KlusterfucK: Today's best item on HOUSING

Still Lagging Behind: Latest Bush Housing Plan Too Little, Too Late

By David M. Abromowitz, Andrew Jakabovics

February 12, 200

Faced with a housing crisis that is rapidly ensnaring millions of middle class borrowers, the Bush administration and our nation's lenders are once again a step or two behind the realities of the marketplace. Conservative policymakers and financial leaders continue to cling to the hope that the magic of the markets alone can prevent another trillion-dollar loss of American home equity. How mistaken they are.

More than 1 out of every 14 home mortgages in the United States are delinquent as of the end of September—a 30-year high. The Federal Reserve estimates that another 2 million families could face foreclosure in the next 2 years. Yet the White House continues to promote short, voluntary solutions to the foreclosure crisis without asking the obvious question: What happens when the administration’s new, 30-day voluntary moratorium ends?

A time out on foreclosures may help some borrowers work things out and is certainly a welcome respite, assuming mortgage-loan servicers use the time wisely to offer true loan modifications, writing down loan balances to the current value of the property. But homeowners can ill afford another administration-endorsed voluntary proposal that pays lip service to helping borrowers while using the time to find new ways to squeeze additional fees and charges out of desperate borrowers with few or no alternatives.

Indeed, taking a page from Herbert Hoover’s laissez-faire economic playbook that resulted in a market crash and credit contraction that spiraled downward into the Great Depression, the Bush administration and key mortgage lenders unveiled their plan today that is almost sure to once again be too little, too late. The news follows yesterday’s rosy release of the President’s Economic Report. "The best course of action is often to simply allow markets to adjust," the report said yesterday. "Markets naturally self-correct, rewarding good strategies and punishing bad ones ... any government actions mitigating the outcomes of risky behavior may create perverse incentives for reckless decisions by borrowers and investors who may come to rely on government interventions."

Markets will do their part, but not if they are frozen by a freefall in home prices that sucks in otherwise responsible homeowners. Homes are not just another commodity; when widespread foreclosures drive whole neighborhoods into rapid decline, the spillover costs to the economy and the quality of life in hundreds of communities and dozens of states calls for a plan beyond a short term voluntary breather.

The Center for American Progress has called instead for actions that will in fact free up clogged housing markets and allow price and loan adjustments to begin again in an orderly manner without the protracted and unnecessary pain that accompanies the administration’s wait-and-see approach. Specifically, we propose two different solutions to help restore equilibrium to two different parts of the housing market.

First, CAP has proposed a Saving America’s Family Equity, or SAFE loan program, which is modeled after the New Deal's successful Home Owners' Loan Corporation but uses existing government agencies and government-sponsored housing institutions to purchase pools of loans at current value and refinance those loans that are in default or have negative equity into fully amortizing, fixed-rate loans based on the current value of the property. This step would stabilize the primary and secondary mortgage markets and go a long way toward calming global credit markets.

Second, CAP has proposed that we create a Great American Dream Neighborhood Stabilization Fund, or GARDNS Fund, which would provide money to local housing authorities and non-profit organizations to buy foreclosed properties from banks and return them to productive use as affordable housing. This step would help homeowners in low- and middle-class neighborhoods hit hardest by the subprime loan crisis, with the additional benefit of helping those who cannot now afford to buy a house find affordable living.

Together, these two proposals would stabilize neighborhoods, allow the housing marketplace find a bottom, and help the larger economy recover from both the mortgage crisis and the wider credit crisis. These are steps that Congress and the Bush administration need to consider now.

David Abromowitz is a Senior Fellow at the Center for American Progress. Andrew Jakobovics is Associate Director of the Center’s Economic Mobility Program. To speak with the authors please contact:

For TV, Sean Gibbons, Director of Media Strategy
202.682.1611 or sgibbons@americanprogress.org
For print or radio, John Neurohr, Press Assistant
202.481.8182 or jneurohr@americanprogress.org
For web, Erin Lindsay, Online Marketing Manager
202.741.6397 or elindsay@americanprogress.org

Britain: “Liar loans” drive hundreds of thousands into debt

Americans and Canadians brace yourselves .. many are going to hit the streets and become homeless. Most of the rot seems to show up in Britain first or at least get reported there as opposed to N. America where the ruling elite controls the media. A check of the swicki over there will show we've been posting about HOUSING for quite a while. Here is a good update from the UK, that gives a rough idea of some damage to be inflicted and how deep that damage will be (could be a whole lot worse in N. America, too. who's to say?). - V

By Keith Lee
22 January 2008

A recent report from the UK Citizens Advice Bureau (CAB) has revealed that hundreds of thousands of people are being driven into debt, end up in court and face the loss of their homes because of irresponsible lending practices, bad advice and downright fraud. For people who have longed to buy their own home their dream has turned into a nightmare.

The report Set Up To Fail: CAB Clients experience of Mortgage and Secured Loan Arrears Problems (December 2007) says mortgage brokers are providing loans—called appropriately “liar loans” or self certification loans—to people with poor credit records and “little or no financial acumen” without them having to provide proof of their incomes. Most people interviewed in the report said they relied on the broker for advice and guidance but many had not even been told the serious consequences of falling behind with repayments.

The report is also highly critical of the regulatory authorities and the Labour government, saying there are not enough safety nets to protect vulnerable borrowers.

CAB Chief Executive David Harker said, “

The cavalier behaviour of some brokers and sub-prime lenders is seriously undermining home ownership and hitting the most vulnerable borrowers hardest. Our research suggests that many aspiring homeowners have been mis-sold unsuitable and costly home loans that are doomed to fail from the start. Many sub-prime lenders are flouting the rules on responsible lending by granting loans when it’s clear the borrower will not be able to afford to repay it from the very outset, then getting tough immediately things go wrong. Far from providing housing security and a valuable asset, home ownership has proved a fast track to debt and homelessness for many vulnerable borrowers on low incomes.”

According to the CAB report, which was based on 1,200 case studies from 360 advice centres across the UK, the organisation was involved in over 57,000 cases of mortgage and secured loan arrears last year (2006-07), an 11 percent increase on the previous year. Research suggested as many as 770,000 people had missed at least one mortgage or secured loan payment in the previous 12 months.

The report shows how the majority of people coming into CAB offices seeking mortgage advice have been rejected by the High Street banks and mortgage lenders and are forced to take loans from sub-prime lenders at much higher rates of interest. It reveals that

“more than a third had household incomes below the UK poverty line, one in five was reliant on means tested benefits, and nearly 70 percent had outstanding unsecured debts averaging £22,000.”

More and more of people’s income is taken up with mortgage repayments of one kind or another. For a third of all clients interviewed in the CAB report, their combined mortgage and secured loans payments were over half their income; for 12 percent of interviewees their repayments were an unbelievable 70 percent of their income.

One case study in the report involved a 47-year-old local authority tenant living in Yorkshire who exercised the right to buy the property where he was living. A broker persuaded him to say that he was self-employed on the mortgage application form even though he was in receipt of incapacity benefit and disability allowance because of the severe mental health problems he suffered. Some months after completion of the sale the mortgage interest rate increased. Because he was unable to keep up repayments the lender took court action for possession of his house, leaving him facing homelessness and still in debt.

There has been a massive increase in the number of house repossessions recently, with some economists saying levels are now close to those seen when house prices slumped in the 1990s. The Council of Mortgage Lenders reports that repossessions rose by 75 percent last year to reach 30,000 and suggests this figure could reach 45,000 in 2008.

The CAB has also investigated the number of repossession cases listed in 23 county courts in January 2007 and found that sub-prime lenders were responsible for a huge number of them—

“in some cases the equivalent of ten times more than mainstream lenders.”

It points out that although many borrowers do not turn up to court thinking that they will automatically lose, the behaviour of the lender is so bad that many judges are forced to side with the customers.

The increasing difficulties facing homeowners is reflected in the extraordinary growth of the debt collection industry. It has quadrupled in size since 2003, from handling £8.6 billion worth of debt to £22.7 billion now. One of the most disturbing aspects highlighted by the report is the mushrooming of companies that are like vultures waiting for their next meal, preying on people who no longer have any solution to their debt problems other than selling their house and renting it back.

The evidence suggests that

“homeowners in a financially and emotionally vulnerable situation end up selling their houses for much less than they are worth, in return for a tenancy that offers little security of tenure.”

The state-run income support mortgage interest scheme and private mortgage payment protection insurance (MPPI) policies (held by one quarter of homeowners) are supposed to help in such situations. However, the former is woefully inadequate to protect those in greatest need of help and insurance companies often find ways to avoid paying out the latter.

A CAB office in south London, for example, reported how a woman with mortgage arrears had been signed off work by her doctor because of the stress involved in trying to keep up with the terms of a court order suspending possession of her house. After her claim on a MPPI policy was turned down she resorted to a sale and rent-back company and signed an agreement without receiving any advice or comparative quotes from the salesmen who visited her. While the property was worth £350,000, she got only £200,000—just enough to pay off her mortgage and unsecured debts. Although she also received a six-month £750-per-month tenancy agreement, the landlord then wanted to put it up to £1,300 per month, saying it had been incorrectly assessed. Shortly afterwards the poor woman was back in court facing possession for rent arrears.

The report also quotes evidence from the housing charity Shelter (http://england.shelter.org.uk/home/index.cfm) about the increasing use of credit cards to pay mortgages or rent, which has affected nearly 1 million people in the 12 months up to October 2007.

Shelter’s chief executive Adam Sampson said,

“Clearly, this is a huge problem which will only become more widespread as housing costs continue to rise. We would urge anyone struggling with the cost of their mortgage or rent to seek independent financial advice. The number of people hit by the credit crunch, interest rate hikes and unaffordable housing costs are rapidly rising.”

“For many people trying to keep a roof over their head, desperation is driving them to short-term, high-cost borrowing. Ordinary people are being forced to seek more risky and expensive ways to stave off the threat of eviction and repossession,”

he added.

The loans have been used to transfer wealth into the hands of the ruling elite, and at the same time become a means of speculation. Backed by the big banks and brokerage houses, mortgage companies aggressively marketed home loans to households that in the past would have never been approved for such loans. Home buyers were assured that they were protected by rising home prices, which would enable them, if they found themselves in economic straits, to sell their properties and have more than enough money to pay off their outstanding balances. With house prices falling throughout the country this will no longer be the case and portends a social disaster for many people in 2008. Auditors KPMG have predicted that personal insolvencies in England and Wales will rise to more than 130,000 from 109,615 in 2007.

See Also:
SEP candidate replies to letter on housing crisis in Wales
[7 May 2007]
UK poverty report draws attention to widening inequalities
[31 October 2005]
Labour policies make London a haven for the super-rich
[23 April 2005]
Britain: families depend on credit to survive
[22 June 2004]

so many crimes, so many urls .. Bush, housing crisis and Florida

older url, but well worth a read, from Counterpunch ..

December 20, 2007

Jeb Bush and the Subprime Mortgage Crisis

The Huckster and the Wreckage

By ALAN FARAGO

It was a classic run on the bank. Until his recent resignation under fire, Coleman Stipanovich, a Bush loyalist, headed the Florida State Board of Administration, responsible for investing billions of dollars of state funds. Stipanovich's brother, "Mac", is a former chief of staff in the governor's office, Jeb Bush campaign manager, and now partner in the law firm, Fowler White, Boggs-the Tallahassee lobbying whip of the Growth Machine (he is also board member of US Sugar).

Jeb Bush left Tallahassee for Miami in January 2007, having served two terms as governor. He incorporated Jeb Bush & Co., and in June was hired as a consultant with Lehman Brothers, the Wall Street investment banking firm.

In July and August, Stipanovich approved the purchase of $842 million in securitized mortgage bonds from Lehman.

Today the value of those bonds is practically zero, vanished in the debt crisis that is tipping the national economy into a recession.

So far, the media is buying the state spin: that Florida's municipalities made their own decisions to invest with the state government investment pool. Senate President Ken Pruitt, another Bush loyalist, huffily defended the state investment pool with Indian River county officials, "No one put a gun to your head."

But that is only half of the story, as any investor knows: the other half is that the state was fiduciary and obligated to invest those funds within tolerable risk parameters.

Any fiduciary that bothered with due diligence could see in the overdevelopment of Florida that the bubble in housing markets would pop, and that financial instruments that created the bubble would vanish into the ether.

The mortgage derivatives were only as good as their ratings, and their ratings and insurance were administered through incestuous relationships with originators on Wall Street, like Lehman.

The suburban housing bubble was a function-not of market demand-but of insider politics and campaign contributions that persuaded everyone involved to "mis-price risk" (risk to families, risk to wetlands, risk to government infrastructure budgets) leading to the theft of quality of life, the environment, and an equitable future.

Most of all, the speculative boom depended on very risky mortgage derivatives, exactly those investments in Florida and everywhere else that are disappearing in puffs of smoke. The implosion in housing markets could have been seen from the Space Shuttle.

Jeb and the laws of predetermined outcomes (it is a family trait, to expect that reality will conform to expected results, as expressed best by Karl Rove to the New York Times in 2002: "We're history's actors and you, all of you, will be left to just study what we do.") are the model or prism through which even the lowliest city and county commissioners understand their roles.

Floridians are owed an explanation to certain questions related to those July and August sales: did conversations take place, between state investment managers and Bush after he was hired by Lehman as to investments? Did those investments comprise mortgages sourced by Florida developers who contribute to Republican campaigns? How was Jeb Bush compensated by Lehman: was it a monthly retainer, a "success" fee, or was he paid a commission on the sale of those bonds? Did Lehman in 2007 make contributions to charities or organizations related to Jeb Bush or his loyalists?

These are questions are as legitimate as the fine print on the deal to publicly finance a new condo on the bay or professional baseball stadium in Miami, in which the votes of local commissioners may or may not have been bought off.

The behavior of the anti-Robin Hoods in low places only reflects what happens in high places, where disaster capitalism is held in esteem.

In the case of Lehman and the State of Florida, not only is the money gone but the commission and fees on those bond deals are gathering interest in someone else's bank account.

Alan Farago of Coral Gables, who writes about the environment and the politics of South Florida, can be reached at alanfarago@yahoo.com.

Housing predictions for 2008 for the Brain Dead or comatose

Yesterday the Red Cross brought me some food. It's usually delivered by volunteers.

Yesterday, though, was different and I happened to ask if the pair was volunteers. Well, no, they said - they were EMPLOYEES of the Red Cross. The man explained that he was also a real estate agent and had been doing deliveries as a volunteer, but decided to ask if there were any part time jobs about a year ago.

He took the job and he explained to me, that as a real estate agent, it was GOOD as he got job benefits this way. I said, well, now's not a REAL GOOD TIME to be in real estate .. and he said,

"Well, it's not that bad actually. There is a WORLD PLAN to save home values ..."

Naturally, I just rolled my eyes. I don't think the pair of them could get out of here fast enough, as I said,

real estate values should plummet by at least 40% over the next year ...

You know, the mainstream media is doing a REAL GOOD JOB at keeping people in DENIAL.

Here is the brain dead person's guide to housing for 2008, and I assure everyone, it WILL HIT CANADA, too. The peak oil scenario is just beginning to hit. Who can afford to heat a MacMansion in 2008, and still hang onto the HUMMER?

Brain-Dead Predictions about Housing (January 2, 2008)


What would the New Year be without some predictions? Rather than strive for wild guesses from the edge, I'm going with predictions so obvious they qualify as brain-dead. Nonetheless--or perhaps because of their tremendous obviousness-- they carry profound implications for the U.S. economy and culture.

1. Housing prices will fall farther and longer than every guess being bandied about in the mainstream and financial media. You know the stories--expert #1 foresees a 15% drop, expert #2 says a 30% decline is possible in the frothiest markets, etc.

Why fuss around with namby-pamby numbers like 15-30%? I'd say it's absurdly obvious that 80% to 100% declines are already baked into some areas--yes, houses won't find buyers for a $1, i.e. the value will suffer a 100% decline to zero.

2. The housing market won't turn around in 2008--or 2009, 2010, 2011, either. The really smart folks will be saving their money for 2012 or maybe 2013, when years of grinding losses will have stripped the assets of everyone who bought real estate with the idea of retiring on the proceeds. At that bottom, everyone will be disgusted with real estate, both residential and commercial, and no one will be dumb enough to sink dead money into an asset class which continues to decline in value year after year.

At that point, say Q1 2013, then housing will again become a buy.

How can a house become worthless? Just ask residents in depopulated areas of Detroit. If people pull up stakes because jobs disappeared, then houses drop to zero value. This is not some bleak future--this has been the case in areas of Detroit for many years. (Note that the larger Detroit-Ann Arbor-Flint metropolitan area actually gained population in 1990-2000.)

Will this happen everywhere? Of course not. But four other easily predictable forces will trigger huge declines in areas which have been seen as "safe from price decline."

3. Exurban burnout and job losses will take a toll. Take two hideously long commutes to distant jobs, a centerless, lifeless suburb in the middle of nowhere, take away one job and presto, you get an empty subdivision of essentially worthless McMansions nobody wants at any price. Add a dash of decay which acts as a catalyst, and you speed up the abandonment of the exurb.

4. People will "double up" as the economy sours. As I have commented here many times, the population of San Francisco rose by 52,000 (7.6%) in the dot-com boom in 1995-2000, even though the number of new housing units increased by only 5.4% between 1990 and 2000. Take a look at these numbers, all courtesy of the U.S. Census Bureau:

housing units in S.F. 2003: 346,527
residents in S.F. 2003: 751,733

residents per unit: 2.17

housing units in S.F. 1990: 328,471
residents in S.F. 1990: 724,000

residents per unit: 2.20

Looks pretty stable, right? But the population was 776,733 in 2000--meaning 50,000 people moved into the city in the late 90s and 25,000 had left by 2003.

The city added 18,000 units in the full decade 1990-2000, which historically correlates to about 37,000 residents. Indeed, the number of residents per housing unit has actually declined since 1990.

So what's the point? Just this: 5% of a population can move in or out of a city regardless of how many housing units are present. Simply put: people double up in boom times when housing is in short supply and in recessions when money is short.

Many single people bought houses they couldn't afford in the bubble. So did families. So where are they moving? In with someone else is the answer for many. Some people who are trying to hang onto their homes are taking renters, who then leave vacant apartments or condos behind, while others who have bailed out are moving in with other family members or friends.

Take 75 million housing units nationally and 5% of the population doubling up, and you get 4 million empty residences. You think the inventory of empty homes is high now, look what happens when people start losing their jobs. They will get very creative about living quarters, and very creative about cutting expenses they can no longer afford like mortgages and rent.

Houses can't be moved (at least not cheaply), but people move all the time. And when they move away from places, the price of housing in that area declines. It's supply and demand, and as money gets tight the demand for housing drops. People take roommates, move back home, double up.

5. Houses built where they should not have been built will be abandoned. Large swaths of known floodplains are now covered with subdivisions in the Sacramento Delta region. No doubt the same can be said of certain stretches of the Mississippi River region and other coastal and riverine flood zones.

Back in the good old days of say, 2007, governments might have reckoned they had the funds to rebuild dikes and other engineering wonders to protect a few thousand new homes. But as the economy sours, governments are suddenly short of funds. And as people leave those distant suburbs, then the stark reality will become apparent: it isn't worth tens of millions of dollars to protect a few thousand homes (many standing empty) which should not have been permitted in the first place.

Of course the homeowners will feel entitled to government protection; it is a natural assumption that if the county allowed the builder to build the homes, then it was "safe" to do so. New Orleans is not the only inhabited area with grave risks of flooding; the willy-nilly building boom saw thousands of houses tossed up on land which was rather clearly unsuitable due to heightened risks of flooding, etc.

Will government buy out beleaguered homeowners? No doubt there will be cries to do so, and other voices noting that governments are now broke or in deficit mode. Lawsuits will be filed and much money will be spent resolving a crisis which resulted from lax approval of questionable building sites.

6. Poorly built McMansions will be abandoned as the costs of repair exceed the value. Those of you not in the building trades may scoff at this, but go find a "new home" which has had the plumbing fixtures and copper piping ripped out (to be sold for the scrap value), a swimming pool filled with guck and leaky flashing around the chimney, not to mention broken windows, buckled hardwood veneer flooring and damp, rotten carpets. The cost of fixing all this is huge, especially if water has leaked into the framing or subfloor.

Although I can't locate the source, I remember reading that in the depths of the 1930s Depression a premiere commercial building in New York sold for less than the installation cost of its elevators in 1928, just before the Crash.

If you doubt that property can drop 80% or more in value, recall that real estate remains a business proposition: if you can't make money owning this asset as a business, not as a speculation, why buy it? If you can't rent the property for a profit, and keep it rented through thick and thin, then why risk buying it? Owning a property which sits empty for months or years is a very sure way to go broke. If you can't sell it, then you walk away and start over. That's Capitalism with a capital C, folks.

In honor of football season, let's trundle out a football metaphor: you can toss the ball in the end zone, but if there's nobody there to catch it, you still lose.