Hotels in Tucson, Ariz., and Hilton Head, S.C., also are about to default on their mortgages. That pace is expected to quicken. The number of late payments and defaults will double, if not triple, by the end of next year, according to analysts from Fitch Ratings Ltd., which evaluates companies’ credit. “We’re probably in the first inning of the commercial mortgage problem,” said Scott Tross, a real estate lawyer with Herrick Feinstein in New Jersey. That’s bad news for more than just property owners. When businesses go dark, employees lose jobs. Towns lose tax revenue. School budgets and social services feel the pinch.
Companies have survived plenty of downturns, but economists see this one playing out like never before. In the past, when businesses hit rough patches, owners negotiated with banks or refinanced their loans. But many banks no longer hold the loans they made. Over the past decade, banks have increasingly bundled mortgages and sold them to investors. Pension funds, insurance companies, and hedge funds bought the seemingly safe securities and are now bracing for losses that could ripple through the financial system. More
Peter Schiff www.signonsandiego.com
If you are a mortgage holder who is either struggling with crushing payments, bitter for having overpaid for your home during the bubble, or who has extravagantly refinanced when prices were rising, the government’s landmark $700 billion bailout package has an important message for you: stop making your mortgage payments . . . immediately. Furthermore, if you believe that with some planning and sacrifice you may be able to meet your mortgage obligations, the government’s message is clear: relax, don’t bother.
While angry voters have labeled the package as a bailout for Wall Street, it is more akin to a “Get out of Jail Free” card for anyone who acted irresponsibly during the boom. Here’s why.
Nobody likes foreclosure, least of all politicians. The new law clearly indicates that the government will make major efforts to reduce foreclosures through “term extensions, rate reductions and principal write-downs” of the troubled mortgages that it buys from the private sector. In other words, your new landlord will bend over backward to keep you in your home. The legislation telegraphs this by including a provision that extends until 2013 the exclusion of loan reductions from taxable income.
When a financial institution holds a mortgage, homeowners must live with the fear of foreclosure. Private institutions only have obligations to shareholders. In the case of a defaulting borrower, they will look to recover as much of their principal as possible. If foreclosure is their best option, they will take it in a heartbeat.
The government has no such obligations. Its only goal is to keep voters happy. After supposedly bailing out the fat cats on Wall Street, no politician wants to be accused of evicting struggling families. Once you understand this, all of your anxiety should melt away. Why pay your mortgage if foreclosure is off the table, and if you know that lower payments, and possibly a reduced loan amount, would result? A tarnished a credit rating is a small price to pay for such a benefit.
Unfortunately, this boon will not extend to those foolish individuals who either made large down payments or resisted the temptation of cashing out equity. The large amount of home equity built up by these suckers, I mean homeowners, means that in the case of default foreclosure remains a financially attractive option. As a result, these loans will be much less likely to be turned over to the government.
If your mortgage does become the property of Uncle Sam, the growing popular impulse to “just walk away” should be replaced by “just stay and stop paying.” No one will throw you out. After a few months, or years, of living payment free, you will get a call from a motivated government agent eager to adjust your loan into something affordable.
To bolster your bargaining position it will help to be able to claim poverty. As a result, if you have any savings, spend it soon, before they call. Buy a bigger TV, a new wardrobe, or better yet, take a vacation. After the hardship of spending all of your refi cash, you probably deserve it. If you have any guilt just remember, Washington argues that consumer spending is the best way to stimulate the economy. Living beyond your means is a patriotic duty.
If you do get the opportunity to live for a while with no mortgage payment, don’t make the tragic mistake of using your extra cash to pay down your credit cards. As the growing level of credit card defaults will soon push credit card companies into bankruptcy, we can expect a similar bailout plan for American Express and Discover Financial. When that happens, expect massive balance reductions for Americans who can demonstrate the inability to pay. The bigger your balance, the greater the benefit.
Taxpayers, however, will not be so lucky. The savvy investment strategists who see the government turning a tidy profit on its mortgage purchases have not factored in the incentives that will discourage nonpayment. The only way the government will be able to profit would be to buy the mortgages at deep discounts to actual loan values. However, if the purchase prices are too low, the plan will bankrupt the institutions it is trying to bail out. On the other hand, if it substantially overpays, which seems far more likely, it will bankrupt the nation.
In any event, as more and more borrowers succumb to the allure and safety of nonpayment, look for the number of troubled assets to swell. This will ensure that the $700 billion merely represents the first installment in what will be a multitrillion-dollar plan. Just as government policies provided the primary impetus in blowing up the housing bubble earlier in the decade, its latest attempt at market manipulation will only result in making a terrible problem far worse.
Source: Mr. Mortgage
The MBA just put out a new foreclosure study with results that match exactly what I have been already seeing for months and mirrors where I think it is going. This is in-line with my long-term predictions made in 2006 about the fall-out.
As a matter of fact, when a good friend Herb Greenberg (rest his journalistic soul) published my time-line in Nov 2007 the story was one of the most ‘read and responded-to’ blog posts in MarketWatch history. If you read through the comments section, the number of mortgage and real estate professional comments and confirmations is staggering. How could so many have known exactly how this would play out, yet it each development always catches everyone off-guard. Link: Straight-Talk From a Mortgage Insider
This newly released MBA research is solid. It is some of the only solid research I have read as of yet. When reading, pay special attention to the underlined portion below. It is especially concerning and what many still don’t fully appreciate…home owners looking at the home as an investment and not a place to live with the negative equity effect being a driver in foreclosures. This is also what many fear the most. This has what has led to the jump in paper-grade defaults from Subprime to Alt-A to Jumbo Prime then Prime that I have been watching occur now for six months, about which others are just beginning to speculate. For those die-hard Mr Mortgage readers, you already knew this was happening…but it is great to get public confirmation from a source that has every reason to hide it. Hat-tip to the MBA.
There is no doubt that the ooze is spreading from Subprime to Pay Options, Alt-A, Jumbo Prime and A paper. It is what it is. It is kind of funny that we have all of these names differentiating the paper grades at this stage anyway. It is all nonsense because after so many rounds of downgrades from the raters, values being off so much and between 2003 and 2007 the line between all paper grades becoming so blurred due to all sensibility and risk management leaving the mortgage sector, everything is likely several paper grades lower than its initial ratings anyway. At this point in time, they are all just ‘mortgages’. More
Source: SAN FRANCISCO (CBS 5) ―
A San Francisco Wachovia branch was under siege Wednesday afternoon by people on the verge of losing their homes. Those people accuse the bank of giving them mortgages that the bank knew they couldn’t afford. Wachovia is the owner of the former Oakland-based World Savings, a bank that CBS 5 has been investigating for months. The bank is one of the Bay Area’s largest, but one that advocates say repeatedly refuses to modify loans and help keep customers in their homes. A CBS5 investigation revealed a pattern of loans to elderly minority homeowners in Oakland and other cities, loans many now say they didn’t understand, and could never afford.
One of those people is 81-year-old Nell Walker of San Francisco, whose family said in 2006 received a “Pick-A-Pay” loan for over $300,000 even though she’s on a fixed retirement income. “I think a lot of it was misleading and it wasn’t explained,” said Walker. “They gave it to my mom and to this day we still don’t know how. She has never worked a day in her life,” said her daughter Jacqueline Phillips. Now the minimum payment is about to go up, and Walker may lose her home of over 40 years. “It’s awful! I’m 81 years old,” she said.
“We got fooled into loans that we couldn’t understand, and I think they need to show a little good faith and renegotiate our loans,” said her daughter.
Phillips, who belongs to community organizing group Acorn, took her frustrations directly to the teller counter at this downtown Wachovia office. The demand: that the branch fax a letter to Wachovia’s new CEO. “We would like you to fax this to your CEO,” she told the branch manager. “We will not,” he replied. As she later put it to us: “Just like Wachovia, that’s what you get. The brushoff.” A few hours later the bank did agree to fax the letter, which calls for Wachovia to renegotiate the protesters’ loans.
As Merced [California] goes, so might go much of the nation. With as many as 2.5 million homes in the United States entering foreclosure this year and, at best, sales of only five million existing houses, the foreclosure price is becoming the rule in many areas. In Los Angeles County, whose 10 million people make it the most populous county in the United States, a third of the sales are foreclosures.
Local markets will not truly begin to recover until their foreclosures are absorbed, but just as few in Merced saw reasons for caution at the height of the boom, hardly anyone is optimistic now. Bank repossessions are accelerating as overleveraged owners see the value of their properties sink. Merced County had a record 523 foreclosures in July, quadruple the rate of a year earlier, according to DataQuick. The repossessions are accelerating as overleveraged owners see the value of their properties sink and can find no way out. More
America’s GDP, or the total of all goods and services produced in this nation in a given year, is about $14 trillion dollars.
America the nation currently has an outstanding debt of about $10 trillion dollars, and has more than doubled in the last ten years. But this number is not the real total, because it does not count all the “promises” (read: entitlements) that people have been told they will have. Those “promises” are Social Security, Medicare and Medicaid, in the main. They total, approximately $90 trillion dollars in current liability.
What’s worse, about 1/3rd of that was added with the “Medicare Part D” drug benefit, even though Congress was at the time fully aware that there was already $60 trillion or so sitting out there in unfunded liabilities. They did not care because the AARP, and you, screamed and demanded that Congress “do something.”
Oh they did something all right. They did the very same thing that you think you have a right to do - that is, spend more than you make.
That’s right. You have a right as an American to have a 4,000 square foot house on an acre, even if you only cut hair for a living. If you can’t get that loan honestly, you simply will make up an income and use some sort of “exotic” mortgage product to get it.
Your car broke down? Its beneath you to buy a used one, right? Just hit the home equity line and buy a new Suburban. $40,000. Cool. Oh, and charge the gas too.
Your kid comes home from school complaining that one of his friends has an iPOD. To shut him up, you go buy him one - even though you don’t have the $200 it costs. You just pull out the plastic and charge it. It will all be ok.
Your grandmother is taken deathly ill and whisked to the hospital. She’s 85, and has cancer. She has had a good life, but now it is drawing to a close. When you get there, the doctors ask what you, as her closest kin want, as she’s unconscious at the time. You tell them that they should preserve her life at all costs. Of course you don’t have any money to pay for the $500,000 in medical bills. Its ok; she was in a nursing home and didn’t have anything anyway, so there’s no estate for the bill to eat into; Medicare will pick it up. After all, she’s entitled to the best medical care money can buy as an American.
You love the $3/quart strawberries at the local WalMart. You won’t pay $3.50. As a consequence, the grower has fired all of his United States citizens as pickers and is employing illegal Mexicans. You don’t care, as you’ve got a good job - you answer the phones for Joe’s PCs and help people with their computer problems. Unfortunately Joe’s customers want to pay $50 less for that PC, so he fires you and outsources your job to India for $2/day. Oops.
Folks, what is going on in this country is exactly like what happened yesterday on the forum. Each and every day.
You drive around your neighborhood and see the “For Sale” and “Foreclosure” signs and the boarded-up businesses. You whine about $4 gasoline, $5 cheese and Ice Cream that is both more expensive and now is in a 1.5 quart instead of a 1/2 gallon container.
Your employer cuts medical benefits or expects you to pay more. You grumble or, if you’re unionized, you might actually strike. You end up capitulating anyway, then your job gets shipped to China.
We all feel the squeeze, but will we accept that we are part of the problem? That we have a spending deficit (that is, we spend more than we make), we have a savings deficit (we don’t save anything, on balance), we have a balance-of-trade deficit (we demand $30 DVD players from China, therefore, all the people who made them here are fired and they are manufactured there where workers are paid 25 cents/hour) and we have a common sense deficit (that is, we think we can continue to do this until the cows come home and there will be no consequence.)
Well, now we’ve got the beginning of the consequences, and what America is doing, for the most part, is sticking its fingers in its ears and going “LA LA LA LA LA LA LA LA” - because actually removing the fingers from your ears requires that you admit that you are likely part of the problem as you’re in debt up to your eyeballs and are unwilling to live within your earnings capacity!
Would you like to know the rest of the consequences that are coming for you, your children and grandchildren if you don’t remove the fingers and stop chanting? Do you even know what they are? Let me lay a few out for you:
Nicholas von Hoffman Source: The Nation
Our disfunctional financial system hit a new low last week when Citigroup, the hopeless wreck of Wall Street, announced it had lost $2.5 billion in the past three months — a cheer went up, and so did the Dow. Only $2.5 billion; people were afraid the losses would be much higher. Happy days are here again. There are no happy days for the millions of Americans who have been trying to put away some money for their retirement in tax-sheltered entities like IRAs, Roth Accounts and 401(k)s. For them, the market’s downward slope has been harrowing and frightening. When will the steady erosion of their savings end? And when it does, what will be left of their future financial security?
Many of the millions suffering through these worrisome months didn’t buy a house they could not afford, didn’t speculate on their homes, didn’t let greedy impulses lead them to the edge of foreclosure or bankruptcy. Nevertheless, the excesses of their neighbors and the criminal folly of American finance is destroying their plans for retirement. It is dragging down much of the value of their homes, on which they have never missed a payment, homes on which they were counting on selling at retirement to help finance their last years in comfort. For years, the privatization propagandists have been telling people that when the time comes, Social Security will not be there for them. Now many are learning that it’s their private savings that may not be there. They are discovering they have been forced into a system in which other people have, in effect, been allowed to gamble with their retirement savings and have lost it.
The way the private, you’re-on-your-own retirement system was supposed to work had individuals, during their younger, working years, investing in stock through tax-sheltered accounts. Almost nobody who is not breaking the law can choose among individual stocks and make money, so future retirees have been encouraged to buy mutual funds run by professional managers, who are supposed to be able to pick the winners. Most of them aren’t much better at doing that than are their customers, but in a rising market, a chicken pecking at stock tables can pick winners. In boom times, it doesn’t matter that the future retiree must choose among thousands of mutual funds, many of which carry ruinously high fees. The damage to people’s savings goes unnoticed until the market begins to go down.
Even as the market falls, future retirees are told not to panic, to keep their money where it is, because in the long run the value of their accounts will go up and they will have many a happy sunset year traveling the globe and showering their grandchildren with presents. As the retirement date comes near, they are advised to begin selling stocks and buying fixed-income securities — as bonds are sometimes called — because these pay the interest they earn on a fixed schedule, providing a regular income. For this to work, stock prices must be high when the holdings are sold and the bonds purchased must pay high rates of interest. But what happens when the stock market is in a nosedive and interest rates are half of the inflation rate, as is the case right now? Panic and worry, no golden years of travel, no presents for the grandchildren. The energy that was to be expended on leisure activities is spent instead trying to figure out how to make ends meet.
The bright spot is Social Security. That check does come with the regularity of the calendar, whether the market is up or down, whether interest rates be high or low and if, as is the case now, the Greenspan-Bush inflation is destroying family budgets. Social Security adjusts for the rising prices. But Social Security is too narrow a ledge to stand on through the years between retirement and death. It was designed as the base on which other retirement savings were to be built. Those savings — the house and the tax-sheltered retirement accounts — are shriveling up and blowing away. The persons for whom Americans’ savings have been a reliable source of income are the brokers, the lawyers, the account administrators, the whole tribe of Wall Street fee farmers. They get other people’s retirement money regardless of the direction the market may be moving in. You can’t call it a broken system because it was a bad one from the start. It is failing, just as its critics said it would. And what lies ahead for those whose retirement savings are gone may be a very unpleasant old age.
(CNNMoney.com) — The number of Americans losing their homes to foreclosure continued to soar in June, according to a report released Thursday. RealtyTrac, an online marketer of foreclosed properties, reported that lenders repossessed 71,563 homes in June. A year ago, just 26,369 homes were taken back. During the first six months of 2008, 343,159 Americans lost their homes, up 136% from 145,696 recorded during the same period in 2007. The report revealed that foreclosure filings of all types, including notices of default, notices of auction sales and bank repossessions, rose 53% from June 2007, to 252,363. For the first six months, total filings rose 56% to 1.4 million. More
U.S. foreclosure filings rose 53 percent in June from a year earlier and bank repossessions rose the most on record as deteriorating property values and higher rates on adjustable mortgages forced more people to give up their homes. More than 252,000 properties, or one in 501 U.S. households, entered a stage of the foreclosure process, RealtyTrac Inc., a seller of default data, said today in a statement. Bank seizures rose 171 percent, the most since the Irvine, California-based company began tracking statistics on default notices, warnings of a scheduled auction and repossessions in January 2005. More
“If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around them will deprive the people of all property until their children wake up homeless on the continent their fathers conquered. The issuing power should be taken from the banks and restored to the people, to whom it properly belongs.”
–– Thomas Jefferson, Letter to Treasury Secretary Albert Gallatin (1802)
Ellen Brown
Jefferson had it right. More than 1.5 million homeowners are expected to enter foreclosure this year, and about half of them are expected to have their homes repossessed. If the dire consequences Jefferson warned of 200 years ago have been slow in coming, it is because they have been concealed by what Jerome a Paris calls the Anglo Disease – “the highly unequal economy whereby the rich and the financial sector . . . capture most of the income but hide it by providing cheap debt to the middle classes so that they can continue to spend.” He calls “finance” the “cannibalistic” sector in today’s economy. Writing in The European Tribune this month, he states:
“[O]ne of the more attractive features of the financial world, for its promoters, is its ability to concentrate huge fortunes in a small number of hands, and promote this as a good thing (these people are said to be creating wealth, rather than capturing it). . . . [O]f course, the reality is that such wealth concentration is created by squeezing the rest, as is obvious in the stagnation of incomes for most in the middle and lower rungs of society. This is not so much wealth creation as wealth redistribution, from the many to the few. But what has made this unequality . . . tolerable is that the financial world itself was able to provide a convenient smokescreen, in the form of cheap debt, provided in abundance to all. The wealthy used it to grab real assets in funny money, and the rest were kindly allowed to keep on spending by tapping their future income rather than their insufficient current one; in a nutshell, the debt bubble hid the class warfare waged by the rich against everybody else.” More
Foreclosure filings last month were up nearly 50 percent compared with a year earlier. Nationwide, 261,255 homes received at least one foreclosure-related filing in May, up 48 percent from 176,137 in the same month last year and up 7 percent from April, foreclosure listing service RealtyTrac Inc. said Friday.
The latest grim foreclosure news comes as criticism mounts that efforts by government and the mortgage industry to stem the tide of foreclosures aren’t keeping up with the rising number of troubled homeowners. Critics say a Bush administration-backed mortgage industry coalition, dubbed Hope Now, is falling far short. More
Holyfield’s $10 million US estate in suburban Atlanta is under foreclosure, the mother of one of his children is suing for unpaid child support, and a Utah consulting company has gone to court claiming the boxer failed to pay for more than half a million dollars for landscaping. A legal notice that ran Wednesday in a small newspaper in Georgia said Holyfield’s estate will be auctioned off “at public outcry to the highest bidder for cash” at the Fayette County courthouse on July 1. More
More than one million homes are now in foreclosure, the highest rate ever recorded, according to a trade group which warned Thursday that number will continue to climb.
The Mortgage Bankers Association’s first quarter report showed that a record 2.5% of all loans being serviced by its members are now in foreclosure, which works out to about 1.1 million homes. That’s up from the 2% of loans, or about 938,000 homes, that were in foreclosure at the end of 2007.
The report also showed that 448,000 homes, or about 1% of loans being serviced, began the foreclosure process during the first quarter. That’s up from about 382,000 homes, or 0.83%, that entered foreclosure in the last three months of 2007. More
Photo Alan Light
LOS ANGELES - Ed McMahon, who for decades appeared as Johnny Carson’s sidekick on “The Tonight Show,” is fighting to avoid foreclosure on his multimillion-dollar Beverly Hills home, according to published reports. The former “Star Search” host was $644,000 behind on payments on $4.8 million in mortgage loans when a unit of Countrywide Financial Corp. filed a default notice Feb. 28 with the Los Angeles County Recorder’s Office, The Wall Street Journal first reported late Tuesday.
McMahon, 85, has been unable to work as a pitchman for various products since he broke his neck 18 months ago, said his spokesman, Howard Bragman. “There are plenty of people affected by the weak economy, bad housing market or bad health,” Bragman said. More
ERICA WERNER/AP
California Rep. Laura Richardson claimed Friday that her Sacramento, Calif., home was sold into foreclosure without her knowledge and contrary to an agreement with her lender. She said she is like any other American suffering in the mortgage crisis and wants to testify to Congress about her experience as lawmakers craft a foreclosure-prevention bill.
In a lengthy interview Friday night with The Associated Press, the Southern California Democrat struck back against several days of negative publicity over reports she defaulted on her mortgage, allowing the house to be sold at auction. Richardson, who won her seat in a special election last August, acknowledged turmoil in her life in the months after incumbent Rep. Juanita Millender-McDonald’s death in April opened up her Los Angeles-area House seat. Read more
