Subscribe to Dollars & Sense magazine. Recent articles related to the financial crisis. What to Do About Housing Foreclosures?Dollars & Sense and the Boston chapter of Democratic Socialists of America are co-sponsoring a forum on the housing foreclosure crisis, on Wednesday, March 3, 2010, in Boston. We hope to see our Boston-area friends and supporters there! Here are the details:We are facing a crisis of housing foreclosures in Massachusetts. In November 2009 alone, there were 76% more foreclosures than in the same month a year ago. This wave of foreclosures is decimating whole communities, leaving buildings empty and people without homes. Big banks get bailed out, but our government has done little to help working people tricked into bad loans, who are now losing their homes to foreclosure. Is this fair? Our forum will look at the way the greedy and unethical actions of the big financial institutions help caused the global economic crisis, of which the foreclosure crisis is only a part. We will learn about efforts to pass legislation to help people facing foreclosure, as well as the way people are organizing in their communities to help themselves. And we will learn what we can do to help! Speakers: Grace Ross – Former Green Party gubernatorial candidate, now challenging Gov. Patrick in the Democratic Party Primary. Currently a staffer for the Massachusetts Alliance Against Predatory Lending (MAAPL), and author of the forthcoming book, "Main Street Smarts: Who got us into this economic mess and how we get through it." Melonie Griffiths – Tenant and Economy Project Organizer for City Life/Vida Urbana, the Jamaica Plain-based social justice organization which has been organizing community members to resist evictions and save their homes. Senator Sonia Chang-Diaz (D-Boston) – Co-sponsor of SB1609, one of the MAAPL-supported bills, which would protect tenants from eviction in foreclosed properties. Wednesday, March 3, 2010, 7:00 P.M., at Encuentro 5, 33 Harrison Ave., 5th floor, Chinatown (Boston). For directions to 33 Harrison Ave., visit www.encuentro5.org Labels: affordable housing, Democratic Socialists of America, foreclosures, housing crisis Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Underwater, But Will They Leave the Pool?Some remarkable honesty about the class (although of course without using that term) dynamics of capitalism showed up in Saturday’s NY Times, in a piece by Richard Thaler about mortgage defaults:Much has been said about the high rate of home foreclosures, but the most interesting question may be this: Why is the mortgage default rate so low?Read the rest here. An interesting detail from the piece is that in a number of states mortgages are “nonrecourse” by law, meaning the lender is entitled to the house but nothing else in case a borrower defaults. So borrowers in those states basically have the right to walk away, a right for which they pay an estimated $800 extra in closing costs per $100,000 borrowed. Labels: Brent White, foreclosures, mortgage banking, mortgage default, New York Times, Richard Thaler, underwater mortgages Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Housing Meltdown, Ground Zero (Andy Kroll)The latest from TomDispatch. Here's Tom's introduction to the article:Talk about a devastated landscape... Any which way you look, the housing numbers are relentlessly bad. For example, 23% of U.S. homeowners owe more on their mortgages than their properties are worth, according to Ruth Simon and James R. Hagerty of the Wall Street Journal. They possess, in the vivid lingo of the housing industry, "underwater mortgages." Among them, 5.3 million households have mortgages that are at least 20% higher than their home's value, 520,000 of whom have already received default notices. In the meantime, home-loan delinquencies and home repossessions are now at record highs. According to E. Scott Reckard of the Los Angeles Times, by the end of September, "one in seven U.S. home loans was past due or in foreclosure," and the chief economist for the Mortgage Bankers Association expects the number of foreclosures to keep rising deep into 2010. And here's the beginning of the article: Housing Meltdown, Ground Zero Read the rest of the article. Labels: Andy Kroll, foreclosures, housing crisis, NACA, TomDispatch.com Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Two Items on ForeclosuresThe New York Times business section has an interesting article about the limited success of the "Making Home Affordable Program," which was intended to encourage (but not require!) banks to work with homeowners on facing foreclosure to lower their monthly payments. (The copy of the Times that arrived on my doorstep gave this headline to the article: "In Trial Phase, Mortgage Bills Fall for 500,000." The online version of the article has the cheerier "Treasury Hails Milestone in Home Loan Modifications.")The upshot: half a million families have gotten loan modifications, though they often faced "bureaucratic bungling, ceaseless frustration and confusion." This is only 40% of the 1.2 million eligible. And some companies have been better than others about modifying the mortgages. Wells Fargo and BoA have only modified 62,989 and 94,918, respectively, which is only 20% and 11% of those companies eligible mortgages, respectively. Bad BoA! Bad WF! (Has anyone heard anything good about these companies lately? Oh yeah, Ken Lewis resigned.) Still, "economists said the program was still not big enough to prevent many millions of Americans from losing their homes before the books are closed on the Great Recession." Check out the full article. Meanwhile, Slate's blog The Big Money, is advising homeowners facing foreclosure to consider "strategic default," the fancy name for walking away from your mortgage (and your home). It's ok, they assure us. I'm having trouble disagreeing. Go Ahead, Walk Away Read the rest of the post. Labels: Bank of America, foreclosures, mortgage meltdown, Timothy Geithner, Wells Fargo Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Yves Smith: Banks Sitting on Bad MortgagesMore reason to view Case-Shiller data with caution: increased buying activity is only one side of the problem.Naked Capitalism Tuesday, August 25, 2009 Banks Sitting on Bad Mortgages, And They Aren't Getting Any Better Fitch released an analysis that shows that mortgage cure rates, meaning the proportion of borrowers who manage to get current once they fall behind, have tanked. From the Wall Street Journal: The report from Fitch Ratings Ltd., a credit-rating firm, focuses on a plunge in the "cure rate" for mortgages that were packaged into securities. The study excludes loans guaranteed by government-backed agencies as well as those that weren't bundled into securities. The cure rate is the portion of delinquent loans that return to current payment status each month. Fitch found that the cure rate for prime loans dropped to 6.6% as of July from an average of 45% for the years 2000 through 2006. For so-called Alt-A loans -- a category between prime and subprime that typically involves borrowers who don't fully document their income or assets -- the cure rate has fallen to 4.3% from 30.2. In the subprime category, the rate has declined to 5.3% from 19.4%. "The cure rates have really collapsed," said Roelof Slump, a managing director at Fitch. Because borrowers are less willing or able to catch up on payments, foreclosures are likely to remain a big problem. Barclays Capital projects the number of foreclosed homes for sale will peak at 1.15 million in mid-2010, up from an estimated 688,000 as of July 1. Ouch. On top of that, Greg Weston looked at the underlying New York Fed data for Fitch's comment, and found another sobering factiod, namely that banks are not foreclosing. The reason most often given is that the bank doesn't want to write the mortgage down even further (we've heard it bandied about for loss severities is 60% and Weston had a chart that shows it is worse for subprime, at 70%with Alt-As not as bad at 50%), so 60% is a representative level) but another reason is that if the bank does not take possession, the taxes are still the owner's responsibility. Read the rest of the post Labels: financial crisis, foreclosures, housing market, mortgage cure rates, Naked Capitalism, Yves Smith Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Yves Smith on "Mortgage Armageddon"Yves Smith summarizes Frank Veneroso's views on why recovery in the mortgage market (and, presumably, for the rest of the economy) will be so very difficult.Sunday, August 16, 2009 Guest Post: Frank Veneroso on Mortgage Armageddon Frank Veneroso was kind enough to write as a result of seeing a guest post "Debtor's Revolt?" by his colleague Marshall Auerback. Veneroso also provided his latest newsletter and gave us permission to post it. It it pretty long (12 pages), I extracted the executive summary and other key bits. Be sure to read the final section, starting with the boldface heading "Why Resolving The Mortgage Armageddon Problem Will Be So Difficult:." (Enjoy!) From Frank Veneroso: 1. Deutsche Bank now predicts that 48% of all mortgaged American homeowners will be "under water" by 2011. 2. One might assume that means that the aggregate loan-to-value ratio of all mortgaged households will be a little less than 100%. 3. I have been focusing first and foremost on the aggregate loan-to-value ratio of all households with mortgages rather than the number of mortgaged homeowners who will eventually be underwater. 4. I calculated that, on mean reversion in house prices, this aggregate loan-to-value ratio would rise to 120% to 125%--a lot worse than what the Deutsche Bank analysis seems to imply. So I studied their analysis to ascertain why I went wrong or why they went wrong. 5. Though their analysis has a somewhat different objective and employs a different methodology, their analysis in fact comes to almost exactly the same conclusion as I have reached: when one focuses not on the share of all homeowners who will be underwater but the aggregate of mortgaged home values that will be under water, on mean reversion in home prices the aggregate loan-to-value ratio will probably be north of 120%. Here is why. 6. Deutsche Bank admits that their data on total mortgage debt is incomplete. Using more complete mortgage data the percent of homeowners under water would be higher and the implied aggregate LTV might be closer to 110% than 100%. 7. Also there is skewing. Those who are underwater have negative equities that exceed in value the positive equities of those who are not underwater 8 There is skewing on more than one account. Because the highest shares of those underwater are in the regions with the highest home values and the greatest percentage home price declines the overall skewing might be very great. And this skewing increases as home prices fall further to the Case Shiller mean. 9. When one factors in this skewing the aggregate loan-to-value ratio of all mortgaged homeowners based on the Deutsche Bank analysis probably rises to 120% or more Read the rest of the post Labels: Deutsche Bank, foreclosures, Frank Veneroso, mortgage banking, mortgage meltdown, Yves Smith Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). US Indicators: Retail Sales, ForeclosuresFrom Bloomberg:Retail Sales From Reuters: Foreclosures Labels: economic indicators, financial crisis, foreclosures, housing market, retail sales Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Today's Indicator ActionFrom Bloomberg:Fed meeting and Treasury purchases decision US Trade deficit Home prices Labels: balance of trade, economic indicators, Federal Reserve, financial crisis, foreclosures, monetary pilicy, real estate market Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Delasantellis on Foreclosed Home SalesThe Asia Times columnist sees a new breed of buyer--one that will buy-to-rent, and be financed by, of all things, debt! And don't forget to click on the link to the award-winning photo of the foreclosed property at the end of the article.August 12, 2009 Credit still at the wheel By Julian Delasantellis Asia Times In 1977, the Swedish pop band Abba sang Knowing Me, Knowing You, a lover's lament over once-vibrant rooms and a home now being vacated by passion's demise. These old familiar rooms, children would play, Now there's only emptiness--nothing to say. Walking through and empty house, tears in my eyes Here is where the story ends--this is goodbye. But that's probably not where the story ends--at least if the break-up took place in the United States. It's a lot more likely that it concludes at one of the thousands of court-adjudicated distressed home and property auction sales going on all across America, like the one I recently attended outside Seattle. Before the deluge, before the CDOs and the CDSs, before AIG and Lehman Brothers, and the TALF and the TARP, were the homeowners who borrowed and bought more house than they could afford. The nightmare that their American dream turned into was the match that lit the powder keg of an overleveraged world. According to Realtytrac, a real estate statistical service, 2.5 million American homes entered the foreclosure process in 2008, a number that had tripled just since 2005. For the first six months of 2009, foreclosures are running 15% ahead of last year's record, a torrid pace. In 1942, Austrian economist Joseph Schumpeter, in his book Capitalism, Socialism and Democracy, extolled capitalism's virtue in regularly promoting what he called "creative destruction", that is, the ability to build new, successful capitalist enterprises on the wreckage of those that have failed. In many ways here, the auction struck me as a celebration the "creative destruction" of about 80 families' dreams of a better life. Read the rest of the article Labels: bailout, financial crisis, foreclosures, Julian delasantellis, mortgage banking, mortgage meltdown Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Few Homeowners Getting HelpOnly a tiny fraction of homeowners at risk for default on their mortgages have sought or received help as a result of the government's recent plan. Most of the modifications that have resulted have been adjustments to payments and interest rates, rather than to principle.From the Washington Post: Less than 10 percent of delinquent borrowers eligible for the Obama administration's $75 billion foreclosure prevention program have received help so far, according to Treasury Department estimates released Tuesday morning, showing that the effort has been carried out unevenly throughout the industry. Labels: foreclosures, Mortgage plan, underwater mortgages Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Foreclosures Up 15% In 2009This is hardly surprising. One out of every five homeowners owe more than their houses are worth. The real unemployment rate is over 16% and climbing. And banks are refusing to refinance sour loans, even with $50 billion from the Obama Administration. You can't unpop a bubble.From the wires: The number of U.S. households on the verge of losing their homes soared by nearly 15 percent in the first half of the year as more people lost their jobs and were unable to pay their monthly mortgage bills. --d.f. Labels: Daniel Fireside, foreclosures, homeownership, real estate market Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Senators Block Cram DownsThe US Senate voted down the "cram down" legislation that would have given bankruptcy judges temporary authority to write down the value of mortgages. Responding to the behest of the banking industry (recipient of hundreds of billions in taxpayer dollars) Republican senators and a dozen or so like-minded Democrats shot the bill down, even though a stronger bill had earlier passed through the House.Bankruptcy judges currently have the authority to rewrite the terms of mortgages on second homes and yachts, but not for primary residences. The failed bill would have given judges the authority to rewrite mortgages to reflect current home values, albeit with significant caveats: banks must have refused to make fair offers to renegotiate loans, future profits on the home (if the owner sold in a rising market) would have been split with the banks, and the authority would have expired in 2012. Advocates had argued that this was a critical element of any housing recovery plan in the face of plummeting home prices and unprecedented foreclosures and abandoned properties. They also argued that banks had to accept responsibility for making huge profits on bad loans for overvalued properties. --d.f. Labels: cram down, Daniel Fireside, foreclosures, mortgage meltdown, Mortgage plan Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). California Housing Defaults SkyrocketAfter a brief lull, California's housing market has resumed its downward spiral. According to the Silicon Valley Mercury News, the number of default notices sent by lenders to property owners jumped 80% in the first three months of 2009 versus the last three months of 2008. Default is the first step in the foreclosure process.There were nearly 80,000 foreclosures in the third quarter of 2008 before dropping to 46,183 and 43,620 for the following two quarters, respectively, due to temporary changes in foreclosure policies that have now come to an end. Foreclosed properties now account for 58.1% of all resales in California this year. --d.f. Labels: California, Daniel Fireside, foreclosures, housing bubble, housing market Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Skyrocketing ForeclosuresBanks have ended their voluntary halts on foreclosures, sending foreclosure rates skyrocketing 24% in the first three months of 2009.From the wires: Nationwide, nearly 804,000 homes received at least one foreclosure-related notice from January through March, up from about 650,000 in the same time period a year earlier, according to RealtyTrac Inc., a foreclosure listing firm. During the quarter, Ohio was the state with the seventh highest number of homes seeing foreclosure activity with about 31,600 receiving at least one filing, up 1 percent from a year earlier. Labels: banking system, financial crisis bailout, foreclosures Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Foreclosure Crisis Far from OverHat-tip to The Automatic Earth blog for this tidbit, from a recent investment fund memo. Although a majority of subprime mortgages have already seen their rates reset, there are a slew of other adjustable rate mortgages that are not technically subprime but that are likely to produce a huge new wave of foreclosures when their interest rates reset in 2010 and 2011.A broader profile of mortgage resets is presented below (though even this chart does not include the full range of adjustable mortgage products).The whole memo is well worth reading. Labels: ARMs, foreclosures, Hussman Funds, subprime crisis, The Automatic Earth blog Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Renters Hit Hard In Foreclosure CrisisRenters make up 40% of the people facing eviction because of foreclosure. Banks don't care if the tenants have a lease or have been paying on time, they just want the buildings to be emptied out.While this might have made some sense during boom years, it is a terrible deal for everyone in a bust. Vacant buildings are targets of vandals, so the buildings can lose almost all their value. Vacant properties are a blight on surrounding properties, sinking the property values and social wealth of entire neighborhoods. Worst off are the tenants. They often receive threatening letters from banks and lenders with only days or a few weeks notice. The paltry sums offered by the banks rarely covers lost security deposits, moving expenses, or the substantial costs of moving into a new place. The Obama housing plan skipped over the issue. Activist groups like Boston's City Life/Vida Urbana and legal aid organizations are organizing tenants and fighting back, but it will take government action and new laws and tough enforcement to change the equation. Check out the article Renters in the Crosshairs in the latest Dollars & Sense. Labels: eviction, foreclosures, homeownership, Renters Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Anatomy Of a Foreclosure In ClevelandThere's a fantastic site detailing the foreclosure crisis in Cleveland (with the straightforward name of Foreclosing Cleveland). They have a wonderfully depressing story detailing the varied interests involved in the foreclosure of one particular home. The result says a lot about how we got into this mess.From the site: Here’s 4111 Archwood, a vacant foreclosed house four blocks down the street from me. Read the full post here. Labels: Deutsche Bank, foreclosures, mortgage meltdown, Polly Cleveland Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Notes on the Foreclosure Crisis (T. Weisskopf)In case you missed it--we posted two new articles on Friday: notes on the foreclosure crisis, by Tom Weisskopf, and a primer on financialization, by Ramaa Vasudevan.Labels: financial crisis, foreclosures, Ramaa Vasudevan, Tom Weisskopf Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). It's the Foreclosures, Stupid (NACA)This is an "action alert" from the Neighborhood Assistance Corporation of America. The CEO of NACA, Bruce Marks, was on the radio program Here and Now this morning explaining why he opposes a bailout; there appears to be no way to listen to the segment, but they may put up a link to it sometime at the show's site. Hat-tip to John Miller.There is one reason for the financial crisis – Foreclosures. There is only one solution – Restructure mortgages to make them affordable. Who would benefit – Everyone The above sounds very basic but we are providing One Trillion dollars to bailout major financial institutions and insurers without addressing the underlying cause of the crisis which are the millions of homeowners at-risk of foreclosure. They want to say it is too complicated and throw out terms like CDO, Leverage swaps, and others to justify giving President Bush a blank check. While we have been there, the Congress is getting ready to repeat the disastrous past. We are now committing hundreds of billions of tax payer dollars to bailout the very institutions who created the crisis. At a minimum lets use some of these funds to get the investors to do what is necessary in making these mortgages affordable. The previous bailouts of Bear Stearns, Fannie Mae, Freddie Mac and AIG have not opened up the credit markets. Despite the huge commitments of taxpayer funds they have accomplished little. In fact, Fannie and Freddie continue to refuse restructuring on affordable terms – having their owners the American people foreclosing on themselves. It is about time that we stop rewarding the companies, their management and investors who use the Idiot excuse. They continue to say that despite making millions of dollars a year, they could not have predicted the current circumstances and could not have thought of more effective mortgage lending. NACA knew eight years ago and did it the right way. Either their actions were a resulting of unbridled greed or tremendous stupidity. Either way, they should not be bailed out. Congress must not be allowed to commit the largest amount to taxpayer funds in rewarding these scoundrels or idiots – choose your description. A trillion dollar bailout is unconscionable. We are rewarding the companies whose only motivation was greed. For our tax dollars to meet the intended purposes we will purchase the most problematic loan portfolios from the most irresponsible lenders. We will also pay the highest price since that is required to provide them with the capital needed to survive. This is truly the moral hazard bearing its ugly head. The solution is right in front of us. Congress and the administration must immediately put a moratorium on foreclosures for homeowners who are owner occupants. Then through regulation, legislation and/or economic incentives have homeowner’s mortgages restructured to make them affordable for the remaining term of the loan. If NACA as a non-profit can do this, so can these servicers and investors given the appropriate legislative and regulatory requirements and incentives. Contact your politician and make your views known. TELL THEM IT’S THE FORECLOSURES STUPID. NO BAILOUT OF THE PREDATORS. MAKE THE MORTGAGES AFFORDABLE Labels: bailout, Bruce Marks, financial crisis, foreclosures, Neighborhood Assistance Corporation of America Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Ed McMahon May Lose Beverly Hills HomeFrom yesterday's Wall Street Journal; hat tip to Doug Henwood of the Left Business Observer and lbo-talk.By JAMES R. HAGERTY and GLENN R. SIMPSON Labels: Beverly Hills, Ed McMahon, foreclosures Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). |
