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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 bottoming out.

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 awaiting help.

How Good Is the Housing News?,
NYT, 7.3.2012,
http://www.nytimes.com/2012/03/08/
opinion/how-good-is-the-housing-news.html

Homeowners Need Help

August 21, 2011

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 mortgage debacle.

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 modifications.

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 go along.

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 bust.

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 borrowers.

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 spending.

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,
http://www.nytimes.com/2011/08/22/opinion/homeowners-need-help.html

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 rates.

“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 DataQuick.

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. “Just amazing.”

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 the homes.

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,
http://www.nytimes.com/2010/06/20/business/20foreclose.html

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 now.’ ”

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 School.

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’ market value.

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 program.

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 three.”

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 said.

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 the house.”

Finding in Foreclosure a Beginning, Not an End, NYT, 22.3.2010,
http://www.nytimes.com/2010/03/22/us/22foreclose.html

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 year.

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.

U.S. Mortgage Delinquencies Reach a Record High, NYT, 20.11.2009,
http://www.nytimes.com/2009/11/20/business/20mortgage.html

Editorial

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 accepted.

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 emphasize it.

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,
http://www.nytimes.com/2009/06/02/opinion/02tue1.html

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,
http://www.nytimes.com/2009/02/25/business/economy/25econ.html

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 homes.

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 housing turnaround.

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,
http://www.nytimes.com/aponline/2009/01/29/business/AP-New-Home-Sales.html

Editorial

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.

Mortgages and Minorities, NYT, 9.12.2008,
http://www.nytimes.com/2008/12/09/opinion/09tue1.html

House prices fall

at fastest pace in 25 years

December 4, 2008
From Times Online
Rosie Lavan

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 2007.

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 November 1998.

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 in income.

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 of default.

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 months.

RBS announced that it was taking the same measure on Monday.

House prices fall at fastest pace in 25 years, 3.12.2008,
http://www.timesonline.co.uk/tol/money/property_and_mortgages/article5284863.ece

Editorial

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 advance.

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 sales pitches.

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 counselor.

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, NYT, 24.11.2008,
http://www.nytimes.com/2008/11/24/opinion/24mon1.html

One in five homeowners

with mortgages underwater

Fri Oct 31, 2008
1:15pm EDT
Reuters
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 Friday shows.

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 U.S. mortgages.

"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. rates.

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 Wachovia.

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 underwater.

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;

Editing by Brian Moss)

One in five homeowners with mortgages underwater, R, 31.10.2008,
http://www.reuters.com/article/newsOne/idUSTRE49S3Q520081031

Families brace for holidays

without a home

Thu Oct 30, 2008
7:54am EDT
Reuters
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 got worse."

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 bone.

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 October.

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 recession.

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?"

FINANCIAL SPIRAL

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

and Tom Brown in Cape Coral, Florida;

Editing by Michele Gershberg

and Eddie Evans)

Families brace for holidays without a home, R, 30.10.2008,
http://www.reuters.com/article/domesticNews/idUSTRE49T01O20081030

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 statement.

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 deteriorate.

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 remained elevated.

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,
http://www.nytimes.com/2008/10/29/business/economy/29econ.html

Britain faces crisis

as negative equity to reach 2 million

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 the downturn.”

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 four months.

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,
    http://www.timesonline.co.uk/tol/money/property_and_mortgages/
    article4969314.ece

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 filings.

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 costly loans.

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 mortgages.

“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 auction.

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 for Friday.

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, mysteriously.

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 retirees.

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 $75,000.

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 element.”

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 all hours.

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,
http://www.nytimes.com/2008/10/19/nyregion/19block.html

The Reckoning

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 recalls.

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 insurance fund.)

“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 trees.

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 its developments.

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 underwriting.

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 of problems.”

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 York.

Building Flawed American Dreams, NYT, 19.10.2008,
http://www.nytimes.com/2008/10/19/business/19cisneros.html

Home Prices Seem Far From Bottom

October 16, 2008
The New York Times
By VIKAS BAJAJ

The American housing market, where the global economic crisis began, is far from hitting bottom.

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 norms.

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 brokers.

“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 years.

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 percent.

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 said.

Tara Siegel Bernard contributed reporting.

Home Prices Seem Far From Bottom, NYT, 16.10.2008,
http://www.nytimes.com/2008/10/16/business/economy/16housing.html

In Rescue to Stabilize Lending,

U.S. Takes Over Mortgage Finance Titans

September 8, 2008
The New York Times
By STEPHEN LABATON and EDMUND L. ANDREWS

WASHINGTON — 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 companies.

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 investments.

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 investment portfolios.

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 financial system.

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 subsidy.

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 were untenable.

“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 portfolios.

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 securities.

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 administration’s oversight.

“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 re-election.

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 3.2 percent.

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,
http://www.nytimes.com/2008/09/08/business/08fannie.html

Editorial

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 homes.

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 relief.

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,
http://www.nytimes.com/2008/08/31/opinion/31sun1.html

Housing crisis:

One in seven homeowners

could be victims of negative equity

· Drop in property prices could be as sharp as 35%
· Credit agency warns of return to crisis of early 90s

Thursday July 31 2008
The Guardian
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 1990s.

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 report.

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 prime borrowers."

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 mortgage outstanding.

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?

14%
of owners may be in negative equity by 2009, says Standard & Poor's

1.7m
Number of people this would affect, the same as in the early 1990s

75,500
Number of homes repossessed in 1992, when the crash was at its height

45,000
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,
http://www.guardian.co.uk/money/2008/jul/31/houseprices.creditcrunch

Bush Signs Housing Bill

July 30, 2008 8:08 a.m.
Associated Press

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 Steve Preston.

"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,
http://online.wsj.com/article/SB121741699750696667.html

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 continue.

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 1990s.

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 other lenders.

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 attractive.

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,
http://www.nytimes.com/2008/07/12/business/12fannie.html

Foreclosures

take an emotional toll on homeowners

14 May 2008
USA Today
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 out.

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 retriever.

"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, suicide.

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 says.

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 unconquerable."

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 report.

"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' stressful situation."

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 Labrador.

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, she cried.

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 grass.

"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,
    http://www.usatoday.com/money/economy/housing/
    2008-05-14-mortgage-foreclosures-mental-health_N.htm

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 borrowers.

“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, is costly.

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 such payments.

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 Countrywide.

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 down.

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 average.

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 foreclosure matters.

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 complaint said.

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 law firm.

“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 rhetoric.”

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 the profits.

“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.”

The Foreclosure Machine, NYT, 30.3.2008,
http://www.nytimes.com/2008/03/30/business/30mills.html

Op-Ed Contributor

Home Sweet Investment

March 18, 2008
The New York Times
By ALEX TABARROK

Fairfax, Va.

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 the future.

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 fundamentals.

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 prophecy problem.

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

and the research director for the Independent Institute.

Home Sweet Investment, NYT, 18.3.2008,
http://www.nytimes.com/2008/03/18/opinion/18tabarrok.html

Foreclosure crisis has ripple effect

11 March 2008
USA Today
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 says.

"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 in foreclosures.

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,
http://www.usatoday.com/news/nation/2008-03-11-foreclosures_N.htm

Lending laws unenforced

in housing crisis: Jackson

Wed Feb 20, 2008
5:37pm EST
Reuters
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,
http://www.reuters.com/article/Housing08/idUSN2039245920080220

Falling home sales problem

spreads to 45 states

14 February 2008
USA Today
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 prices.

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 recover.

"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,
    http://www.usatoday.com/money/economy/housing/
    2008-02-14-housing-q4-nar_N.htm

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 confidence.

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 January-March quarter.

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 50-50.

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 housing slump.

Biggest Drop in Existing Home Sales in 25 Years, NYT, 24.1.2008,
http://www.nytimes.com/aponline/business/AP-Economy.html

Housing market

closest to slump for 15 years,

say chartered surveyors

· Tighter mortgage controls and interest rates to blame
· Professional body urges Bank to make rapid cuts

Wednesday January 16 2008
The Guardian
Angela Balakrishnan

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 price rises.

"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 2007."

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%.

Fallout

· 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.

    Housing market closest to slump for 15 years, say chartered surveyors,
    G, 16.1.2008,
    http://www.guardian.co.uk/money/2008/jan/16/houseprices.interestrates

Cleveland Sues 21 Lenders

Over Subprime Mortgages

January 12, 2008
The New York Times
By CHRISTOPHER MAAG

CLEVELAND — 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 repay.

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. Jackson said.

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,
http://www.nytimes.com/2008/01/12/us/12cleveland.html

Review of the year

From the sub-prime to the ridiculous:

how $100bn vanished

Mighty institutions and powerful figures undermined
by pitiful little property deals

Monday December 31 2007
The Guardian
David Teather

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 repayments.

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 concern.

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 wings clipped.

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 cash.

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 the fiasco.

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 finally resigned.

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 market.

In numbers

$99.29

The oil price reaches its peak just short of $100 a barrel (November 21)

$2

The pound hits $2 for the first time since 1992 (April 16)

£1.1bn

Price HSBC receives selling its headquarters in Canary Wharf (April 30)

$100bn

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,
http://www.guardian.co.uk/business/2007/dec/31/subprimecrisis.creditcrunch

Tent city in suburbs

is cost of home crisis

Fri Dec 21, 2007
8:18am EST
Reuters
By Dana Ford

ONTARIO, 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 Southern California.

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 out."

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 high.

"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."

'SQUATTING 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 homes.

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 say.

'TRICKLE-DOWN EFFECT'

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 trickle-down effect."

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 Eddie Evans)

Tent city in suburbs is cost of home crisis, R, 21.12.2007,
http://www.reuters.com/article/domesticNews/idUSN1850682120071221

Editorial

The American Dream in Reverse

October 8, 2007
The New York Times

For the 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 homes.

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 is simplistic.

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 bankruptcy judge.

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,
http://www.nytimes.com/2007/10/08/opinion/08mon1.html

'Housing boom over'

as UK bank chaos grows

· Economist warns of sharp downturn
· Tory leader attacks Brown over crisis

Sunday September 16, 2007

The Observer

Heather Stewart

and Lisa Bachelor

Britain's 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.

After the 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 the bank.

Speaking to 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.

In the 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 expectations.'

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,
O,
16.9.2007,
https://www.theguardian.com/money/2007/sep/16/
houseprices.business

Behind Foreclosures,

Ruined 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 the data.

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 Housing Authority.

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 $2,600.

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 hospital.

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 foreclosure notice.

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 month.

“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 assistant.

“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 the question.

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 Tennessee.

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 their principal.

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 right deal.

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 and Hopes,
NYT,
28.3.2007,
https://www.nytimes.com/2007/03/28/
nyregion/28debt.html

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