Here It Comes Again! Housing Bust Comes Roaring Back, Worse Than Ever

[bigron]

Foreclosure Crisis Hits Warp Speed: 6 Million Families Face Losing Their Homes in the Next Three Years


A second wave of very distressed families is going to be desperately in need of a social safety net that doesn't exist.


By Nan Mooney, AlterNet
Posted on March 30, 2009, Printed on March 30, 2009
http://www.alternet.org/story/134003/

What would you do if someone foreclosed on your home? If suddenly you and all your possessions were out on the street with a bank account depleted from trying to make mammoth mortgage payments, where would you go?

An estimated 6 million families could be facing this question in the next three years, with nearly 1 in 10 mortgage holders either delinquent or in foreclosure. And although we've heard a lot about trying to help people stay in their homes -- like President Obama's $275 billion foreclosure-prevention package -- it's been far more difficult to follow what happens to these families once they've been forced out.

"We haven't done a good job of tracking those people who were not able to stay in their homes," admits Douglas Robinson of NeighborWorks, an umbrella organization for more than 230 local nonprofits focused on community development. "Over the past four years, we've been heavily focused on foreclosure prevention -- keeping people in their homes. We're just starting to look at the other side of things now."

According to Robinson, those victims of foreclosure who do wind up being pushed out of their homes can be roughly divided into two waves.

The first wave consists of those who lost their homes because they were unable to keep up with payments on poor mortgages, often with cripplingly high interest rates. There's no hard research as yet, but anecdotal evidence indicates that, although these people didn't have the financial resources to keep up with their mortgage payments, most were able to rent apartments or even homes in their same communities.

But for the second wave, the transition hasn't been nearly so seamless. These are the people who are unable to make mortgage payments because they've lost their jobs. They no longer have the incomes to afford rentals.

This second wave is creating a strong demand for social services, including homeless shelters -- a demand that far exceeds supply. Again, as yet there is no hard data, but anecdotal evidence indicates a far higher percentage of these people are winding up in hotel rooms, with friends and relatives, in shelters, or even sleeping in cars or on the street.

The recession has created a new and growing segment of the homeless population --those who until recently were gainfully employed, often living paycheck to paycheck, and now find themselves out of a home through no fault of their own.

A recent report from the National Center on Family Homelessness estimates that 1 in every 50 American children was homeless between 2005 and 2006, about 1.5 million kids. And the numbers are likely to get worse as the economy continues to decline.

"Our main effort has been to keep people in their homes, and that's where the bulk of our money and resources has gone," explains Robinson. "But it is important, from a public policy standpoint, to know just what's happening to those people who can't stay."

There is federal aid pending for foreclosure victims, but for many it will be too little too late. The stimulus package pledges money to help potential renters with rent and security deposits.

In addition, President Obama's proposed foreclosure package promises assistance to those still in danger of losing their homes. But the money isn't available yet, and when it is, it will still leave plenty of the financially struggling high and dry.

For example, the Obama plan allows homeowners to obtain new, lower interest loans up to 105 percent of what their homes are worth, but that's not enough for the numerous homeowners who are underwater in their homes (meaning they owe more in loans than the property is worth).

The plan will also pay cash and fees to mortgage companies to encourage them to modify homeowners' loans so their payments are no more than 31 percent of their incomes. But even then, homeowners have to make steep payments, an impossibility for many in a nation boasting 8.1 percent unemployment rate, with rates leaping up to 12 and 14 percent in some major cities.

And the bill does not provide additional resources to the housing counseling agencies that are often the sole thing standing between potential foreclosure victims and success or failure at keeping their homes.

"We have a 30-35 percent success rate keeping people in their homes, which is pretty good," explains Dave Pesch, the Housing Counseling Program Director at St. Martin's Center in Erie, Pa. "But that means 60-65 percent of our clients can't stay."

According to Pesch, for the majority of those people, losing a home to foreclosure means a rapid skid down the ladder they've just spent years attempting to climb up.

Many are forced back into dangerous neighborhoods they'd only recently escaped. Entire families are moving temporarily into shelters that are bursting at the seams and often underequipped to handle children. Or they're leaving town, and jobs, to move in with relatives until they can get back on their feet.

"They may wind up in a shelter or in a relative's spare room for a few months, but then what?" asks Pesch. "Very few of these people are finding anything more than a temporary solution to homelessness, because there simply are no long-term solutions out there."

The help available to foreclosure victims may be too late in another sense as well. The emotional fallout attached to losing your home is tremendous. The humiliation and shame resulting from not being able to put a roof over your family's head runs deep and can't be wiped away by something as flimsy as a rent subsidy.

For children, for parents, for the elderly, the shadow of such an experience can linger a long time, perhaps forever. Many foreclosure victims will come away with a sense that, just like a job, a home is something impermanent, forcing another giant crack into the dissipation of the American Dream.

"Our resources are strained to the breaking point," says Pesch. "This country is in a world of hurt, and we haven't hit bottom yet. People think foreclosures don't affect them if they're still in their homes. But foreclosures affect all of us."


Nan Mooney is the author of (Not) Keeping Up with Our Parents (Beacon, 2008). Read more about the book and her work at Nan Mooney.com.

© 2009 Independent Media Institute. All rights reserved.
View this story online at: http://www.alternet.org/story/134003/

[Voskhod3]

This is an outrage.

Handing over your property to the people who caused the problem in the first place is an absolute outrage.

Imagine if 6 million people rose up and marched on Washington.

That's what it needs.

[bigron]

April 20, 2009

Here It Comes Again!
Housing Bust Comes Roaring Back, Worse Than Ever
By MIKE WHITNEY
http://www.counterpunch.org/whitney04202009.html

Due to the lifting of the foreclosure moratorium at the end of March, the downward slide in housing is gaining speed. The moratorium was initiated in January to give Obama's anti-foreclosure program -- a combination of mortgage modifications and refinancing -- a chance to succeed. The goal of the plan was to keep up to 9 million struggling homeowners in their homes. But it's clear now that the program will fall well-short of its objective. (Legislation for cram-downs, that is, allowing judges to reduce the face-value of the mortgage, is still bogged-down in Congress. Most economists believe that cramdowns are the only way to keep people from abandoning their homes when they are underwater on their loans.)

In March, housing prices fell faster than anytime in the last two years.  Trend-lines are now steeper than ever before, nearly perpendicular. Housing prices are not falling, they're crashing and crashing hard. Now that the foreclosure moratorium has ended, Notices of Default (NOD) have spiked to an all-time high. These Notices will turn into foreclosures in 4 to 5 months time creating another cascade of foreclosures. Market analysts predict there will be 5 million more foreclosures between now and 2011. Soaring unemployment and rising foreclosures ensure that hundreds of banks and financial institutions will be forced into bankruptcy. 40 percent of delinquent homeowners have already vacated their homes. There's nothing Obama can do to make them stay.  Worse still, only 30 per cent of foreclosures have been relisted for sale suggesting major hanky-panky at the banks. Where have the houses gone? Have they simply vanished?

Here's a excerpt from the SF Gate explaining the mystery:

"Lenders nationwide are sitting on hundreds of thousands of foreclosed homes that they have not resold or listed for sale, according to numerous data sources. And foreclosures, which banks unload at fire-sale prices, are a major factor driving home values down.

"We believe there are in the neighborhood of 600,000 properties nationwide that banks have repossessed but not put on the market," said Rick Sharga, vice president of RealtyTrac, which compiles nationwide statistics on foreclosures. "California probably represents 80,000 of those homes. It could be disastrous if the banks suddenly flooded the market with those distressed properties. You'd have further depreciation and carnage."

In a recent study, RealtyTrac compared its database of bank-repossessed homes to MLS listings of for-sale homes in four states, including California. It found a significant disparity - only 30 percent of the foreclosures were listed for sale in the Multiple Listing Service. The remainder is known in the industry as "shadow inventory." ("Banks aren't Selling Many Foreclosed Homes" SF Gate)

If regulators were deployed to the banks that are keeping foreclosed homes off the market, they would probably find that the banks are actually servicing the mortgages on a monthly basis to conceal the extent of their losses. They'd also find that the banks are trying to keep housing prices artificially high to avoid heftier losses that would put them out of business.  One thing is certain, 600,000 "disappeared" homes means that housing prices have a lot farther to fall and that an even larger segment of the banking system is insolvent.

Here is more on the story "California Foreclosures About to Soar...Again"

"Are you ready to see the future? Ten’s of thousands of foreclosures are only 1-5 months away from hitting that will take total foreclosure counts back to all-time highs. This will flood an already beaten-bloody real estate market with even more supply just in time for the Spring/Summer home selling season...Foreclosure start (NOD) and Trustee Sale (NTS) notices are going out at levels not seen since mid 2008. Once an NTS goes out, the property is taken to the courthouse and auctioned within 21-45 days....The bottom line is that there is a massive wave of actual foreclosures that will hit beginning in April that can’t be stopped without a national moratorium."

JP Morgan Chase, Wells Fargo and Fannie Mae have all stepped up their foreclosure activity in recent weeks. Delinquencies have skyrocketed. According to the Wall Street Journal:

"Ronald Temple, co-director of research at Lazard Asset Management, expects home prices to fall 22% to 27% from their January levels. More than 2.1 million homes will be lost this year because borrowers can't meet their loan payments, up from about 1.7 million in 2008." (Ruth Simon, "The housing crisis is about to take center stage once again" Wall Street Journal)

Another 20 percent carved off the aggregate value of US housing means another $4 trillion loss to homeowners. That means smaller retirement savings, less discretionary spending, and lower living standards. The next leg down in housing will be excruciating; every sector will feel the pain. Obama's $75 billion mortgage rescue plan is a mere pittance; it won't reduce the principle on mortgages and it won't stop the bleeding. Policymakers have decided they've done enough and refuse to lift a finger to help. They don't see the tsunami looming in front of them plain as day.  The housing market is going under and it's going to drag a good part of the broader economy along with it. Stocks, too.

The Headless Chicken Keeps on Running…

The Fed's $12.8 trillion of monetary stimulus has triggered a six week-long surge in the stock market. Think of it as Bernanke's Bear Market Rally, a torrent of capital gushing from every leaky valve and rusty pipe in the financial system. The Fed's so-called "lending facilities" are a joke; stocks rocket into the stratosphere while the broader economy is stretched out corpse-like on a cold marble slab. Is this an economic recovery or just more of Bernanke's "no down" zero-percent "no doc" faux prosperity?

Bernanke has provided generous "100 cents on the dollar" loans for Triple A mortgage-backed collateral that is now worth 30 cents on the dollar. The Fed stands to lose trillions of dollars on these loans because the assets will never regain their original value. Eventually the taxpayer will have to pony up the difference in higher taxes, fewer public services and a weaker dollar.

Naturally, some of Bernanke's liquidity has made its way into the stock market where the prospects for maximizing profit are still the best. The Fed's debtors  didn't borrow the money just to stick it in a dusty vault in their offices. They've put it where they think it will do them some good.  At the same time, the relentless systemwide contraction continues apace and hasn't been eased by Bernanke's low interest rates or lending programs. All of the economic indicators point to a deepening recession that will last for two years or more. Here's a clip from a recent statement from the IMF:

"Recessions associated with financial crises have typically been severe and protracted. Financial crises typically follow periods of rapid expansion in lending and strong increases in asset prices. Recoveries from these recessions are often held back by weak private demand and credit reflecting, in part, households’ attempts to increase saving rates to restore balance sheets. They are typically led by improvements in net trade, following exchange rate depreciations and falls in unit costs.

Globally synchronized recessions are longer and deeper than others. Excluding the present, there have been three episodes since 1960 during which 10 or more of the 21 advanced economies in the sample were in recession at the same time: 1975, 1980 and 1992…Recoveries are usually sluggish, owing to weak external demand..."

The recession will be a long uphill slog regardless of developments in the stock market. Bernanke admitted as much last Thursday when he said that the collapse of U.S. lending will cause “long-lasting” damage to home prices, household wealth and borrowers’ credit scores.

“One would be forgiven for concluding that the assumed benefits of financial innovation are not all they were cracked up to be....The damage from this turn in the credit cycle -- in terms of lost wealth, lost homes, and blemished credit histories -- is likely to be long-lasting.”

Unlike Treasury Secretary Geithner, Bernanke has been surprisingly candid in his analysis of the crisis. That doesn't mean that his policies have been worker-friendly; far from it. But he has been honest about the shortcomings of deregulation and financial innovation. So far, the meltdown has wiped out more than $11 trillion of household wealth, ignited soaring unemployment, and pushed millions of people from their homes. As Bernanke admits, the country will not quickly bounce back.

Economists Kenneth Rogoff and Carmen Reinhart have conducted a study on the last 18 international financial crises and compiled their findings in a document called: "Is the 2007 U.S. Subprime Financial Crisis So Different?" What they discovered was that "rising public debt is a near universal precursor of other post-war crises" and that countries that experienced large capital inflows were particularly vulnerable to crises. By 2006, two-thirds of the world's surplus capital was flowing into the United States via its current account deficit. This flood of foreign capital kept interest rates low, housing and equity prices high, and Wall Street flush with money. Now foreign investment is drying up, housing prices are falling, the secondary market is frozen, and deflation is setting in across all sectors of the economy.  Rogoff and Reinhart believe that "recessions that follow in the wake of big financial crises tend to last far longer than normal downturns, and to cause considerably more damage. If the United States follows the norm of recent crises, as it has until now, output may take four years to return to its pre-crisis level. Unemployment will continue to rise for three more years, reaching 11–12 percent in 2011."  (Newsweek, "Don't Buy the Chirpy Forecasts")

The proliferation of opaque, unregulated debt-instruments (MBSs, CDOs, CDSs) also played a big role in the present crash by reducing transparency and increasing systemic instability. Here's Rogoff and Reinhart in their Newsweek article "Don't Buy the Chirpy Forecasts:

"Assuming the U.S. continues going down the tracks of past financial crises, perhaps the scariest prospect is the likely evolution of public debt, which tends to soar in the aftermath of a crisis. A base-line forecast, using the benchmark of recent past crises, suggests that U.S. national debt will rise by $8.5 trillion over the next three years. Debt rises for a variety of reasons, including bailout costs and fiscal stimulus. But the No. 1 factor is the collapse in tax revenues that inevitably accompanies a deep recession."

Tax revenues are already falling sharply across the country as the recession deepens. In fact, Bloomberg News reports that  “State and local sales-tax revenue fell more sharply in the fourth quarter of 2008 than at any time in the past half century"… (Corporate and personal income taxes are also declining at a record pace.)  This makes it impossible to predict the ultimate cost of the crisis.  But what makes it even harder is that Treasury Secretary Timothy Geithner refuses to remove toxic assets from the banks balance sheets using the usual "tried and true" methods. A recent report from a congressional oversight committee (The Warren Report) revealed that there are three ways to fix the banking system; liquidation, reorganization and subsidization. Geithner has rejected all three of these preferring to implement his own make-shift Public Private Investment Program (PPIP) which is thoroughly untested, has no base of public or political support, and is clearly designed to shift the toxic debts of the banks onto the taxpayer through publicly-funded non recourse loans. (Geithner's plan will allow the banks to establish off-balance sheet operations so they can buy their own bad assets from themselves using 94 per cent public money) The whole thing is a obvious swindle papered-over with gibberish.

So far, less than $10 billion has been transacted through Giethner's PPIP; a mere drop in the bucket. The IMF estimates that the banks and other financial institutions may be holding up to $4 trillion in toxic assets. At the current rate, Geithner's strategy will take a century to succeed. The Treasury Secretary knows his plan won't fix the banking system; he's just hoping that the economy rebounds before the government is forced to nationalize the big banks. It's just a stalling ploy, but, even so, there are risks.  As the economy worsens, the likelihood of another financial meltdown or a run on the dollar increases. Foreign central banks and investors are getting antsy and are starting to rattle Geithner's cage.  In recent months China has slowed its purchases of US Treasuries, traded tens of billions of USD in currency swaps, and gone on a spending spree for raw materials; all to protect itself from weakness in the dollar. According to Bloomberg:

"People's Bank of China Zhou Xiaochuan called for the establishment of a "super-sovereign reserve currency" last month after Chinese Premier Wen Jiabao said he's worried a weaker US dollar may hurt China's investments. Inflation and a depreciating dollar would erode the value of US holdings owned by international investors."

Again, Bloomberg: 

“China, Japan and Korea should establish a routine mechanism to diversify the region’s reserve currencies away from the dollar, the China Securities Journal reported, citing central bank adviser Fan Gang. The Asian countries need to consider setting up a transitional arrangement to help reduce reliance on the dollar before the problems in the international financial system are resolved."

Geithner's foot-dragging could be extremely costly for America's long-term economic prospects. The Treasury Secretary should be tackling the toxic assets problem head-on and stop the dilly-dallying. 

Mike Whitney lives in Washington state. He can be reached at fergiewhitney@msn.com

[ramallamamama]

Good post.

[bigron]

Housing Bubble Smackdown: Bigger Crash Ahead

Huge "shadow inventory"



By Mike Whitney
 
Global Research, April 21, 2009
http://www.globalresearch.ca/index.php?context=va&aid=13283


Due to the lifting of the foreclosure moratorium at the end of March, the downward slide in housing is gaining speed. The moratorium was initiated in January to give Obama's anti-foreclosure program---which is a combination of mortgage modifications and refinancing---a chance to succeed. The goal of the plan was to keep up to 9 million struggling homeowners in their homes, but it's clear now that the program will fall well-short of its objective.

In March, housing prices accelerated on the downside indicating bigger adjustments dead-ahead. Trend-lines are steeper now than ever before--nearly perpendicular. Housing prices are not falling, they're crashing and crashing hard. Now that the foreclosure moratorium has ended, Notices of Default (NOD) have spiked to an all-time high. These Notices will turn into foreclosures in 4 to 5 months time creating another cascade of foreclosures. Market analysts predict there will be 5 MILLION MORE FORECLOSURES BETWEEN NOW AND 2011. It's a disaster bigger than Katrina. Soaring unemployment and rising foreclosures ensure that hundreds of banks and financial institutions will be forced into bankruptcy. 40 percent of delinquent homeowners have already vacated their homes. There's nothing Obama can do to make them stay. Worse still, only 30 percent of foreclosures have been relisted for sale suggesting more hanky-panky at the banks. Where have the houses gone? Have they simply vanished?

600,000 "DISAPPEARED HOMES?"

Here's a excerpt from the SF Gate explaining the mystery:

"Lenders nationwide are sitting on hundreds of thousands of foreclosed homes that they have not resold or listed for sale, according to numerous data sources. And foreclosures, which banks unload at fire-sale prices, are a major factor driving home values down.

"We believe there are in the neighborhood of 600,000 properties nationwide that banks have repossessed but not put on the market," said Rick Sharga, vice president of RealtyTrac, which compiles nationwide statistics on foreclosures. "California probably represents 80,000 of those homes. It could be disastrous if the banks suddenly flooded the market with those distressed properties. You'd have further depreciation and carnage."

In a recent study, RealtyTrac compared its database of bank-repossessed homes to MLS listings of for-sale homes in four states, including California. It found a significant disparity - only 30 percent of the foreclosures were listed for sale in the Multiple Listing Service. The remainder is known in the industry as "shadow inventory." ("Banks aren't Selling Many Foreclosed Homes" SF Gate)

If regulators were deployed to the banks that are keeping foreclosed homes off the market, they would probably find that the banks are actually servicing the mortgages on a monthly basis to conceal the extent of their losses. They'd also find that the banks are trying to keep housing prices artificially high to avoid heftier losses that would put them out of business. One thing is certain, 600,000 "disappeared" homes means that housing prices have a lot farther to fall and that an even larger segment of the banking system is underwater.

Here is more on the story from Mr. Mortgage "California Foreclosures About to Soar...Again"

"Are you ready to see the future? Ten’s of thousands of foreclosures are only 1-5 months away from hitting that will take total foreclosure counts back to all-time highs. This will flood an already beaten-bloody real estate market with even more supply just in time for the Spring/Summer home selling season...Foreclosure start (NOD) and Trustee Sale (NTS) notices are going out at levels not seen since mid 2008. Once an NTS goes out, the property is taken to the courthouse and auctioned within 21-45 days....The bottom line is that there is a massive wave of actual foreclosures that will hit beginning in April that can’t be stopped without a national moratorium."

JP Morgan Chase, Wells Fargo and Fannie Mae have all stepped up their foreclosure activity in recent weeks. Delinquencies have skyrocketed foreshadowing more price-slashing into the foreseeable future. According to the Wall Street Journal:

"Ronald Temple, co-director of research at Lazard Asset Management, expects home prices to fall 22% to 27% from their January levels. More than 2.1 million homes will be lost this year because borrowers can't meet their loan payments, up from about 1.7 million in 2008." (Ruth Simon, "The housing crisis is about to take center stage once again" Wall Street Journal)

Another 20 percent carved off the aggregate value of US housing means another $4 trillion loss to homeowners. That means smaller retirement savings, less discretionary spending, and lower living standards. The next leg down in housing will be excruciating; every sector will feel the pain. Obama's $75 billion mortgage rescue plan is a mere pittance; it won't reduce the principle on mortgages and it won't stop the bleeding. Policymakers have decided they've done enough and are refusing to help. They don't see the tsunami looming in front of them plain as day. The housing market is going under and it's going to drag a good part of the broader economy along with it. Stocks, too.

 

[bigron]

Watch Out for the Mortgage Vultures: Cash-Strapped Homeowners Face New Threat


Fraudulent schemes that prey on people who risk losing their homes are on the rise.


By Matthew Palevsky, Huffington Post
Posted on April 29, 2009, Printed on April 29, 2009
http://www.alternet.org/story/138820/

Capitalizing on the collapse of the housing market, a Fair Oaks, Calif., company claimed to provide loan-modification services while siphoning money from clients on the brink of losing their homes, say several former clients and employees.

Superior Properties, formerly 2nd Chance Negotiations, operates by soliciting an up-front-fee from homeowners facing foreclosure in return for legal counsel, a lower principal on their mortgage, and a "100 percent money-back guarantee." It's the type of promise that the Federal Trade Commission says is typical of mortgage scams that are the subject of a recently announced nationwide crackdown by the federal government.

2nd Chance Negotiations attracted over 1,000 customers before the California's Department of Corporations (DOC) and Department of Real Estate (DRE) issued separate desist-and-refrain orders on March 24. The joint investigation that led to the desist orders stated that the business was "not licensed and/or legally authorized" to perform its promised services, nor to collect fees in advance -- fees that ran as high as $6,000.

Former employees say 2nd Chance co-founders Christopher Mesunas and Michael Garcia were largely undeterred by the legal orders to cease operations. According to Deborah O'Campo, who served as one of five negotiators at 2nd Chance from Feb. 10 to April 1, the company ceased operations for 48 hours before reopening under a new name, Superior Properties.

"They asked us to start calling banks before we had filed the requisite legal permission to negotiate on behalf of our clients under the name Superior Properties," O'Campo told the Huffington Post. O'Campo says she was the only licensed broker of the five negotiators employed by 2nd Chance.

When confronted with this allegation, Garcia questioned O'Campo's knowledge of the legal system. "There can't be one employee of mine who you talked to who has the skill to know what an appropriate document would be," he said. (Mesunas did not respond to requests for comment.)

Garcia also claimed that the DRE has been changing the rules. He says that only recently has the DRE required that mortgage negotiators have a broker's license.

"Now they [the DRE] want people negotiating on the phone with the bank to be licensed. As of last week, everyone on the phone with the bank is licensed, because that's when we got the information."

O'Campo says employees were "alarmed and befuddled" when Mesunas loaded 2nd Chance's case files into employees' cars after receiving the desist-and-refrain orders.

"Even our new 21-year-old assistant loaded files into his truck," said O'Campo. "Then they drove them around town for a couple days. When they finally came back and returned the files, there was no explanation to the staff, and Chris [Mesunas] refused to answer my questions."

The files that had been dispersed via car trunk throughout the Sacramento area included Social Security numbers, bank accounts and the complete contact information of 2nd Chance clients, said O'Campo.

Garcia responded, "Not all the files were taken out of the office. We had an attorney we were working with, and he wanted to see the files and he didn't want to come to our office." Garcia would not provide the name of this attorney. "I have a right to take the files wherever I want to take them. They're my files."

When these files were returned to the office days later, employees were told to contact each client and convince him or her to sign a release that would transfer their account from 2nd Chance to Superior Properties, allowing caseworkers to negotiate with banks under the new name. The reason given to customers followed a general story line -- 2nd Chance had folded and Superior Properties, which claimed to be completely separate company, would take on their caseload if the client just signed on the dotted line.

Mesunas had registered Superior Properties with the DRE in 2000 but did not begin using the name until 2nd Chance was served the desist orders. He has also operated under the names A Superior Mortgage, Realty Word -- Superior Realty, 2nd Chance Capital, Mesunas Properties Inc., and others.

Among 2nd Chance's clients were Pamela and Richard Zombeck of Salem, Mass., whose foreclosure story HuffPost featured in February. The Zombecks were driven to look for outside help after the government-sponsored Hope for Homeownership program failed to renegotiate their adjustable-rate mortgage with Ocwen Financial Services. The loan's interest rate was quickly climbing to more than 13 percent, and the Zombecks were exhausted from months of negotiation with Ocwen, where they say just getting someone on the phone was a battle.

"Once we would finally get someone on the phone," said Pamela Zombeck, "we lacked the vernacular and know-how to negotiate a better mortgage."

In its online ads, 2nd Chance Negotiations promises to "offer the best customer service available at a very low cost, to allow you and your family the chance to stay in your home in the easiest way possible."

The Zombecks say they were guaranteed weekly updates, a dedicated lawyer for their case and a money-back guarantee if 2nd Chance was unsuccessful in negotiating a better loan. These promises carried extra weight because a friend and local mortgage broker, who the Zombecks trusted, referred them to 2nd Chance.

Both the Zombecks and their friend were unaware that charging up-front fees for loan-modification services is illegal in Massachusetts. The Massachusetts attorney general's office has recently filed multiple charges against organizations for this crime, and an uptick in mortgage-negotiation fraud has spurred the AG's office to release a public service announcement warning, "If you are going to pay someone to help represent you in attempting to avoid foreclosure, it is illegal for them to demand or accept a fee in advance."

The Zombecks stopped hearing from 2nd Chance soon after sending in their final check. Under an entry titled "December 30" in her daily record of mortgage-related activities, Pamela Zombeck writes, "Left message with Aileen [at 2nd Chance] and grew increasingly suspicious and angry that we were not receiving weekly updates. All updates we received were a result of tenacious e-mailing and calling."

2nd Chance transferred the Zombecks among three loan negotiators over the next three months.

Frustrated, the Zombecks say they recently asked for their money back and were told that their request would take 30 days to be processed. When asked if 2nd Chance Negotiations or Superior Properties had ever provided a refund, Garcia told the Huffington Post that neither organization ever had a 100 percent money back guarantee.

"All our affiliates offered [money back] guarantees, and we have told them there is no way to provide these guarantees. ... It states in the contract that there is no money-back guarantee."

Garcia argued that his company is not responsible for the way that affiliates sell clients on 2nd Chance's services. When asked why Superior Properties has processed people's requests for a refund instead of simply denying such requests he said, "We still provide partial refunds for people because that's called having integrity."

After just three weeks, the Zombecks realized they were not receiving the service they had been promised -- it took some 2nd Chance employees much longer to figure out the operation was a sham.

Michael Buckalew had worked in various sales departments for over a decade when he joined 2nd Chance's sales team in October 2008. Once Buckalew successfully signed a customer, he passed the case to a mortgage negotiator like O'Campo. When one of his clients called in February to complain that no one had contacted him in weeks and nothing had happened on his account, Buckalew realized something was amiss.

Buckalew was one of 22 salespeople in the Northern California office. There were only five caseworkers who negotiated new loans. Buckalew claimed he didn't notice the disparity until later, when he saw that cases were coming in "by the truckload."

"[2nd Chance] had affiliates that would bring us cases every week," Buckalew told the Huffington Post. "They would come in and unload a hundred cases at a time. They had three to five hundred new files per month, and they never expanded their negotiating capacity the whole time I was there."

O'Campo said the five caseworkers were overwhelmed, which made it difficult to get results.

"I cannot recall even one success story," O'Campo said. "When I left, there might have been only two [mortgage negotiations] that were headed in the right direction as far as almost getting approved."

The sales pitch, according to 2nd Chance's clients, focused on making the homeowner feel powerless to negotiate their own loan. Jessi Barnes in Plumas County, Calif., who paid 2nd Chance $5,000 in December 2008, said the representative she spoke with made it sound like she required a lawyer to negotiate with her lender.

In reality, all borrowers have the right to negotiate with their lender, and lawyers cannot negotiate on their behalf without written legal consent. Barnes says that 2nd Chance did not provide the legal assistance that had been promised.

"You are quite literally getting all the information together yourself, then faxing it to [2nd Chance] that then faxes it to the banks and [2nd Chance] charges $3,000-$6,000 for this," said Barnes.

At the beginning of April, Barnes says she was notified by her lender that her house was in foreclosure and that the bank had closed her case in February because they had received an incomplete loan-restructuring application from 2nd Chance.

According to O'Campo, 2nd Chance shuffled cases among negotiators to give the impression that something was getting done. If a client ever complained to 2nd Chance affiliates who were securing new cases for the company or asked for the promised 100 percent refund, O'Campo says Mesunas would blame the case manager and move the client's case to a new loan negotiator.

Buckalew said the company's sales practices aroused his suspicious from the beginning. He said that he and the entire 22-person sales staff were allowed to charge whatever price they could persuade their client to pay.

"Did you ever see Boiler Room? Working in the sales room kind of felt like that," said Buckalew.

According to Buckalew and O'Campo, it was company policy for sales people to receive a 100 percent commission on charges over $1,500. Buckalew said he closed cases at an average of $2,500, but he knew salesmen who charged potential clients twice as much.

The Huffington Post has received a number of e-mails from people who paid over $4,000 to hire 2nd Chance.

Erika Lingvall, who shares a condominium with her mother in Northern California, said she paid $6,000 to become a 2nd Chance client. Lingvall received a call in early April informing her that 2nd Chance had been shut down by California's Department of Real Estate and that Superior Properties, which the caller claimed was a completely separate entity, would take over all of 2nd Chance's loan modifications.

Up-front fees are illegal in California, unless the company has a fee agreement approved by the DRE. Garcia said that Superior Properties has now secured this agreement, but they are working on cases that were purchased through 2nd Chance, which did not obtain the required legal agreement. The DRE's Web site warns consumers to be wary of individuals or companies who offer to help negotiate a loan modification:

You must be very careful if you are asked to pay for any of these services in advance, whether in cash, check or by charging your credit card. First, California Civil Code Section 2945, which regulates "foreclosure consultants," forbids anyone who falls under the definition of a "foreclosure consultant," as well as a real estate licensee, from collecting any advance fees for these types of services if a Notice of Default has been recorded against your property.
Despite this warning, fraudulent schemes that prey on people who risk losing their homes are on the rise.

In July, the DRE had fewer than a dozen complaints involving loan-modification companies, but the department had over 500 pending investigations at the beginning of April 2009.

DRE Commissioner Jeff Davi says, "With so many folks struggling to stay in their homes, foreclosure rescue scams have risen dramatically."



© 2009 Huffington Post All rights reserved.
View this story online at: http://www.alternet.org/story/138820/

[heavyhebrew]

Scamming those unfortunate enough and desperate enough in risk of foreclosure is an indictment of our national character.
These mortgage vultures should be investigated, given a trial by a jury of their peers and if proven guilty, marched to the wall.

Crime & Punishment. Punishment isn't about retribution nor is it about deterrence. It is about accountability and society's lack of tolerance for such obviously evil actions.
50+ years of television has absolutely destroyed the idea of taking responsibility for ones own actions.

[bigron]

Now look at commercial real estate !

Posted on Thu, Apr. 30, 2009

Next economic crisis looms: Commercial real estate defaults


Kevin G. Hall | McClatchy Newspapers
last updated: April 29, 2009 11:49:48 PM
http://www.mcclatchydc.com/227/story/67187.html


WASHINGTON — Two years after fissures in the residential housing market gave way to a national collapse of home prices and sales, experts warn the next shoe to drop is the commercial real-estate market, bringing more woes to the battered economy.

Thousands of commercial mortgages valued at hundreds of billions of dollars are approaching a renewal date. By some estimates, two out of every three will no longer meet the original loan conditions and won't be able to refinance. And with prices for commercial properties expected to plunge, a vicious cycle may unfold much as it has in the nation's housing market.

"It's the next wave to hit. It's the next round of bad news," said Scott Talbott, the senior vice president of government affairs for the Financial Services Roundtable, a trade group for big banks and other financial institutions who are collectively concerned about the coming problems.

A commercial mortgage meltdown is likely to prolong the nation's economic recovery. The falling prices in commercial real estate will lead to additional bank losses at a time when banks are sapped by home mortgage defaults and soaring credit card defaults. This could lead to future additional taxpayer assistance for the banks.

The reality is already on display. On April 16, the nation's second largest mall developer, General Growth Properties, filed for bankruptcy protection. The Chicago-based company owns more than 200 malls across the U.S., and was unable to renegotiate its debts as they came due.

Six days later, a 40-story office tower on New York's Avenue of the Americas was seized by its creditor, a Canadian-owned pension fund. The tower's owner, Macklowe Properties, couldn't meet loan terms.

"On the street, the rumor is it is coming and it's going to come fast and furious. Some people are predicting September," said Paul Waters, a New York-based executive vice president of brokerage operations in North America for NAI Global, a top-five commercial real estate brokerage with operations across the globe.

Just like the housing meltdown, the commercial real estate crunch is likely to begin as a slow bleed that gains momentum. The coming commercial real-estate crunch is likely to be spread evenly across the nation, in large part because of an outgoing economic tide that's spared few companies anywhere.

"There's going to be a lot of trouble on Main Street with some of these commercial and industrial buildings. The biggest impact will be on some of the smaller owners," Waters said. "The smaller local regional players that are stretched thin may have some great difficulties with their mortgages."

How bad it gets will depend on speed of economic recovery. Office space and multifamily apartments, two huge components of commercial real estate, are highly dependent on employment. Even if the economy begins growing again late this year as forecast, the number of unemployed is expected to keep rising well into next year.

"The translation is that office vacancy rates would continue to rise until mid-to late-2010," said Christopher Cornell, an economist specializing in commercial real estate for Moody's Economy.com, adding that "it's a drag on the recovery" well into next year.

The last crisis in commercial real estate — which includes office space, malls, industrial parks and multifamily apartments — came in the early 1990s. The problem then was an oversupply of new properties. Today, the driver is a deep economic downturn, with the economy contracting by more than 6 percent in each of the last two quarters.

As in the housing meltdown, weakened lending standards are a big part of the story for commercial real estate. Unlike housing, however, the ill effects from weakened commercial lending standards have been camouflaged to date because they've had a longer horizon than housing did over which to implode.

"If you take a look between 2005 and 2007, the underwriting standards on both the consumer side and the commercial side were spinning out of control," said Kevin Blakely, the president of the Risk Management Association, a Philadelphia-based trade group for financial risk managers. "I think it is a bigger issue than we like to admit."

In housing, many of the loans with poor underwriting went bad within two years, when adjustable-rate mortgages were due to reset to higher interest rates and raise monthly payment costs for homeowners.

However, commercial properties carry mortgages with lives of five years or 10 years. And these loans issued from 1999 to 2007 are coming up for a rollover — refinancing under similar terms. Today's economic downturn and credit crunch makes that unlikely, however, as credit standards have tightened.

As in housing, many commercial properties have mortgages that were bundled together in pools, sliced and diced and instead of being held by banks were sold to investors as bonds and securities. Thousands of these commercial mortgage-backed securities, or CMBS, are reaching their maturity dates over the next three years. Ten-year mortgages issued in 1999 and 2000 start coming due late this year, and five-year loans issued from 2005 to 2007 come due early next year.

"If you stop and think about what is coming up for maturity over the next couple of years, either on the banks' books or CMBS, there is going to be a day of reckoning as those loans mature and they have to be rebalanced and reset to today's underwriting standards," said Blakely, who worked 17 years as a bank regulator followed by 17 years as a bank executive and risk officer.

A March study by the Wall Street arm of Deutsche Bank, Germany's largest financial institution, points to this day of reckoning. It found that the number of U.S. commercial loans that hadn't refinanced within a month of their end date had tripled.

Refinancing usually happens months ahead of the end date. Since October, commercial refinancing has dropped from a pace of more than 400 mortgages a month to fewer than 100 a month, the bank said.

The report, entitled "Commercial Real Estate at the Precipice," said that under lenient underwriting standards, 56.8 percent of existing commercial mortgages wouldn't qualify for refinancing. Using conservative standards, two thirds won't make the grade.

That suggests that lenders will have to extend loans, much like they've tried to freeze adjustable-rate residential mortgages at their original lower rate to avoid a foreclosure. Even if the commercial loans are simply extended for a year or two, however, commercial real-estate prices are forecast to keep dropping so the time bomb will be delayed not defused, the report concluded.

"In our view, much of these losses are unavoidable, even in a mass (loan) extension environment," wrote Richard Markus, the report's author.

Forecaster Moody's Economy.com expects $375 billion in losses on the $3.5 trillion in commercial mortgage loans and securities outstanding. That's a loss rate of about 11 percent, nearly twice the rate of home mortgage foreclosures, and the forecaster thinks that about $200 billion of those commercial losses are still ahead.

"This is significant, but small compared to the over $1.1 trillion losses ultimately expected on residential mortgage loans and securities. Commercial mortgage losses will be a significant problem for many mid-sized and small banks," said Mark Zandi, the chief economist for Moody's Economy.com. "In fact, most of the banking failures that occur in the next several years will be due to losses on commercial mortgage loans."

Earlier this year, the Treasury Department and Federal Reserve announced a program in which they'll lend to investors willing to purchase the safest, top-rated commercial mortgage-backed securities. The Fed is trying to use its power as a lender of last resort to help keep some credit flowing into commercial real estate markets. This effort, however, is of limited importance because it targets the safest of commercial mortgages and won't address all that ails this important sector.

Additionally, pools of commercial mortgages are expected to be included in the auction of so-called toxic assets being readied by the Treasury Department through a public-private partnership.

Still, commercial real-estate brokers are bracing for protracted hard times.

"There will be a re-engineering of the culture of the real estate business," said Waters, the NAI Global executive, who expects few new development projects until the mortgage problem runs its course. "All the avenues to dispose (of bad commercial loans) are going to be utilized."

[heavyhebrew]

So a collapsing market in both single family homes and commercial floorspace tied to draconian bankruptcy laws and a loan sharking mortgage industry on the march against the poor and unfortunate of this country. Add a touch of credit card default tsunami on the horizon, an overhyped pandemic to even further suppress recovery and VIOLA! We done got enslaved and we don't even recognize it yet.

Can't own land, can't pay the taxes, can't start a business, can't get the capital, can't get a job, can't find any work, can't catch a break because the system is so rigged against us.

Time to take down the system.

[bigron]

Some of Us Still Think They Can Get Rich Quick from the Real Estate Bubble

A visit to a packed real estate seminar on how to "get paid to buy a house" reveals that the bubble mindset still hasn't popped.





By Joseph Huff-Hannon, New York Press
Posted on May 2, 2009, Printed on May 2, 2009
http://www.alternet.org/story/139474/

My path to real estate riches began on the New York subway, when I grabbed a copy of a free daily rag one morning to read on the way to work. On the same day that Bernie Madoff pled guilty to the biggest investment fraud in Wall Street history, I was intrigued to find a full-page ad with the blaring headline:

"HOW TO GET YOUR SHARE OF TODAY'S TRILLION DOLLAR RECOVERY."

Besides details on a series of free, upcoming workshops where all would be revealed, the ad offered a mouthwatering menu of claims on "How to cash in on the biggest real estate liquidation sale in our entire United States history" and "how to maximize your profit with lucrative foreclosures." Even better was the claim that, "You can buy homes with little or no money coming out of your pocket. That's right: GET PAID TO BUY A HOUSE." There's even a quote from CNBC's embattled maharishi of mammon, James Cramer, citing the "precise date" that the housing market will turn around. If you care to mark your calendar, it's June 30, 2009; though given some of Cramer's other predictions of late, you might want to hedge your bets. Sold!

So, on a recent Monday afternoon, I went to the Roosevelt Hotel, a stately and well-appointed place just west of Grand Central where only the most respectable types might gather. Eighty or so of us took our seats in front of a large movie screen in an opulent banquet hall, as what sounded suspiciously like the theme music from Baywatch was piped in from speakers.

"You are all in for a real treat this afternoon," said Terry, the tall gentleman in a crisp blue polo shirt who took our registrations at the front table. He then handed over our nametags with our first name printed in big bold writing. As the lights were dimmed and the promotional film for the Robert Allen Institute's "Recovery Riches" program is queued, I was transported back to an era I naively assumed no longer existed when Flip This House was one of the most top-rated TV shows on cable and the phrase "no money down" was printed on many a mortgage brokers' calling card.

Not so. The video that segues in to the free two-hour "Creating Wealth with Real Estate" workshop is full of smiling people who presumably haven't read the news lately, as they tell us rubes in the audience things like: "No money down is possible, I've seen it!" and "Turn properties over to investors for quick cash!" Testimonials are given by people who claim to have made tens or hundreds of thousands of dollars in a matter of months in real estate, thanks to the advice and guidance of one Robert G. Allen, author of such books as The One Minute Millionaire, Nothing Down and Creating Wealth. A voiceover tells us that we too can be part of this talented class of real estate gurus, as images of a young woman riding a horse, a couple relaxing with glasses of wine in hand and a family walking along the beach flow across the screen. The video ends with a rousing tune and a challenge to: "Be Robert Allen's next millionaire!"

In a country where over 6,000 homes now enter foreclosure every day, and where millions of people's retirement income has been wiped out thanks to a financial house of cards built on dubious home loans, I found it curious that the best advice about how to cash in on the collapse of the real estate market might be found in a newspaper ad or on late-night TV. So did a lot of other people it turns out. The workshop was packed, and based on my conversations with many of the other attendees -- mostly middle-aged men and women, the majority of whom appeared to be immigrant New Yorkers -- the dream of quick money through real estate still appears to be a component of our hardwiring that is difficult to turn off.

As the economic crisis plunges more people in to unemployment, crushes investments and leaves more Americans homeless or dangerously close to it, it's not surprising then that these kinds of pie-in-the-sky, get-rich-quick schemes are coming out of the woodwork -- reminiscent of the army of snake oil salesmen that proliferated during the Great Depression. Then, as now, an expanding pool of desperate people searched for cures, hope and salvation. And in New York City, where real estate and God vie for supremacy, this kind of pitch is especially seductive. The remarkable thing is that with only a few minor tweaks, this "real estate riches" pitch is seamlessly adapted to our new, post-subprime-lending implosion era with relative ease.

Missed your opportunity to cash in on the housing bubble? Never fear, the Robert Allen Institute and its frontmen who roam the land will teach you how to find the silver lining in the real estate rubble all around us.

When James Gripshover strides in to the room, it's clear who's in charge. While the mug of "best-selling author" Robert Allen may have graced the full-page ads and the promotional video, Gripshover is clearly the Closer. He's an easygoing guy with an intense gaze who paces up and down the aisle and uses his hands expressively to drive a point home, wears the same blue polo shirt as Terry and sports a clean-cut blond head of hair. "I need your help," Gripshover tells us.

"I need you to nod your head and say yes when you agree with something I say. Can everybody do that?"

"Yes!" the audience responds with gusto, gripping their pens and sitting up straight.

Over the next two hours Gripshover employs many of the tried-and-true methods of emotional and persuasive group marketing. He addresses people by their first name (thanks to the name tags), talks about his own remarkable success flipping properties in pre-foreclosure and short sales for the last 12-plus yearswhich helped him buy a beach house near San Diego and a condo in Tahoe. Gripshover is living the good life now, so he has all the time in the world to coach his daughter's softball team. He shows us a few cheerful slides of his daughter at the batting cage for effect.

As a cautionary tale, though, he also chronicles the sad tale of his brotherin-law. "Chuck" is a chronic procrastinator and never could quite get with the houseflipping program. When he finally did get in the game in 2006, he bought late and he bought high. So, he sadly remains a nonmillionaire to this day.

In contrast, we are shown a photo of "JJ Bright," a precocious scamp with bushy, brown hair and braces who just graduated from the eighth grade. After enrolling in the program, JJ found a home in preforeclosure "in his own neighborhood" and made a cool $23,000 on his first dealif Gripshover is to be believed. The message is clear, but just in case we missed it, we are told, "If JJ can do it, anyone can!"

I glance over at a mother and her young son sitting on the other side of the room and wonder if I may be looking at the next JJ Bright.

Gripshover also takes us through a sort of Subprime Real Estate Implosion 101, and cites data from the New York Times and the Center for Responsible Lending to the effect that, ladies and gentleman, we here in this room are all sitting on top of a 30-year record amount of undervalued properties. Although Gripshover does express some misgivings about the unfortunate circumstances in which many of those homeowners now find themselves, he's also an optimist. "It's a goldmine!" he tells us. "Don't let yourself do what my brother did!"

Indeed, nobody wants to be Chuck, and we are all asked to repeat out loud a sentence that flashes up on the screen: "Procrastination is the killer of our goals and dreams."


--------------------------------------------------------------------------------

So how does it work? Basically, this free session is a set up to convince us to pay $2,995 for an upcoming three-day seminar where they will really spill the beans

about how to find undervalued properties in pre-foreclosure, how to package the perfect short sale proposal for the bank that holds the mortgage and how to flip the property for a quick profit after we've bought it from the bank for a song.

Bad credit, no credit or no money down? Not a problem, the Institute has an "exclusive" list of "private lenders" who will lend you the dough at "elevated" interest rates (even James admits the rates can be as high as 13 percent). Don't sweat the details though, because you're going to make a huge profit off the transaction. No money to pay for the three-day seminar to get you going on your new career? No biggie, put it on your MasterCard. By the time you cut your first deal and get that $20,000 profit check, you'll be able to pay it off in whole. Additional books, DVDs and subscriptions to a database of foreclosed and about-to-beforeclosed properties can also be had, for an additional charge to your credit card.

Sound familiar? I too seem to remember that the subprime meltdownwhich has by now brought the global economy to its knees was built on a similar ideological foundation of fake money, hidden and usurious interest rates, "no money down," "no risk" and "buy now, pay later." And I don't think I need to remind you how that one ended.

At times the workshop takes on the feel of a Marxist cadre meeting, or a study group convened to discuss the work of influential political thinker David Harvey and his theory of "accumulation by dispossession." The phrase describes a form of capitalism built on dispossessing others of all forms of wealthland, resources, labor powerby targeting those already most vulnerable to the market's depredations. In the banquet hall of the Roosevelt Hotel though, the proles in the room don't appear to feel much solidarity with the lumpen whose homes are being dispossessed en masse. When Gripshover tells the crowd that, over the next 18 months, "we will witness the largest shift of wealth in U.S. history," an excited murmur rises from the crowd. And when he shows a slide from the "proprietary database," which highlights the 3,000-plus properties heading in to foreclosure in Brooklyn, somebody in the back of the room yells out, "Woo Hoo!"

When I later ask one of the other attendees, a Caribbean woman named Dolores, if she doesn't find it a bit troubling that the program is banking on the financial ruin of other homeowners, she changes the subject.

After the question-and-answer period while small groups of attendees are gangpressed to the back of the room for the hard sellI approach a few people in the hallway outside to get their take on the workshop.

"It's beautiful, pure genius," says Clay, a gentleman with an accent who sat to my left during the presentation, and who was still deliberating on whether to drop the $3,000 for the three-day seminar.

Although Dave -- whose snores carried across the room as he dozed off a few times during the workshop -- wasn't prepared to hand over his credit card just yet, he was impressed all the same. "Like, wow, the guy just says things, and you know he knows what he's talking about."

I do find a slight skeptic in Pete Valdez, an elderly man from Queens who urges that I attend other seminars and don't commit "just yet."

It's frankly amazing, and quite depressing, that in this era of information overflow, so many people still employ so little due diligence when tempted by propositions that fit the dictionary definition of "too good to be true." One of the first hits for a quick Google search on the Robert Allen Institute is at ripoffreport.com, a site dedicated to complaints about frauds, scams and unscrupulous businesses. Here you will find a long and sad list of people from all over the country who also had hopes of learning how to house-flip their way to millionaire status.

"They take your money and then won't give it back, even though they promise you a refund if you don't succeed," reports Patti, of Elmwood Park, Illinois. "I personally put $15,000 on my credit card, under the idea of making that money back with my first house deal, that hasn't happened and won't happen anytime soon. Now I can't even get a loan for a house because I have too much debt, and I'm in a hole so deep I can't get out."

"I have gone in to debt with my credit cards and wasted the little money I had in the bank account, and my family's money as well," reports Andres from Dallas, Texas. "The Robert Allen Institute has put my family and I through so much stress I don't know what else to do anymore!"

Then again, maybe this isn't so surprising, after all human behavior is driven as much or more by emotion and wishful thinking than informed decision-making, despite what we often tell ourselves. And given the collapsing economy, I wonder how many attendees of the "real estate riches" workshop at the Roosevelt Hotel are worried about keeping up on their own mortgage payments, or how many are only a few months away from foreclosure themselves.

Or perhaps they're just looking for a little good news. I did notice that many of the people leaving the seminar seemed energized and invigorated, their confidence restored in the miracle making abilities of our laissez faire system despite all the negative news. And in this bold new era, who can blame them for not wanting to be left behind. While Flip This House continues to air on A&E to a devoted following, the way things are going, maybe it's only a matter of time before some plucky TV producer launches Flip or be Flipped, the newest cutthroat reality show for the Great Recession.



© 2009 New York Press All rights reserved.
View this story online at: http://www.alternet.org/story/139474/

[Geolibertarian]

Some of Us Still Think They Can Get Rich Quick from the Real Estate Bubble

It requires a considerable amount of labor and capital goods to construct and repair houses, buildings and other improvements, so I don't think it can be stressed enough that what people are really trying to get easy money from is not a "real estate" bubble but a land bubble:

       http://www.henrygeorge.org/bust.htm

We have our anti-labor/pro-land speculation tax system to thank for that, because it is this system that rewards and encourages just this sort rent-seeking behavior while simultaneously penalizing and discouraging productive behavior.

http://www.youtube.com/watch?v=6ZkfmY1PMng

[bigron]

May U.S. foreclosures third highest on record




Thu Jun 11, 2009 9:07am EDT
By Lynn Adler
http://www.reuters.com/article/topNews/idUSTRE55A0NS20090611?feedType=nl&feedName=usmorningdigest

NEW YORK (Reuters) - U.S. foreclosure activity for May ebbed from April's record, but mortgages still failed at a staggering pace as President Barack Obama's rescue programs had not had time to fully take root, RealtyTrac said on Thursday.

Foreclosure filings dipped 6 percent in the month but increased 18 percent from May 2008, marking the third highest month on record.

"There were almost one million foreclosure filings in a three-month period, and that's simply unprecedented," Rick Sharga, senior vice president at RealtyTrac in Irvine, California, said in an interview.

Temporary freezes on foreclosure activity ended in March. Failures of many seriously delinquent loans that were put on hold during those moratoria have been thrust back into the foreclosure cycle.

One in every 398 households with loans got a foreclosure filing in May. Filings, which include notices of default and auctions, were reported on 321,480 properties last month.

Stemming foreclosures is seen critical to bolstering home prices, consumer confidence and the recessionary U.S. economy.

Bank repossessions, known as real-estate owned or REOs, rose in May and should spike in coming months because the moratoria ended, RealtyTrac said.

OBAMA PLAN NEEDS TIME

The administration's plans to ease loan modifications and refinancing were detailed in early March and haven't been implemented long enough to derail foreclosures.

The hurdles are high. Unemployment reached a nearly 26-year peak in May and mortgage rates have leaped a percentage point from their spring lows to more than 5-1/2 percent.

"One of the cures to this problem is enough buying activity to eat up the inventory of distressed properties," Sharga said. "If mortgage rates go up to where people decide to wait out the market again, that's just going to add to the inventory numbers and put more downward pricing pressure on all homes."

RealtyTrac forecasts about 4 million foreclosure filings will be made this year on about 3.1 million households with loans. Last year, there was a record 3.1 million filings on about 2.4 million households.

In a more typical year, Sharga said there would be around 800,000 filings on 550,000 households.

"When you have a glut of inventory and downward pricing pressure that does tend to push properties into foreclosure," said Sharga.

States where sales and prices soared most in the five-year housing boom earlier this decade remained the hardest hit.

Nevada stayed at the top of the foreclosure rate rankings by state, with one in every 64 housing units getting a foreclosure filing. California, Florida and Arizona, Michigan, Georgia, Colorado, Idaho and Ohio were the other states with the highest foreclosure rates.

Ten states, led by California, accounted for almost 77 percent of total number of foreclosure actions in May.

"We need to give the administration's programs a little bit of time to gain traction," Sharga said. "If unemployment continues to worsen, all bets are off on foreclosure rates."

(Editing by Chizu Nomiyama)

[Geolibertarian]

May U.S. foreclosures third highest on record

As far as right-wing ideologues such as Walter E. Williams are concerned, this is a good thing.

Why?

Because according to them, even though the bankers are the ones who orchestrated this economic collapse in the first place, and even though the bankers gave no lawful consideration for any of the loans they extended, these parasitic oligarchs should -- in the name of "individual liberty," "property rights" and the "free market" -- be allowed to foreclose on millions of Americans anyway.

There is apparently no amount of aristocratic, euphemism-laced propaganda that an alarming number of well-meaning dupes won't fall hook, line and sinker for as long as the ideological snake-oil salesmen peddling it have cloaked themselves in the flag of "liberty."

[bigron]

Home Loan Scamming Is Still Going Strong -- and Now You're Paying for It

Welcome to subprime swindle 2.0: the feds' desperate attempt to reinflate the popped housing bubble.


By Yasha Levine, AlterNet
Posted on June 16, 2009, Printed on June 16, 2009
http://www.alternet.org/story/140683/


Everything the real estate industry tells you is a hustle. No industry is more geared toward pumping up the positive and burying anything remotely negative, leaving you -- and truth -- out in the cold.

The crash has not made real estate agents any more honest, but at least the gap between the industry's crazed optimism and stark reality has grown so obvious that even the real estate industry can't hide it anymore.

Nowhere is this more obvious than in Victorville, Calif., an exurb of Los Angeles situated in the high desert where housing bubbled up higher than just about anywhere at the peak of the subprime-lending craze and is still in free fall today.

These days, there are a lot of lies and broken dreams buried in the gravelly sand on which Victorville was built. During the last real estate boom, this barren wasteland was the mecca of low-income homeownership, proof that the American Dream was within reach of all.

Tract-home developers stripped away the rocks and tumbleweeds and Joshua trees, replacing them with mazes of curvy streets and cul de sacs with soothing names like Cottontail Drive, Steeplechase Road and Ladybird Lane, lining them with the cheapest McMansions in California. Things exploded out of control this past decade, with the population doubling to 100,000 in just eight years.

But that whole way of life is over now. Unemployment in Victorville is way above the national average, and violent crime has shot up. Homes prices have plunged to 1989 levels and many stand empty. Banks don't even bother to putting them on the market.

Yet, last week, the press started hyping up the supposed real estate sales-driven economic turnaround that was about to sweep the country. "Honk if You Think It's Over," read a June 7 New York Times headline. "The panic in the Manhattan real estate market of the winter of 2009 lifted in the last few weeks, brokers say, as more and more buyers and sellers have found the courage and the comfort level to sign on the dotted line."

The Washington Post went even further: "Economists, senior government officials and ordinary consumers are all showing greater confidence in the outlook for the economy. ... There are unquestionable signs of economic progress." ABC News went with a rhetorical structure: "Has the Recession Finally Ended? Strong Home Sales Are Just One Indicator That the Economy May Be on the Mend."

From where I sit, this reads like pure fiction. It runs contrary to virtually every economic piece of data available: rising unemployment, growing credit card debt, a massive shadow inventory of foreclosed homes and a wave of defaulting ARM and commercial loans that's just around the corner.

But there is something else, too. And it is as deadly to our vampiric debtor economy as a stake through the heart: the FHA loan. By guaranteeing certain mortgages, the Federal Housing Administration has been helping middle- and low-income Americans purchase their first homes ever since the 1930s.

But this modest leg-up program has been been hijacked and transformed into the new subprime-loan market operated by lenders who are as corrupt, predatory and shortsighted as the original, and maybe even more so. Because this time taxpayers have been put on the hook for the risk well in advance. Real-estate insiders have been sounding the alarm about this new shadow subprime mortgage market -- which is now almost $600 billion strong -- for months now. But instead of listening, Congress has been trying to expand the FHA loan program.

Not surprisingly, it seems that risk-free loans are the only way they banks can be persuaded to start lending again. But I wanted to find out firsthand how much of an impact these loans were having on the housing market. So last weekend, I shaved, put on a clean shirt and headed out for a day of shopping in Victorville.

Around here, it is much easier to shop for a brand new home than to find someone who will show you one of the many foreclosed ones. You don't need to make an appointment with a real estate agent, hunt down open houses on a Sunday afternoon or attend auctions. All you have to do is take a drive any day of the week during normal business hours and look out for the huge signs plastered around town. They are not easy to miss.

It took me five minutes to spot a new development on the very edge of Victorville's sprawl. The sign was dark green and advertised a development called "Braeburn at West Creek," with luxurious and spacious homes offered for around $200,000. The development had a quiet, upper-class suburb feel to it: new cars, landscaped lawns, no traffic and wide streets. Passing a group of kids playing basketball in the middle of one of the streets, I pulled up in front of the Braeburn sales office, built into the garage of a model two-story McMansion painted a trendy brown.

It was 3 p.m. on Saturday, prime house-hunting time. With all this buying activity the industry was reporting, I half-expected to run into other bargain shoppers like myself. But I was the only customer in the real estate office.

"Hello! Have you come to see the houses?" a chipper female voice yelped from a distant corner of the office. "Give me a second, I'll be right out." I couldn't get a visual on her. It was huge, this garage -- er, office -- big enough to hold three cars, easily the size of a decent apartment. Schematic drawings hung on the walls showing all the wonderful house configurations you could order.

That was when the voice appeared in human form: a blond middle-aged woman emerged from a corner office with a bundle of keys. Braeburn had three floor plans to choose from, she quickly started explaining. But I could only look at two of them. The third was still under construction. But if I wanted to, I could drive around and look at it: "It is quite far along in the building process."

The homes were all quite similar: all three had two floors, four to five bedrooms and range of 2,454 to 2,765 square feet. All of them had what's called a "great room," something you see in new home developments that combines the kitchen, living and dining rooms into one great open space.

"We have sold 105 homes so far, and I have about 30 homes left," the agent said, whipping out a photocopy list of Braeburn's homes, complete with lot numbers. "Right now we are headed into this cul de sac. This is our last cul de sac." The rest of the homes would be built on mere streets. She circled homes numbered 85 through 98 surrounding a dead end street called Window Rock Court.

"This is a nice neighborhood. I have a few foreclosures in here, but if you drive the neighborhood and ask the people, they'll tell you how they like it here. And how they are real comfortable. I got some correctional officers here, LAPD, teachers from the school."

Jesus, I thought. What a neighborhood. Prison guards, cops and their school-teacher wives. All die-hard small-government Republicans, no doubt. And all in government employ. The last gainfully employed people in this country, and they're always talking shit about their employer, Big Government.

"But go look at the houses for yourself first. We can talk about it when you go back."

The model homes were fully furnished, and looked like they came out of a Martha Stewart magazine with a theme of "the antique and modern in harmony." I had to hand it to them, it worked. It felt like home, as long as you didn't look out of the master bedroom window. The mini-highway and a barren desert wasteland dotted with high-voltage power lines squashed that comfort feeling.

These houses were clearly a step up from the entry-level McMansion I lived in just a few blocks away. But were they worth the extra $100,000 that you could be saving if you tried to get one of few foreclosed properties that are on the market? The sales lady assured me they were, and besides I'd never get a house for that price in Victorville.

"I have a lot of people coming in here that have been bidding on foreclosures until they are sick of it. They bid and they bid and they bid, and 20 other people are bidding, too. You throw a number out, and you never get anywhere. So they say 'I want my tax credit. I want my new home. I'm gonna pick my own carpet. I know it's under 10-year structural warranty and two-year cosmetic warranty.' "

Are the news reports about the increase in home sales true, I asked. She nodded. "I've been here for three years. Last year was really slow going, but this year has been really good. I've had four sales last month, three sales the month before that. First-time home buyers, that's what I'm getting. People are like ‘prices are down, the rates are low ... time for me to get a house.' So why not? People are not afraid of getting into homeownership. So that's a good sign, right?"

Of course, I nodded. Great for the economy. Great for Victorville. But the longer we talked, the more obvious it was FHA loans were at the core of a real estate scam of frightening proportions that was reinflating the real estate bubble with taxpayers' money, all in the name of economic recovery.

"Oh yes, we work with a lender. All you have to do is come in and let me worry about the paperwork. Right now you'll probably be able to get a 5 percent interest loan, which is good. And credit history is not much of a problem. We are doing just FHA loans, so we don't even go by a FICO score. If you haven't been late in the last 12 months on anything, you are eligible. People get in here with credit scores of 580s and 600s, but they've been on their job for 15 years, and they got a good history. The FHAs, that's what's helping out the first-time home buyers."

The FHA was helping the developers out, too. Even with boosts like the new accounting rules that allow banks to keep existing homes off the market (which boosts banks' assets and inflates home values by limiting supply) and taxpayer-funded cash perks for purchases of newly constructed homes, it could only work with zero-risk loans. No bank would consider giving a loan on obviously overpriced homes these days, especially with people with borderline bad credit. But thanks to the FHA, lenders literally cannot lose on these high-risk customers. So they are happy to hand out loans to all comers. In fact, places like Braeburn only sell to people who qualify for an FHA-backed mortgage: first-time home buyers. Fact is, FHA loans were the only reason places like Braeburn were still open for business. And that may not be such good thing.

FHA loans have been around since the Great Depression, helping working-class Americans buy their first homes by providing government insurance that guarantees certain types of loans at no risk to the lender. Until recently, they have been largely a force for good. During the civil rights movement, for example, FHA loans were retooled to help African Americans purchase homes. But like most public programs designed to help the American people, the FHA has been hijacked by big business -- in this case, the banking and real estate industries.

It was really a coup de etat for everyone involved. When the subprime market collapsed, President George W. Bush pushed Congress to heavily expand the the FHA loan program, increasing its budget, lowering entry requirements for both lenders and debtors. Eventually, our elected officials even took care of the bothersome 3.5 percent down payment requirement for the loan with all sorts of free cash.

Right now, the FHA is in essence giving out no-money-down loans to anyone who doesn't already own a house, regardless of credit history. In California, first-time homebuyers purchasing a freshly built home receive instant cash in the form of a tax credit: $8,000 from the feds (soon to be increased to $16,000) and $10,000 from the state. Local governments are also throwing in some goodies.

"I have some some money from the school facility fees that I can get. Like you need 3.5 percent down, but I can get you about $4,000 of that from down-payment sources. That just came back. It was gone but it's back," said the sales lady at Braeburn, lowering her voice just a bit that made it seem this was some sort of racket. "And we pay the $10,000 closing costs for you, as well. It's a win-win situation."

Win-win, indeed. If you bought Braeburn's largest home at base price, you'd pay nothing up front and have more than $5,000 left over for some new furniture, a 40-inch LCD TV and a weekend trip to Disneyland.

Homeowners have never been offered a better deal, but many won't hold on to their purchases for very long. It is common real estate industry knowledge that the less a buyer puts on a down payment, the more likely that buyer is to default. But no one seems to care, not the banks and not our government. In fact, Connecticut Sen. Chris Dodd, hardworking bank-shilling Democrat, has been pushing to increase access to FHA by making them available anyone, and not just first-time homeowners. He also wants to push the new-home federal tax credit to $15,000.

Under the guise of helping economic recovery, the bill is really a multidimentional wealth transfer, funding bank profits with taxpayer money while cutting taxes (tax credit is just another way of reducing tax revenue). This plan has received wide support.

The whole racket is so crude and so obviously doomed to end in disaster that papers like the Wall Street Journal, normally a champion of Thatcherite houseowning, have tried to blow the whistle:

The Next Housing Bust
Everyone knows how loose mortgage underwriting led to the go-go days of multitrillion-dollar subprime lending. What isn't well known is that a parallel subprime market has emerged over the past year -- all made possible by the Federal Housing Administration. This also won't end happily for taxpayers or the housing market.

Last year, banks issued $180 billion of new mortgages insured by the FHA, which means they carry a 100 percent taxpayer guarantee. Many of these have the same characteristics as subprime loans: low down payment requirements, high-risk borrowers, and in many cases, shady mortgage originators. FHA now insures nearly 1 of every 3 new mortgages, up from 2 percent in 2006.

The financial results so far are not as dire as those created by the subprime frenzy of 2004-2007, but taxpayer losses are mounting on its $562 billion portfolio. According to Mortgage Bankers Association data, more than 1 in 8 FHA loans is now delinquent -- nearly triple the rate on conventional, non-subprime loan portfolios. Another 7.5 percent of recent FHA loans are in "serious delinquency," which means at least three months overdue.

The FHA is almost certainly going to need a taxpayer bailout in the months ahead. The only debate is how much it will cost. By law, FHA must carry a 2 percent reserve (or a 50-to-1 leverage rate), and it is now 3 percent and falling. Some experts see bailout costs from $50 billion to $100 billion or more, depending on how long the recession lasts.

Private profits, public risk. It is a lurid example of the New Capitalism at work, exposing the cannibalistic nature of our society. Even the institutions created to serve the interests of the public have been perverted into instruments of theft.

Business Week, another conservative financial outlet, was actually warning about the FHA scam back in 2008:

For generations, these loans, backed by the Federal Housing Administration, have offered working-class families a legitimate means to purchase their own homes. But now there's a severe danger that aggressive lenders and brokers schooled in the rash ways of the subprime industry will overwhelm the FHA with loans for people unlikely to make their payments. Exacerbating matters, FHA officials seem oblivious to what's happening -- or incapable of stopping it. They're giving mortgage firms licenses to dole out 100 percent-insured loans despite lender records blotted by state sanctions, bankruptcy filings, civil lawsuits and even criminal convictions.
More Bad Debt

As a result, the nation could soon suffer a fresh wave of defaults and foreclosures, with Washington obliged to respond with yet another gargantuan bailout. Inside Mortgage Finance, a research and newsletter firm in Bethesda, Md., estimates that over the next five years, fresh loans backed by the FHA that go sour will cost taxpayers $100 billion or more. That's on top of the $700 billion financial-system rescue Congress has already approved. Gary E. Lacefield, a former federal mortgage investigator who now runs Risk Mitigation Group, a consultancy in Arlington, Texas, predicts: "Within the next 12 to 18 months, there is going to be FHA-insurance Armageddon."

 

Yet the FHA scam goes on, despite these warnings, for the simple reason that it's the only thing driving an otherwise moribund real estate market. Without these FHA loans, the whole thing would collapse, sooner rather than later. The Business Week piece was published seven months ago. That leaves five months, more or less, before the Armageddon it predicts.

But for now, this racket -- and the couple of trillion dollars pumped into the financial sector -- are showing borderline modest results. On average, pending home sales rose by 6.7 percent in April. That's its highest level since September and the sharpest increase in seven years.

In Victorville, new housing developments are being kept inflated at slightly below 2004 price levels. There has been a slight increase in demand for new homes, too, causing some builders to start raising prices.

A KB Homes development not far from where I live has sold all its lots, raised prices by about 1 percent and even started a new development -- smaller, and with less flash, more in sync with the depressed market -- that will start selling homes sometime this fall. Even Home Depot said its earnings for the month of May were better than expected.

But if you walk just one block over from the booming Braeburn community, a whole row of homes stands empty. It is a grim reminder of the massive shadow inventory of foreclosed homes no one wants to think about. New-home values are being inflated, but existing homes are becoming increasingly worthless. In bubble cities all across California, real estate has fallen below 1989 levels.

Median Home Prices Drop Below 1989 Levels in Some Parts of Southland
Properties in several areas are selling for less than they did 20 years ago, and that's not including inflation. Some first-time buyers are nabbing houses for less than what their parents paid.

By Peter Y. Hong

June 10, 2009

In parts of Southern California, the housing crash has upended a basic tenet of the American dream: that home values always increase over the long term.

Properties in several areas are selling for less than they did 20 years ago, and that's not even counting the effects of inflation.

The government is knowingly flooding the market with homes at inflated prices, setting young families up for default and massively increasing taxpayers' exposure to more toxic debt ... and for what?

It's all about taking care of the banking and finance industry.

Bush was responsible for widening the scope of FHA loans with his "HOPE for Homeowners" program, pledging to make $300 billion available for FHA-backed refinancing that would've helped 400,000 families avoid foreclosure. But the program seemed to be more about coming up with a legitimate reason for getting as many lenders approved to take part in the racket as quickly as possible than actually helping people refinance their homes.

Six months after HOPE was signed into law, only one homeowner had successfully refinanced with the program. At the same time, the number of FHA-approved lenders doubled from around 16,000 to 36,000. It was perfect timing, as many of them were subprime lenders looking for a new gig.

Here's Business Week again:

FHA "faces a tsunami" in the form of ex-subprime lenders who favor aggressive sales tactics and sometimes engage in outright fraud, says Kenneth M. Donohue Sr., the inspector general for the Department of Housing and Urban Development. "I am very concerned that the same players who brought us problems in the subprime area are now reconstituting themselves and bringing loans into the FHA portfolio," he adds.

FHA staffing has remained roughly level over the past five years, at just under 1,000 employees, even as that tsunami has been building, Donohue points out. The FHA unit that approves new lenders, recertifies existing ones and oversees quality assurance has only five slots; two of those were vacant this fall, according to HUD's Web site. Former housing officials say lender evaluations sometimes amount to little more than a brief phone call, which helps explain why questionable ex-subprime operations can reinvent themselves and gain approval.
So here we are. Subprime 2.0. Just like the last subprime bubble, it might help the economy in the short term; real-estate industry profits will soar, developers will keep the construction business running, banks will look more solvent and inspire confidence in the economy, which will help keep the bubble inflated. But it won't last.

The second contraction will come, and when it does, it'll be bigger and badder than ever. And the government bailout will come straight out of our pensions and health care.


Read more of Yasha Levine's work at eXiledonline.com.

© 2009 Independent Media Institute. All rights reserved.
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