uncertain about when the decline in house
prices will end, then fear will tighten credit even further, which would
strangle the housing market and generate even more fear.
We have nothing to fear but fear itself, but fear itself can be pretty scary.
The best way to overcome fear is to look at the long run. The typical homebuyer
keeps a home for 10 years or more, so there is time for those who bought in 2005
and 2006 to weather the current decline in prices. Those who bought at the top
are unlikely to see any windfalls from house appreciation, but they will not
necessarily suffer from buyers’ remorse. Owning a home has its advantages: the
deduction on mortgage interest is substantial and too much of a sacred cow to
ever be repealed, and there is a certain security and satisfaction to owning
your own home.
The collapse of housing prices certainly feels painful, and for some homeowners,
it will be. But the houses are still there, as good as ever. Most of the gains
going up were paper gains, and most of the losses going down are paper losses.
The strength of an economy comes, fundamentally, from what it can produce. Can
America still produce homes? Yes. Can America still produce desirable urban and
suburban areas that people are willing to pay a fortune to live in? Yes.
That’s the real bottom line. The United States has some of the most valuable
real estate in the world. Markets should not forget that.
Alex Tabarrok is a professor of economics
at George Mason University
research director for the Independent Institute.
Investment, NYT, 18.3.2008,
Foreclosure crisis has ripple effect
11 March 2008
By Haya El Nasser
The mortgage foreclosure crisis has caused a drop in cities' revenues, a
spike in crime, more homelessness and an increase in vacant properties, a survey
of elected local officials out today shows.
About two-thirds of 211 officials surveyed by the National League of Cities
reported an increase in foreclosures in their cities in the past year, according
to the online and e-mail questionnaire. A third of them reported a drop in
revenues and an increase in abandoned and vacant properties and urban blight.
"There's a reduction in revenues at the same time that more services are
needed," says Cynthia McCollum, president of the National League of Cities and
councilwoman in Madison, Ala., a suburb of Huntsville. "Because of foreclosures,
people are stealing, crime is on the rise and we don't have more money for cops
on the street."
More than a fifth of city officials responding said homelessness and the need
for temporary and emergency housing increased in the past year.
The ills of foreclosures are dominating the agenda of the league's meeting with
congressional lawmakers in Washington, D.C., this week to secure federal funding
for local initiatives.
"The American dream for individuals has now become the nightmare for cities,"
says James Mitchell, a Charlotte councilman and head of the group's National
Black Caucus of Local Elected Officials.
Foreclosed homes are the target of vandalism, he says, and there's been an
increase in police calls.
In Peachtree Hills, one of the many neighborhoods of starter homes that sprouted
around Charlotte this decade, 115 of the 123 homes are in foreclosure, Mitchell
"The 12 residents left there can't sell their homes and now their property
values have decreased," Mitchell says. "It's starting to be a symbol of what we
don't want to happen to Charlotte."
Many of the buyers were African-Americans who were enticed by zero-down
mortgages on moderately priced homes. The survey shows that lower-income
families, single parents, seniors and people of color are disproportionately
affected by the housing crisis.
Foreclosures create ramifications even in cities that have been spared the worst
of the crisis.
Riverside, Calif., is at the heart of the state's Inland Empire, an area that
has attracted people in droves from costlier coastal areas but now ranks fourth
nationally in foreclosures. Most of the housing boom, however, did not occur in
the city but in communities to the east where foreclosures are mounting.
"It's having a ripple effect on our budget and city finances," says Riverside
Mayor Ronald Loveridge. "Housing industry is not simply building homes. There's
less money being spent for new cars. … That's had a powerful effect on the
economy of our region."
California cities rely heavily on sales tax revenues since the 1978 passage of
Proposition 13, which caps real estate taxes. Riverside faces a $12 million
deficit this fiscal year.
"We handle that by essentially not filling positions," Loveridge says.
Riverside is adjusting the payment schedule of development fees to encourage
construction and passed an ordinance requiring the upkeep of homes — even when
Charlotte is working with the Department of Housing and Urban Development on a
program that allows firefighters, police officers and teachers to purchase
foreclosed homes at 50% of their listed price.
Foreclosure crisis has
ripple effect, UT, 11.3.2008,
Lending laws unenforced
in housing crisis: Jackson
Wed Feb 20, 2008
By Michele Gershberg
NEW YORK (Reuters) - A U.S. mortgage meltdown has its roots in lending
discrimination against African-American and Hispanic communities and requires
federal intervention to prevent it from crippling municipal services, civil
rights activist Rev. Jesse Jackson said on Wednesday.
Jackson told the Reuters Housing Summit in New York that nearly 40 percent of
subprime loans went to black and Hispanic families, many of them in districts
once shunned by discriminatory "redlining" lenders who later devised a way to
profit there by selling a flawed financial product.
"They began to stereotype and target and cluster whole communities. It's kind of
like reverse redlining," Jackson said.
Jackson estimates that nearly half of those borrowers could have been eligible
for regular loan packages, but instead were locked into mortgages that threaten
to balloon out of their ability to pay when the adjustable interest rates reset.
"It suggests that if fair lending laws had been enforced ... we would not have
had this global economic crisis," Jackson said. "But while it started by
unenforced civil rights laws, the bleeding has not stopped there. It's now
engulfing the budgets of cities and counties and states."
Jackson also said that the U.S. Department of Justice was slow to respond, if at
all, to concerns of lending discrimination.
An estimated 1.5 million subprime mortgages, traditionally targeted at borrowers
with poor credit histories, will reset to higher interest rates this year,
putting many owners at risk of losing their homes. Another 500,000 will reset in
2009, according to Federal Reserve estimates.
Jackson said the federal government should institute a halt to foreclosure
proceedings and authorize the Federal Housing Administration or another body to
start a major restructuring of subprime loans, with lower interest rates and
payments spread out over a longer period.
He also called on state attorneys general to subpoena the major lenders on their
loan practices and impose penalties on those who have violated the law.
He described President George W. Bush's plan to offer $152 billion in tax
rebates this year to fend off a possible recession as irrelevant to the needs of
home owners facing foreclosure and ignoring the cause of the crisis.
(Editing by Gary Hill)
Lending laws unenforced
in housing crisis: Jackson, R, 20.2.2008,
Falling home sales problem
spreads to 45 states
14 February 2008
By Noelle Knox
Underscoring the breadth of the real estate recession, sales of existing
homes fell in 45 states and Washington, D.C., in the last quarter of 2007, and
prices dropped in more than half the metro areas it tracks, the National
Association of Realtors said Thursday.
The slide in sales is projected to persist through the first half of this
year, and prices will likely fall throughout 2008, according to a majority of
economists surveyed last month by USA TODAY. The figures reflect job losses in
the Rust Belt states, sinking affordability in the Sunshine states and stricter
lending rules nationwide.
Nationally, home sales fell nearly 21% from October through December, compared
with the same period the year before. At the same time, the median price plunged
by a record 5.8%, to $206,200.
South Dakota was the only state where sales rose — at an impressive 8.9%. Sales
were flat in North Dakota, and no figures were available for Idaho, Indiana and
New Hampshire. John Gustafson of the South Dakota Association of Realtors
credits that state's strong industrial base, low crime rate and affordable home
The state with the sharpest quarterly sales drop — a stunning 44% — was Nevada,
which was one of the most overheated markets during the real estate boom. In Las
Vegas, the median single-family home dropped about 13% in price. That means
thousands of people who bought homes during the past couple of years with little
or no money down now owe more than their homes are worth.
Luxury condos on the Las Vegas Strip are still faring well, but the
single-family home market is "definitely treading water," says Bruce Hiatt,
owner of Luxury Realty Group, and he projects it will take up to 18 months to
"Bargain hunters are out there, but the foreclosure issue is presenting its
challenges," he says. "Buyers are reluctant to buy in neighborhoods that have
high foreclosures. They don't want empty houses next to them."
The median price — at which point half the homes cost more, half less — fell in
77 of the metro areas the NAR surveys, with at least 15 areas suffering
double-digit drops. They included Sacramento, Jackson, Miss., and the
Riverside-San Bernardino area of Southern California.
Rich Cosner of Prudential California Realty, which has offices in Riverside, San
Bernardino and Orange counties, says foreclosures are driving down prices.
"The lenders have so many foreclosures, they need to get them sold and will take
a much lower price than a normal home seller," Cosner explains, adding, "I don't
see any change in the market happening in 2008."
But all real estate is local, and prices rose in 73 other metro areas, including
11 that enjoyed double-digit gains. Atop the list: the Cumberland area of
Maryland and West Virginia, followed by Yakima, Wash., and Binghamton, N.Y.
Explaining buyers' attraction to Cumberland, Melanie Prattdimaio, a local real
estate agent, says: "People are relocating here. We have a very low crime rate.
We don't have rush-hour traffic."
Falling home sales
problem spreads to 45 states, UT, 14.2.2008,
Biggest Drop in Existing Home Sales
in 25 Years
January 24, 2008
Filed at 11:04 a.m. ET
The New York Times
By THE ASSOCIATED PRESS
WASHINGTON (AP) -- Sales of existing homes fell in December, closing out a
horrible year for housing in which sales of single-family homes plunged by the
largest amount in 25 years. The median home price dropped for the entire year,
the first time that has occurred in four decades.
The National Association of Realtors reported that sales of single-family homes
and condominiums dropped by 2.2 percent in December to a seasonally adjusted
annual rate of 4.89 million units.
For the year, sales of single-family homes were down by 13 percent, the biggest
drop since a 17.7 percent plunge in 1982. The median price for a single-family
home dropped 1.8 percent to $217,000.
That was the first annual price decline on records going back to 1968. Lawrence
Yun, the Realtors' chief economist, said it was likely that the country has not
experienced a decline in housing prices for an entire year since the Great
Depression of the 1930s.
The new figures underscored the severity of the slump in housing, which has been
battered for the past two years after enjoying a boom in which sales set records
for five consecutive years.
The housing bust has sent shock waves through the entire economy as defaults
have risen, resulting in multibillion-dollar loses for big financial firms whose
investments in subprime mortgages have gone sour.
There is a concern that the housing and credit troubles could be enough to push
the country into a full-blown recession. After global stock markets experienced
a sharp sell-off earlier this week, the Federal Reserve announced a bold
three-quarter point cut in a key interest rate and held out the promise of more
rate cuts to follow.
The Bush administration and congressional leaders are trying to quickly wrap up
negotiations on a stimulus package in an effort to boost consumer and business
For December, sales were down in all regions of the country. Sales fell by 4.6
percent in the Northeast, 1.7 percent in the Midwest, 1 percent in the South and
2.1 percent in the West.
The inventory of unsold homes dropped by 7.4 percent, raising hopes that
backlogs that had hit record levels were starting to be reduced, a key factor
necessary to prompt a rebound in the market.
While Yun said he expected sales to start to rebound this spring, other analysts
said housing is likely to remain in the doldrums throughout most of 2008,
reflecting in part the credit crunch, which has caused lenders to tighten their
standards, making it harder for prospective buyers to qualify for loans.
In other economic news, the Labor Department said Thursday that the number of
laid off workers filing claims for unemployment benefits fell for a fourth
straight week, dropping by 1,000 to 301,000.
Many economists cautioned that they still expected layoffs to start rising in
coming weeks, reflecting the sharp economic slowdown that has taken place.
The economy, after racing ahead at an annual rate of 4.9 percent in the
July-September quarter, probably slowed to a weak 1 percent rate in the final
three months of 2007 and may even fall into negative territory in the current
A recession is often defined as two consecutive quarters of falling economic
output. Many economists believe the risks of a full-blown downturn are roughly
The growing worries about the economy in an election year have captured the
attention of President Bush and congressional leaders who are working to put
together a $150 billion economic stimulus package that will include tax relief
for households and businesses in an effort to bolster economic activity.
The drop in unemployment applications to 301,000 for the week ending Jan. 19
left total claims at the lowest level since 300,000 were recorded during the
week of Sept. 22.
For the week of Jan. 19, 36 states and territories had increases in claims while
17 had declines.
The biggest increase occurred in California, up 27,194, an upsurge blamed on
higher layoffs in construction and service industries, and Florida, with an
increase in layoffs of 8,496, which was attributed in part to higher layoffs in
construction. California and Florida have been particularly hard hit by the
Biggest Drop in Existing
Home Sales in 25 Years, NYT, 24.1.2008,
closest to slump for 15 years,
· Tighter mortgage controls and interest rates to blame
· Professional body urges Bank to make rapid cuts
Wednesday January 16 2008
House prices across the UK tumbled in December at the fastest
pace in more than 15 years as tighter mortgage lending and higher interest rates
pushed the property market closer to the biggest crash since the early 1990s,
the Royal Institution of Chartered Surveyors says today.
Surveyors are urging the Bank of England to cut interest rates without delay to
attract buyers and help stabilise the market. The latest monthly snapshot of the
housing market by the RICS compares the proportion of surveyors reporting a drop
in prices with those who saw the market climb. The study shows 49.1% more
surveyors reported a fall than a rise. November's level was 40.6%.
The survey offers the bleakest picture since November 1992, when the UK last saw
a severe slump in the housing market as properties shed almost 30% in value
against a backdrop of soaring interest rates.
Price falls were seen across the country, with East Anglia and the West Midlands
showing the heaviest decreases. Only surveyors in Scotland reported some subdued
"The Christmas slowdown started much earlier this year and hit harder," said
Jeffrey Hazel, of Geoffrey Collings and Co in King's Lynn, Norfolk.
Even in London, which has been at the forefront of Britain's housing boom,
surveyors said the outlook for 2008 was not promising. "We need one or two very
urgent mortgage interest rate decreases," said Arwel Griffith of Lexicon
Surveying Services in Walthamstow. "Even that might not assist very
substantially in the currently gloomy market."
Ian Perry, a spokesman for the RICS, said: "The housing market is clearly
feeling the pinch from the credit crunch and the round of interest rate hikes in
The Bank of England raised interest rates five times between August 2006 and
August last year to 5.75% to cool the rampant expansion of the UK economy,
double-digit house price growth and decade-high levels of inflation.
Last summer's credit crunch, sparked by the sub-prime mortgage crisis in the US,
has gripped the world economy, making lenders more cautious. This has made it
difficult for many buyers to get on to the property ladder, dampening demand.
Meanwhile, supply to the market is edging up. The balance of surveyors reporting
a rise in new properties to sell turned positive for the first time since May.
The RICS said the looser supply was partly due to the extension last month of
home information packs to cover all properties as homeowners brought forward
sales of their homes to avoid extra costs.
But Perry said the underlying economic conditions were vastly different from the
early 1990s. "Supply would have to loosen considerably before prices experience
a significant dip," he said. "The coming months will be of great importance to
the market. The Bank of England may have to cut rates further if the market is
to remain in a stable condition."
The Bank's quarter-point interest rate cut last month did little to bring
Christmas cheer for buyers, the RICS said, with the survey showing that 25% more
surveyors reported a fall than a rise in buyer inquiries. But this has eased
from 31% in October as first-time buyers wait on the sidelines in the hope that
interest rates will fall.
Policymakers decided to hold interest rates at 5.5% last week as they juggled a
potential economic slowdown with fears of inflation ticking higher after oil
prices flirted with $100 a barrel this month and as food prices creep higher.
But analysts forecast that borrowing costs would start to fall next month by a
quarter point, possibly ending the year as low as 4%.
· London and the south-east, where million-pound homes became
common and properties were snapped up in days, can no longer withstand the
slowdown. Demand from the City is falling as bonuses and jobs suffer the effects
of the credit crunch.
· The RICS says Scotland is the only region which saw price rises, albeit at the
slowest pace since April 2005.
· While the RICS says the West Midlands is bearing the brunt of recent falls,
Nationwide has said this was the most stable region last year.
· Northern Ireland, which is not covered by the RICS survey, was another red-hot
market for housing, making it vulnerable to sharp corrections in prices.
· Northern Ireland and Yorkshire & Humberside were among the first areas to see
price falls during the last quarter of 2007.
closest to slump for 15 years, say chartered surveyors,
Cleveland Sues 21 Lenders
Over Subprime Mortgages
The New York Times
By CHRISTOPHER MAAG
Cleveland is suing 21 of the nation’s largest banks and financial institutions,
accusing them of knowingly plunging the city into a financial crisis by flooding
the local housing market with subprime mortgage loans to people who could never
The city is seeking “at least” hundreds of millions of dollars in damages,
Cleveland’s law director, Robert J. Triozzi, said Friday. The list of defendants
includes some of the most prominent firms on Wall Street, like Citigroup, Bank
of America, Wells Fargo, Merrill Lynch and Countrywide Financial.
Mayor Frank G. Jackson said in an interview on Friday that the companies would
be “held accountable for what they’ve done.”
“We’re going after them to get the resources we need to rebuild our city,” Mr.
The financial crisis has hit Cleveland especially hard, with more than 7,000
foreclosures in each of the last two years, Mr. Jackson said. Entire city blocks
have been abandoned. The city’s budget has been strained by the effort to
maintain thousands of boarded-up homes, and by the cost of responding to a rise
in violent crime and arson.
The major banks involved did not return calls about the lawsuit. A spokesman for
Merrill Lynch, Mark Herr, said, “We’re declining to comment right now.”
The Cleveland suit is separate from one filed Tuesday in federal court by the
City of Baltimore against Wells Fargo, accusing it of violating fair-housing
laws by singling out African-Americans for high-interest mortgages.
The Cleveland suit, filed Thursday in Cuyahoga County Common Pleas Court under
the state’s public nuisance law, asserts that the financial institutions created
nuisances across broad swaths of Cleveland because their loans led to widespread
abandonment of homes. “We’ve torn down 1,000 abandoned houses, and haven’t even
made a dent,” Mr. Jackson said.
The drop in homeownership, and a steep decline in population — to 444,000
residents in 2007 from almost a million in 1950, according to census figures —
has drained Cleveland’s budget. In December, Mr. Jackson announced that the city
was unable to borrow money and would be forced to postpone or permanently shelve
millions of dollars in public works projects.
“The strain on our budget is too much,” Mr. Jackson said. “These companies have
knowingly created a public nuisance by exploiting the city of Cleveland.”
Several Cleveland suburbs have expressed interest in joining the case as a
class-action suit, Mr. Triozzi said. Because the city is suing under a state
statute, cities outside Ohio could not join. “This case is about what these Wall
Street bankers did to Cleveland,” Mr. Triozzi said.
Instead of aiming at the banks that originally made subprime mortgage loans in
the city, the lawsuit is against those firms that bundled the loans into
securities to be divided into shares and sold on the stock exchange. This
process, and the large fees the firms generated from the work, Mr. Triozzi said,
drove their effort to make as many loans as possible during an era of low
interest rates and a prolonged housing boom.
Cleveland Sues 21 Lenders Over Subprime Mortgages, NYT, 12.1.2008,
Review of the year
From the sub-prime to the ridiculous:
how $100bn vanished
Mighty institutions and powerful figures undermined
little property deals
Monday December 31 2007
It began with low-income Americans being encouraged to borrow
mortgages they couldn't afford.
The economic butterfly effect would eventually cause deals worth billions of
dollars to fall apart; the first run on a British bank in 140 years; some of the
most powerful figures on Wall Street losing their jobs; wild gyrations on the
markets; and dire warnings that the world is on the brink of recession.
At the start of the year, stockmarkets were at six-year highs and £40bn worth of
mergers and takeovers were awaiting completion. Private equity firms and hedge
funds were gorging themselves on cheap money and a handful of secretive, hugely
wealthy individuals were becoming increasingly influential. But it was the
millions on more modest incomes who would ultimately shape the events of 2007.
As the US housing market cooled and interest rates rose, many on the bottom
rungs of the economic ladder found it difficult to meet their monthly mortgage
The first real concerns about sub-prime mortgages emerged at the end of
February, when Wall Street suffered its worst day since the terrorist attacks of
2001. By April one of the biggest sub-prime mortgage lenders in the US had gone
bankrupt and there was talk of a full-blown crisis. Credit more broadly began to
dry up as lenders became nervous.
Fear also spread as it became clear that much of the bad debt had been packaged
up and sold on around the world's financial system. Nobody, not even the banks
themselves, knew who owned the toxic debt.
Some otherwise arcane practices of the financial world such as collateralised
debt obligations and structured investment vehicles suddenly became everybody's
The flood of private equity money turned into a trickle as it became more
difficult to borrow, derailing deals including an attempt to buy J Sainsbury
and, at the close of the year, an attempt by Lord Harris to take Carpetright
private. Hedge funds too, which rely on leveraging their funds, have had their
The credit crunch was behind the biggest story of the year, Northern Rock. It
emerged in September that the bank had been forced to apply to the Bank of
England for emergency funds as liquidity had dried up in the market. Savers were
told not to panic. But they did anyway. The next day, there were long lines of
people threading through high streets across Britain, hoping to retrieve their
The scenes triggered a postmortem into how a major bank - the fifth biggest
provider of mortgages in the country - could reach the brink of collapse without
any apparent action to prevent it from going under.
The inquest has so far given us the phrase "moral hazard" from the governor of
the Bank of England, Mervyn King, who believed it was outside his remit to
rescue a bank that had got into difficulties through risky borrowing on
international money markets. It has also given us the sight of MPs from the
Treasury select committee grappling to discover who from the much lauded
tripartite structure of regulation for the UK financial system - the Bank of
England, the Treasury and the Financial Services Authority - was to blame for
But it has not given us any definitive answers save that Northern Rock should
not have risked so much on such a finely calibrated business model and should
have seen it coming.
King came under pressure to quit but no one from the tripartite system has
fallen on their sword. Even the architect of the business model, Northern Rock's
chief executive Adam Applegarth, hung on until the middle of November when he
The stricken bank has received £25bn of taxpayers' cash. There are still two
potential bidders - Sir Richard Branson's Virgin and the Olivant vehicle led by
former Abbey National boss Luqman Arnold. Other options include nationalisation
or a carve-up among high street banks.
As the mortgage crisis spread, Wall Street bosses began dropping like neatly
lined-up dominoes. Stan O'Neal was forced out at Merrill Lynch and Charles
Prince was ousted from the world's largest banking group, Citigroup. The most
powerful woman on Wall Street, Zoe Cruz, lost her job at Morgan Stanley when the
bank recorded losses of $3.7bn. Another Wall Street bank, Bear Stearns, suffered
the first loss in its 84-year history.
The numbers just kept getting bigger. This month the Swiss bank UBS wrote off a
further $10bn of sub-prime loans, on top of $3.4bn already announced. Two days
later the Bank of England joined other central banks in pouring £50bn into the
financial markets in the hope of staving off a meltdown. A succession of Wall
Street banks have turned to sovereign funds in China, Singapore and the Middle
East for injections of cash. The unravelling of events has been a stunning
example of how interdependent the world economy has become.
Confidence appears to be ebbing. Retailers in Britain were forced to slash
prices before Christmas to shift stock. According to the Royal Institute of
Chartered Surveyors, house prices in Britain are falling at their fastest rate
in two years. The outlook for jobs is the worst for a decade. Jon Hunt, who sold
the estate agency Foxtons in April, may, it turns out, have called the top of
The oil price reaches its peak just short of $100 a barrel (November 21)
The pound hits $2 for the first time since 1992 (April 16)
Price HSBC receives selling its headquarters in Canary Wharf (April 30)
Ben Bernanke's estimate of total sub-prime losses (July 19)
From the sub-prime to
the ridiculous: how $100bn vanished, G, 31.12.2007,
city in suburbs
is cost of home crisis
Fri Dec 21,
By Dana Ford
California (Reuters) - Between railroad tracks and beneath the roar of departing
planes sits "tent city," a terminus for homeless people. It is not, as might be
expected, in a blighted city center, but in the once-booming suburbia of
The noisy, dusty camp sprang up in July with 20 residents and now numbers 200
people, including several children, growing as this region east of Los Angeles
has been hit by the U.S. housing crisis.
The unraveling of the region known as the Inland Empire reads like a 21st
century version of "The Grapes of Wrath," John Steinbeck's novel about families
driven from their lands by the Great Depression.
As more families throw in the towel and head to foreclosure here and across the
nation, the social costs of collapse are adding up in the form of higher rates
of homelessness, crime and even disease.
While no current residents claim to be victims of foreclosure, all agree that
tent city is a symptom of the wider economic downturn. And it's just a matter of
time before foreclosed families end up at tent city, local housing experts say.
"They don't hit the streets immediately," said activist Jane Mercer. Most
families can find transitional housing in a motel or with friends before turning
to charity or the streets. "They only hit tent city when they really bottom
Steve, 50, who declined to give his last name, moved to tent city four months
ago. He gets social security payments, but cannot work and said rents are too
"House prices are going down, but the rentals are sky-high," said Steve. "If it
wasn't for here, I wouldn't have a place to go."
IN VACANT HOUSES'
Nationally, foreclosures are at an all-time high. Filings are up nearly 100
percent from a year ago, according to the data firm RealtyTrac. Officials say
that as many as half a million people could lose their homes as adjustable
mortgage rates rise over the next two years.
California ranks second in the nation for foreclosure filings -- one per 88
households last quarter. Within California, San Bernardino county in the Inland
Empire is worse -- one filing for every 43 households, according to RealtyTrac.
Maryanne Hernandez bought her dream house in San Bernardino in 2003 and now
risks losing it after falling four months behind on mortgage payments.
"It's not just us. It's all over," said Hernandez, who lives in a neighborhood
where most families are struggling to meet payments and many have lost their
She has noticed an increase in crime since the foreclosures started. Her house
was robbed, her kids' bikes were stolen and she worries about what type of
message empty houses send.
The pattern is cropping up in communities across the country, like Cleveland,
Ohio, where Mark Wiseman, director of the Cuyahoga County Foreclosure Prevention
Program, said there are entire blocks of homes in Cleveland where 60 or 70
percent of houses are boarded up.
"I don't think there are enough police to go after criminals holed up in those
houses, squatting or doing drug deals or whatever," Wiseman said.
"And it's not just a problem of a neighborhood filled with people squatting in
the vacant houses, it's the people left behind, who have to worry about people
taking siding off your home or breaking into your house while you're sleeping."
Health risks are also on the rise. All those empty swimming pools in
California's Inland Empire have become breeding grounds for mosquitoes, which
can transmit the sometimes deadly West Nile virus, Riverside County officials
But it is not just homeowners who are hit by the foreclosure wave. People who
rent now find themselves in a tighter, more expensive market as demand rises
from families who lost homes, said Jean Beil, senior vice president for programs
and services at Catholic Charities USA.
"Folks who would have been in a house before are now in an apartment and folks
that would have been in an apartment, now can't afford it," said Beil. "It has a
For cities, foreclosures can trigger a range of short-term costs, like added
policing, inspection and code enforcement. These expenses can be significant,
said Lt. Scott Patterson with the San Bernardino Police Department, but the
larger concern is that vacant properties lower home values and in the long-run,
decrease tax revenues.
And it all comes at a time when municipalities are ill-equipped to respond. High
foreclosure rates and declining home values are sapping property tax revenues, a
key source of local funding to tackle such problems.
Earlier this month, U.S. President George W. Bush rolled out a plan to slow
foreclosures by freezing the interest rates on some loans. But for many in these
parts, the intervention is too little and too late.
Ken Sawa, CEO of Catholic Charities in San Bernardino and Riverside counties,
said his organization is overwhelmed and ill-equipped to handle the volume of
people seeking help.
"We feel helpless," said Sawa. "Obviously, it's a local problem because it's in
our backyard, but the solution is not local."
(Additional reporting by Andrea Hopkins in Ohio;
Editing by Mary Milliken and
Tent city in suburbs is cost of home crisis, R,
American Dream in Reverse
The New York Times
first time since the Carter administration, homeownership in the United States
is set to decline over a president’s tenure. When President Bush took office in
2001, homeownership stood at 67.6 percent. It rose as the mortgage bubble
inflated but is projected to fall to 67 percent by early 2009, which would come
to 700,000 fewer homeowners than when Mr. Bush started. The decline, calculated
by Moody’s Economy.com, is inexorable unless the government launches a heroic
effort to help hundreds of thousands of defaulting borrowers stay in their
These days, modest relief efforts are in short supply, let alone heroic ones.
Some officials seem to think that assistance would violate the tenet of personal
responsibility that borrowers should not take out loans they cannot afford. That
The foreclosure crisis is rooted in reckless — and shamefully underregulated —
mortgage lending. Many homeowners — mainly subprime borrowers with low incomes
and poor credit — are now stuck in adjustable-rate loans that have become
unaffordable as monthly payments have spiked upward. Their predicament is not
entirely of their own making, and even if it were they would need to be bailed
out because mass foreclosures would wreak unacceptable damage on the economic
and social life of the nation.
The relief efforts so far have been too little, too late. In August, the White
House established a program to allow an additional 80,000 borrowers to refinance
their loans through the Federal Housing Administration — on top of 160,000 who
were already eligible. That’s not enough. Foreclosure filings soared to nearly
244,000 in August alone.
Federal regulators and Treasury officials are urging mortgage lenders and
mortgage servicers to do their utmost to modify loan terms for at-risk
borrowers, but saying “please” hasn’t worked. To be effective, modifications
must reduce a loan’s interest rate or balance or extend its term, or some
combination of the three. Gretchen Morgenson reported recently in The Times that
a survey of 16 top subprime servicers by Moody’s Investors Service found that in
the first half of the year, modifications were made to an average of only 1
percent of loans on which monthly payments had increased.
What’s missing is executive leadership to bring together many players, including
lenders, servicers, bankers and various investors. All of them are affected
differently depending on whether and how a borrower is rescued, which makes it
difficult to agree on a rescue plan. But all of them also made megaprofits
during the mortgage bubble. Under firm leadership, they could come up with a way
to modify many loans that are now at risk.
Democratic Congressional leaders have called on the Bush administration to
appoint one senior official to lead a foreclosure relief effort. The White House
dismissed the idea, saying, in effect, that it’s doing enough.
Congress should move forward on other remedies. The most important is to mend an
egregious flaw in the current bankruptcy law that prohibits the courts from
modifying repayment terms of most mortgages on a primary home. Two bills, one in
the House and one in the Senate, would treat a mortgage like other secured debt,
allowing a bankruptcy court to restructure it so that it’s affordable for the
borrower. That would give defaulting homeowners and their advocates much needed
leverage in dealing with lenders and servicers. Creditors would presumably
prefer to cut a deal with a borrower rather than be subject to the decision of a
The administration and Congress should work to avoid mass foreclosures.
Meanwhile, bankruptcy reform would give borrowers a shot at keeping their homes.
The American Dream in Reverse, NYT, 8.10.2007,
as UK bank chaos grows
warns of sharp downturn
· Tory leader attacks Brown over crisis
September 16, 2007
and Lisa Bachelor
house price growth will be halved next year as the global financial crisis
exacerbates the impact of rising mortgage rates, according to Nationwide, the
biggest mortgage lender.
dramatic bail-out of high street bank Northern Rock underlined the impact of the
American 'sub-prime' mortgage crisis on Britain's financial sector, Fionnuala
Earley, Nationwide's group economist, said she expected house price inflation to
slow to around 3 per cent next year.
Thousands of anxious customers queued outside Northern Rock branches for a
second day yesterday, ignoring calls for calm from the Chancellor, Alistair
Darling, and the bank's management, and sparking fears of a full-blown 'run' on
Channel 4 News last night, Darling said he had been assured by the Financial
Services Authority that Northern Rock was capable of meeting its financial
obligations to its customers.
first signs of political fallout from the crisis, David Cameron accused Gordon
Brown of failing to rein in public and private borrowing over the last decade,
saying the nation's economic growth is based on a 'mountain of debt'. Writing in
today's Sunday Telegraph, the Tory leader says: 'This government has presided
over a huge expansion of public and private debt without showing awareness of
the risks involved.
'Though the current crisis may have had its trigger in the United States...
under Labour our economic growth has been built on a mountain of debt.'
House price growth was running at just below 10 per cent in August, but
Nationwide believes it will have dropped to 7 per cent by December and continue
slowing throughout next year.
The worldwide credit crunch that pushed Northern Rock to the brink of collapse
could make a housing market slowdown worse, Earley warned. 'I think all it can
do is make it [the market] cooler: that comes through sentiment, and through
With base interest rates at a six-year high of 5.75 per cent, economists said
that the feelgood factor was already evaporating and that the Northern Rock
crisis could deal a fresh blow to confidence.
'This confirms some of the fears that people had, and reinforces the idea that
they need to be more circumspect, and that money is tighter,' said Richard
Hyman, director of retail research firm Verdict.
'It couldn't have come at a worse time: consumer confidence was already heading
south,' said Kevin Hawkins, director general of the British Retail Consortium,
though he added that, as long as Northern Rock was the only casualty, the
effects could be short-lived.
A report from property website Rightmove, released on Friday, showed that
property prices fell in the last month for the first time in three years. It is
expected that, although there will be overall growth in the housing market, some
areas of the UK could suffer significant price decline.
Meanwhile, Northern Rock apologised to customers last night, saying it was
'disappointed to see uncertainty caused'. The apology came amid growing
speculation of a takeover bid, with HSBC and Lloyds TSB both being mooted as
potential suitors. Insiders are predicting that a takeover could occur within
weeks to secure the bank's future. One plan currently being looked at by City
bankers is to divide the company's £100 billion mortgage portfolio between some
of the major banks.
Savers have been rushing to pull out their cash since it emerged last Thursday
that Darling had sanctioned an emergency loan from the Bank of England to
prevent Northern Rock going bust.
One couple had even camped outside Northern Rock's Cheltenham branch in
Gloucestershire overnight, desperate to withdraw the £1m proceeds of a house
sale. 'We were told that because our money was in an online account we wouldn't
be able to withdraw it there and then,' said Fiona Howard. 'That money is our
lifeline, as we are living in rented accommodation at present.'
'Housing boom over' as UK bank chaos grows,
Credit and Hopes
March 28, 2007
The New York Times
By KAREEM FAHIM
and RON NIXON
NEWARK — After Franklin Abazie
fell behind on his mortgage last year, he tucked one of his foreclosure notices,
still in its ripped envelope, into the visor of his car — a looming reminder of
why he had to take a second job.
Rashid and Yvonne Moore, a middle-aged couple whose lenders are threatening
foreclosure because they have fallen behind on their mortgage payments, have
begun thinking the unthinkable: moving in with his parents.
For Quintin Fields, it may take a miracle to keep his house; he owes nearly as
much in late payments as he will earn all year.
“Everything is closing in on me right now,” Mr. Fields said.
Broad swaths of Newark are groaning under the weight of mortgage debt, much of
it accumulated in the building boom of recent years that has transformed some
parts of the city with gleaming redevelopment.
But in many of these neighborhoods, a heavy mortgage debt has led thousands of
residents — many of them first-time homebuyers — close to financial ruin,
experts and local officials say. According to recent census figures, more than
40 percent of Newark homeowners spend more than half their income on housing,
one of the highest percentages in the New York metropolitan region and among the
highest in the country.
In small ways and large, that debt is forcing thousands of people here to change
their lives. Many have taken second jobs. Others are selling off prized
possessions. Some have had to rent out rooms. And more than a few have
surrendered to the inevitability of losing their homes to foreclosure.
Driving the high mortgage debt and the boom in home sales here, and around the
country, has been the proliferation of mortgages that have made it possible for
people with poor credit, scant savings and modest incomes to buy homes. Among
these are subprime loans, which are easier to obtain than prime rate loans but
come with an added burden: much higher interest rates. In many cases, financial
institutions lent to people without verifying whether their incomes could
support the monthly payments.
Federal lending data show that a high percentage of mortgages for homes on the
north, south and west sides of Newark — as much as 50 percent in some
neighborhoods — are subprime loans. And a national study by the Center for
Responsible Lending, a nonpartisan research group based in North Carolina,
predicts that more than 18 percent of the people holding those loans will go
into foreclosure in the next three to four years.
The tales of financially beleaguered Newark are not only about subprime loans.
Unforeseen financial problems, misunderstandings about complex mortgage
transactions and poor money management have been major factors in bringing some
first-time homeowners to the brink of foreclosure.
And the situation mirrors conditions in large urban areas across the country and
around the metropolitan region. Neighborhoods in Queens, the Bronx and Brooklyn
also have large concentrations of subprime loans, which are at high risk of
foreclosure, according to Home Mortgage Disclosure Act data examined by The New
York Times. The study by the Center for Responsible Lending predicts that nearly
22 percent of the subprime loans in the New York area made in 2006 will go into
foreclosure in the next few years, one of the highest rates in the nation. And
in suburban counties like Nassau, Orange and Putnam, the percentage of
households spending at least 50 percent of income on housing has been rising.
While the overall number of foreclosures nationwide remains low — in New Jersey,
it is less than 2 percent of all outstanding mortgages — it masks the reality of
conditions in lower-income, heavily minority neighborhoods like Mr. Abazie’s,
where multicolored “Avoid Foreclosure” and “Sell Your House” signs seem to
decorate most of the lampposts.
Nearly 250 homes within one mile of Mr. Abazie’s home in Newark’s South Ward
have been in some form of foreclosure in the past six years, according to sales
data from the Essex County Sheriff’s Department analyzed by The Times. In that
time, more than 4,000 homes in the city have gone into foreclosure, according to
Malcolm Bush, president of the Woodstock Institute, a national research group
that studies mortgage lending in poor neighborhoods, said that widespread
foreclosures in an area can depress already low housing prices, making it harder
for others in that area to get loans or refinance. And those troubles can
afflict an entire community.
“This has wider social implications,” Mr. Bush said. “It appears that things are
going to get worse.”
Too Big a Loan
Newark’s long-impoverished, overwhelmingly black South Ward is still recovering
in some ways from the exodus of residents and commerce after the 1967 riots. On
many blocks, there is a shortage of sidewalks, an abundance of weedy lots and
drug dealers who openly ply their trade.
But parts of the South Ward are also hotbeds of development, filled with new
multifamily homes with driveways or garages. Many have “For Rent” signs posted
in their front windows.
This is where Mr. Abazie and his wife, Beryl, live. Mr. Abazie, 28, grew up in
Nigeria and moved to the United States 10 years ago for work and college. After
they were married last year, the couple decided to leave the apartment life
behind, buy a home and start a family.
Through a friend, they found a broker and a three-year-old two-family home on
Schley Street. With good credit and some savings, Mr. Abazie, a night security
guard, thought he could obtain a low-interest loan insured by the Federal
But after two lenders told him he did not qualify for such a loan, he settled
for something less: a $325,000 subprime mortgage from Wall Street Financial. It
was actually two loans, with an 8.5 percent interest rate on the larger one and
a 12.2 percent rate on the smaller one. His monthly payments are now more than
Earning about $2,000 a month on his salary, he quickly fell behind. At first, he
had assumed that he could find a tenant to help offset the cost of the mortgage,
but soon discovered his neighborhood had a glut of vacant apartments. So last
fall, he took a second job working nights helping mental patients at a state
In December, his wife gave birth to their first child, a son. But because they
were still straining to pay their bills, she returned to work part time this
month, at a home for the elderly.
Last month, they found a tenant, who pays $400 a month, far short of the $1,200
rent they had thought they could charge. They have fallen more than $3,500
behind on their mortgage payments. In November, they received their first
Mr. Abazie has thought about selling the house — he even took a real estate
class — but would almost certainly lose money. For now, he is hoping he can
refinance his loan; but rates are not getting better and his credit record is
only getting worse.
They continue to trim the family budget and have stopped sending monthly checks
of several hundred dollars to his parents and siblings in Nigeria. Not wanting
to field his relatives’ plaintive calls, he changed his cellphone number last
“I’m in a really tough corner,” he said. “I just do not feel happy talking about
my current challenges.”
A Single Mother Struggles
For Michelle Pitt, subprime loans were not the problem. But she, too, has found
herself swimming in debt that is jeopardizing her ability to keep her home.
Ms. Pitt, a 39-year-old single mother of four, bought her two-family house from
a local nonprofit group, Episcopal Community Development, in 1999. The house
sits on a hill in the South Ward and rattles constantly with the sound of
Interstate 78, the highway next door. Still, it was a good deal, selling for
$105,000 under a subsidized housing program.
Ms. Pitt, a first-time home buyer, got a mortgage with a relatively good
interest rate of 7.5 percent. And at the time, she was earning decent salaries
from two jobs, as a flight attendant for Spirit Airlines and as a dental
assistant in state prisons.
Over the next few years, she was laid off by the prison and stopped working at
Spirit when the company moved some of its New York operations to Florida. Since
then, she has held temporary jobs, most recently as a part-time orthodontist’s
“I stopped flying and everything started happening,” she said.
She made $25,000 last year, plus child support — just enough to pay her monthly
mortgage payments of $1,324 on time. She lives paycheck to paycheck, while
scrimping on the extras her family used to take for granted. Dinners out,
movies, clothes, shopping trips and visits to the hair salon have become rare
luxuries. An annual summer ritual, a vacation in the Poconos, has become out of
Worried that a late delivery of her paycheck will mean no groceries, Ms. Pitt
often makes the 30-minute drive to her temp agency to collect it in person. She
owes several thousand dollars on her credit cards, and recently canceled most of
them to avoid falling deeper into debt.
Ms. Pitt notices the foreclosures in the neighborhood, the boarded-up houses on
the drive to her children’s schools. She loves this house: its staircase lined
with framed pictures of the children, the backyard deck, the kitchen where the
family gathers for breakfast each morning. It represents something solid and
permanent, something she wants her children, ages 1, 13 and 14, to experience.
(She has a 23-year-old son who does not live with her.)
To keep it all, she is thinking of selling her house and moving to the Poconos.
“It’s all about giving them something I never had,” she said.
A Dream Goes Wrong
For Quintin Fields, buying a home in Newark was less about finding a place to
live and more about trying to find opportunity in the city’s housing boom. It is
an opportunity he now wishes he had passed up.
Almost two years ago, Mr. Fields, who lives with his wife in a Harlem apartment,
bought a three-family home from his half brother in Newark’s West Ward, on a
street sandwiched between two cemeteries.
Mr. Fields, 46, a caseworker at a residential program for troubled teenage boys
in East Orange, thought he might turn the house into a residence for troubled
young adults. But he was also enticed by the idea, suggested by his half
brother, that buying the building could repair Mr. Fields’s poor credit record
and that selling it might someday make him some money.
A first-time home buyer with an annual income of about $36,000 and almost no
savings, Mr. Fields did not qualify for a prime loan for the $315,000 house. So
his half brother arranged a 15-year mortgage from WMC Mortgage Company, a
subprime division of General Electric, and another from the Option One Mortgage
Company, the subprime group of H & R Block.
The $2,312 monthly payments were much more than he could afford, but Mr. Fields
said his brother assured him that they could find tenants. They did, but then
lost them. Last July, without the rental income, his brother, who was managing
the property, stopped paying the lenders. Mr. Fields now owes almost $30,000 in
delinquent payments and has fallen out with his half brother.
He has received multiple foreclosure notices. With no savings, and with an even
worse credit record than before, he has been frantically filling out grant
applications, hoping to salvage his plans.
“It’s just sad,” said Mr. Fields, whose wife is expecting their first child this
summer. “I can’t even borrow money.”
Starting Over, Finding Trouble
The case of the Moores suggests that low-income people are not the only ones who
have gotten into trouble with subprime loans.
Mr. Moore, 53, comes from Newark’s South Ward, and met his wife in the 1970s,
when they were both in high school.
They dated then, but split apart as Mr. Moore battled drug addiction. Over the
years, they both were married to, and then divorced from, other people. He
worked as a longshoreman in the Port of Newark, a job he still holds today. Mrs.
Moore, now 50, moved away after high school, living in Manhattan, Paris and
When they found each other again three years ago through mutual friends, they
had seven children between them. They were married, and after a lifetime of
rented apartments, decided it was time to buy their own home.
A year and a half ago, they found it: a large one-family house, for $310,000 on
a street of well-kept Victorians in the South Ward neighborhood of Clinton Hill.
With six bedrooms, it was a place to bring their family together, a reward for a
middle-aged couple who had bumped around in life.
Though he refused to reveal his salary, Mr. Moore said that a longshoreman with
his experience can make $29 an hour, and more with overtime. It was enough, they
assumed, to get a good interest rate.
But Mr. Moore’s credit “wasn’t the greatest,” he said: He had had problems,
including difficulties with a car lease and a federal tax lien. After scraping
together a few thousand dollars for closing costs, he and his wife had no money
left for a down payment. So they got a two-part loan, similar to Mr. Abazie’s,
with the smaller part carrying a 10 percent interest rate. Their monthly
payments total almost $2,600.
They thought they could handle that. But work dropped off at the port for Mr.
Moore, and a job that Mrs. Moore thought she would get with Mayor Cory A.
Booker’s administration never materialized.
Soon, the mortgage payments began squeezing them. Electric and telephone bills
became harder to pay; recently his cellphone was turned off for late payments.
Mrs. Moore has started suggesting that they sell the house and move in with his
elderly parents, who have a large home in Newark.
He rejected the idea, but is now pondering selling some of his prized
possessions, including his collection of expensive bicycles and perhaps one of
his Fender bass guitars.
“I need to make some moves,” Mr. Moore said. “I need to keep this house.”
The moves may have to come fast. They fell three months behind on their mortgage
and started receiving foreclosure letters from their two lenders. They staved
off further action by negotiating an agreement to add the $10,000 they owed to
But they were just able to scrape together the March payment, delivering it two
weeks late. Their phone now rings constantly with calls from companies offering
ways out of their debt. Mrs. Moore talks to them, hoping one will offer the
Last week, a man delivered a court summons for a foreclosure proceeding. Mrs.
Moore became so upset she threw the unopened envelope onto the street. After
frantic calls to their lenders, they bought some additional time.
“I’m not used to not knowing what to do,” Mr. Moore said. “I’m not happy about
it, but I’m determined to overcome this.”
Margot Williams contributed reporting.
Behind Foreclosures, Ruined Credit
Related > Anglonautes >
USA > race relations > housing segregation / discrimination
economy, money, taxes,
housing market, shopping,
jobs, unemployment, unions, retirement,
industry, energy, commodities
The Guardian > House prices