As we have stated in the private property rights debates, home ownership is the cornerstone of the American dream. Ten years ago I listened as Ronzel Cato lost his Fresno home that was taken by their redevelopment agency. Now we have another reason to fear loss of our homes. Foreclosures.
You cannot appreciate tragedy until it hits close to home. We have a family friend who just lost their Ladera Ranch home that they purchased just a few short years ago. Not knowing the background or his circumstances I cannot, and will not, point fingers as to how and why this happened.
In (D) Senator Don Peralta’s SAC Press Conference yesterday we heard one speaker report that we could see 150,000 foreclosures in CA in the next 12 months.
Assembly Speaker Bass and Senator Peralta were taking questions from the press relating to SB 1137 that was approved in the Senate by a vote of 32-8. It passed in the Assembly by a closer margin of 55-18.
SB 1137 “would reform the foreclosure process in California.”(Frank Russo).
They were unable to answer one of the reporters questions relating to property maintenance. This is due to the fact that mortgages can be “bundled” by the lender which creates a tracking challenge. The person who “owns the paper” could be a sheik in Dubai.
The next step in the approval cycle is for the Governor to sign off.
Gilbert Note: Amazing. This legislation is to prevent “blight” in the neighborhoods. And I thought my discussions of “blight” would take a brief vacation after the June election.
Update: The seven Republican Senators who voted in support of the Bill were:
Ashburn, Cox, Denham, Dutton, Harman, Maldonado and Wyland.
For additional information on this story simply click on the following link.
http://www.californiaprogressreport.com/2008/07/california_fore.html
Juice readers. Have any of you, or your friends and family members become a victim of a foreclosure?
What’s your thought’s about the proposed CA bailout?
Lots has been written on the mortgage crisis and my heart goes out to those who purchased with adjustable loans that were sold with the plan that the loan would need to be refinanced in a couple of years but by then the house will have appreciated enough to qualify for a conventional loan. When the need to refinance came for these people the mortgage crisis ate their equity and they found themselves upside down with a loan that required larger and larger payments.
I myself had to refinance my house after having done so two years earlier to finance a remodel. My house value had dropped 100K from its appraised value two years before. Fortunately there was still enough equity to refinance my property and keep the loan amount at 74% of value and avoid mortgage insurance. So I’m one of the lucky ones but those who had tried to capture most of their equity to remodel recently found themselves upside down on loan to value if they needed to refinance for any reason… s.o.l.
While I too chaffe at the nanny state (as my Reep friends call it) I have to lay the blame for the Enron robbery, the mortgage crisis, and the energy crisis at the feet of our Grand Oil Party. I know they want to blame the Dems since we took back the house a couple of years ago and they conveniently forget that they’ve held both houses and the presidency since 2000.
The reason I blame members of our Grand Oil Party is because of their attitude towards regulation, inspection, and securing the US borders. These guys have forgotten about working class Americans and only care about business interests, many of which are international but formerly American like Coke, Kodak, and Exxon.
These companies and all companies that have gone ‘public’ can’t really be considered American as they are beholden not to the American ideals of fairness and family but to the international ideal of money and profit. In case you don’t know, the government that works for the interests of business and not the citizenry has a name. The belief system that drives these politicians has a name as well. We’ve begun to call it neo-con after the Gingrich revolution that brought us the Bush presidencies. Neo-conservative in an earlier time was called, ummmmm, begins with an ‘n’….
Email response:
Dear Larry, I think that government bailout of legally entered into contracts is bullshit. And you are starting to believe the government numbers? My tax dollars to pay for folks who didn’t read the contract? C’mon …,sincerely,
To #2. We take personal responsibility for our investments in this household and have been very cautious with any purchases. I have not taken an “entitlement” stand in this debate.
We surely can point fingers in this housing mess but the old adage keeps hitting me in the back of the head.
“Buyer beware.”
Making a major investment committment such as buying a home is tied to your employment. Should you lose your job due to circumstances outside your control than there is room for discussion.
Larry,
No bailouts. I think one of the very best sites for understanding real estate and consumer behavior can be found at IHB (Irvine Housing Blog). A very good article entitled, “The Day the Market Died” can help to explain what the real problems are, those details that the soundbites and evening news don’t take time to explain.
The most damaging change in buyer behavior was caused by 100% financing: potential buyers quit saving. Once 100% financing became widely available, it was enthusiastically embraced by all parties: the lenders suddenly had a huge source of new customers to generate high fees, the realtors and builders now had plenty of new customers to buy more homes, and many potential buyers who didn’t have savings were now able to enter the market. It seemed like a panacea; for two or three years, it was.
………The more money people have to put in to the transaction, the less likely they are to default. It is that simple. Taken to its extreme, 100% financing becomes the ideal tool for fraud. ……… The problem for the future housing market created by 100% financing is that people quit saving money for downpayments. People respond to incentives. This is basic economic theory. The availability of 100% financing removed the incentive to save for a downpayment. People responded; our national savings rate went negative as people stopped saving and borrowed instead. This is going to create a huge problem going forward: nobody has the newly required downpayments.
http://www.irvinehousingblog.com/blog/comments/the-day-the-market-died/
Larry, did you know that officials in the industry tried to enforce the “old school” regulations and were firmly denied. Many of them lost their jobs for suggesting that the market for loans had become too deregulated. That was over 4 years ago.
The current foreclosure crisis has been in the making for some time ( see the above link of over 14 months ago) and it has a lot more time to continue to play out.
NO Bailouts. Many of us has written to our reps telling them to vote NO to Bailouts.
The problem with bailouts is that they are really only designed to bailout the banks. There are far too many people who took on mortgages that they never had any chance of being able to pay back. It is a very small percentage of the people in trouble that would actually be helped by any of the bailout proposals. Unfortunately, the situation is affecting everyone, not just those going into foreclosure. If we start seeing some major bank failures, we are definitely in for a 1930’s style depression. The bailout plans are not designed to help the poor homeowner who was duped into believing the “American Dream” and that “the market always goes up”. It goes much deeper than our knee jerk reaction that these people were irresponsible. The banks were irresponsible and the politicians realize the type of trouble we are in as a country. I’m definitely not saying I know what the answer is, but the bailout talk has been pretty deceptive about who they are trying to bailout.
Thanks for the report Larry,
I have mixed feelings on the bailout.
My Inlaws left Ethiopia after the communist revolution in the late 70’s. They lost everything; their 3 generation home, land; everything. The communists took it all. But they felt lucky to escape with their lives.
They came to America, learned the language, found jobs and started their lives all over again in late middle age. Sadly in financially turbulent early 1990’s, my father in law lost his job and was not able to pay the mortgage. They lost their home all over again.
Nobody bailed them out.
On my side, my grandparents bought a home in the 1960’s in a very exclusive area of the San Fernando Valley. After my grandfather discovered that the home was built on an old river bed and was sinking, he spent thousands of dollars on legal fees trying to sue the builder. He lost the case, and spent thousands more on contractors to rebuild the entire foundation.
Then, my grandfather lost his job. So my grandmother worked all night, attended college during the day to earn her teaching credential, and slept the remaining 3 hours in her car.
But still, they could not make their mortgage and the bank foreclosed on them. My grandmother insisted on paying the bank over $30,000 to clear her name after losing the house.
The home’s purchase price was probably $50K. Today, it is worth over $2 million.
But, nobody ever bailed them out.
These are financially trying times, with no end in site. We all continue to wonder, where is the bottom of this? Our global dependence on oil is bringing up to our knees. Countries like Israel are paying over $8 a gallon for gas. We wonder how soon we will reach the same. Stirrings of war with Iran trouble us. An Iran with nuclear capability troubles us more.
If a bailout could help, I think I would say, yes, let’s try.
But I think Anonymous #1 had it write when he/she said, this is a bank bailout. and nothing more.
oops; that’s “had it right” in the last sentence,
thanks
Email reply from Dana Point Councilwoman Diane Harkey:
I hope you read my OC & SD Lite – I’ve commented on the Wall Street Securitization (bundling) issue as well as the market. The securitization was a huge contributor to the problem, the next would be the lack of verification of any ability to repay a loan, the next would be the teaser rates that people accepted betting that their equity would increase forever (we were seeing 20% yearly appreciation some areas that encouraged investors to buy for rental purposes – those could be the bulk of the foreclosures, as 25%+ of the homes at the peak were investor purchases). In addition, while homeownership is the American dream and we all worked, scrimped and saved for that first down-payment, many who have bought homes recently did not have to qualify and did not have to have any money down. In essence it must have been cheaper than renting, if one uses market principles. Demand for rental properties is actually up, I believe.
It’s probably a political move that is going to be a bad deal for the taxpayers and future homebuyers, but I’m sure it would be tough to say no if you were representing one of the truly depressed areas in the state (the Silicon Valley and San Francisco are doing fine and actually benefiting with super-low unemployment due to the new “energy industry” boom). Things are slowly improving, but there will be people who suddenly find themselves unemployed or who bought late in the market, or chose to buy using teaser rates that will be affected. We all can sympathize with that situation.
However, I don’t know how the 150,000 was derived, and unless it includes builder inventory, investor-owned, or the no money down loans (where the purchasers have no money in the house to really lose) I’d question it. I recently read a story about people who were walking away from their homes so that they could buy one cheaper down the street. This home crisis will settle out over the next year or two, but since the biggest problem we have industry-wide right now is that lenders are not lending, I don’t think it’s time to bang on the banks. Their stock prices are doing it for them.
The more appropriate correction would be to have the SEC regulate the new-age securities – the hedge, derivative, swaps were leveraged and tiered securities (that were sold w/o any scrutiny) by investment banks, who purchased the “bundled” loans and combined them with a variety of risk categories into a security vehicle and sold it with an investment rating that encouraged investors to believe they had something of value. In the end – the collateral at sometimes a 36 times leverage, simply had no value when the boom begins to unwind. Hence the run on the Investment banks (Bear Stearns crash due to a liquidity call they could not meet) and the fall in the I-bank and institutional lenders stock.
Diane L. Harkey, Councilwoman
City of Dana Point
Candidate 73rd Assembly District
Haya.
Thank you for shairing your families personal experiences in the housing market. I am sure that there are many other readers who have similar stories to tell.
Although I printed out the eight pages of the latest version of SB1137, I have not taken the time to read and digest it. I will therefore withould my comments until later.
Have safe 4th of July. Larry
PS: The Republican Senators who voted NO were:
Aanstad, Ackerman, Battin, Cogdill, Hollingsworth, Margett, McClintock and Runner.
I think all of this really proves the point: the only bailout is for the banks.
This is a very complex issue. There were many things that led up the crash of the mortgage industry and subsequently the housing market crash. In this post I’m only talking about the mortgage industry and not about the investor pull out or regulation of the industry.
A bit of history is in order first. My wife has worked in the finance business for many years and how I met her in 1983. She worked for Morris Plan (4 yrs, now AM General) as a CSR, and then to Investor Bancor in the servicing dept., (10 yrs) which became Fremont General. She went to Town & Country Credit (9 yrs) when they first started, as an underwriter and went on to the Loan Approval Desk with over $1 million worth of signature control. When they were closed down by their parent company Ameriquest, she went on to Bear Stearns (1 yr) as an underwriter, then a very short time (2 months) at BNC as a post funding auditor. She is currently working at IBM (FileNet) reviewing software contracts, for about half her previous salary, since there are virtually no opportunities in the mortgage business here in Orange County presently.
During her years in the business we learned a great deal. Her knowledge of the production chain, from underwriting to servicing the loan (taking the payments) was invaluable in her LAD position. Her job there was dedicated to making sure that the loans were in fact good paper, both for the client and the purchaser of the loan. Since TCC didn’t service loans, they bundled and sold them to various investors, the consistent quality of the loans was very important. One of the company mandates was that “Every loan has to make sense for both the client and the company.” I know it’s rare that a company would actually think that way in the market we had, but they remained true to that as best they could. Yes, they had some Loan Officers and brokers that were bad. Most of the bad LO’s and brokers got caught by the LAD audits and either ceased or were terminated. It was a good, honest place to work and most of the time and she enjoyed her job and those she worked with. Then came the crash…
She went to Bear Stearns and hoped it would be a good place to work. She most definitely knew the business and was willing to work hard. What she found there as a churn and burn mentality. She refused to approve some of the loans because she knew they were fraudulent. She took them to her supervisor who made her push them through the system, “it’s all about the numbers” was a common theme. Making roll over loans to customers who she knew couldn’t make their payments or had property that was vastly overinflated in value. As well as LO’s, who frankly belong in jail. She was terminated at Bear Stearns in the first round of layoffs, primarily because she wouldn’t “go along” with the program of fraud, along with most that actually had experience in the industry for the same reasons. On to BNC in post funding audits with much the same results, although there it was a buy out from Aurora, they said, “it wasn’t needed” even though they were finding tons of fraudulent loans. She and many others were laid off because Aurora shut down BNC.
Her perspective on the industry was from the inside, with knowledge of it over many years. She said from the very beginning at Bear Stearns that something wasn’t right with how they did business. She hated the job at Bear Stearns primarily because they were not acting in a responsible manner. As well as a manager that had no clue what they should be doing. She still feels that there is plenty of room for many in the company to serve time for what they did.
The industry was full of folks that were making tons of money, lying to clients, churning loans to collect the commissions and keep their clients afloat so they could milk them for commissions and signing fees again a few moths later. Her job in stopping that behavior was very rewarding to her. Many of the companies should be held accountable criminally for what they did.
Many of the customers are so far over extended that the only real recourse is to walk away. They simply have no way to pay off any kind of renegotiation of their loans. Then there are many that are somewhere in between solvency and bankruptcy. Most of whom are suffering from the adjustable rates skyrocketing. They are the ones who really need and deserve the help. If they could get a loan with a reasonable fixed rate they could keep their homes and survive just fine, it might be tough for them in the short term, but they could make it. These are the people we should be helping out.
The primary institutions however should not be bailed out. They knew good and well what they were doing, they chose to make “stated” loans to people who had no business getting loans and they knew up front they couldn’t repay them, but they wanted the numbers and the commissions. Bear Stearns management knew, or certainly should have known, they were producing bad loans. To those who made their livings that way and the companies who facilitated them, hopefully they rot in some federal cell somewhere, after having their assets seized.
Small point of fact, I believe that it was a Dem. Congress that passed the equal access laws that opened up the mortgage industry, but I will check that out and reply more factually about that aspect of regulation and access later. I do want to be fair and place the blame for that one where it truly belongs.
Carl.
Thank you for adding an “insider’s” in-depth view of the housing mess. I will forward all of these comments to the Governor and ranking Republican leaders. Not to discriminate but the Dem’s who signed this Bill have all been drinking too much of the bailout Kool Aid.
SB 1137 The Amendment to Section 1(b) of the Civil Code Section 2923? reads in part that, according to HOPE NOW Alliance, there were 10,556 completed California foreclosure sales in Jan 2008.
If signed by the Governor Section 1(d) is amended to read: “it is essential to the economic health of California for the state to ameliorate the deleterious effects on the state economy and local economies and the California housing market that will result from the continued foreclosures of residential properties in unprecedented numbers by modifying the foreclosure process to require mortgagees, beneficiaries, or authorized agents to contact borrowers and explore options that could avoid foreclosure. These changes in accessing the state’s foreclosure process are essential to ensure that the process does not exacerbate the current crisis by adding more foreclosures to the glut of foreclosed properties already on the market when a foreclousre could have been avoided. Those additional foreclosures will further destabilize the housing market with significant, corresponding deleterious effects on the local and state economy.”
NO KIDDING. And to think that the banks “want to add more housing stock” to their current and growing inventory? You want us to assume that the property owner, about to lose his or her home, isn’t trying to work out a new payment schedule?
Perhaps those who bought in with “no money down” and therefore no risk. And in those cases, I fault the lendor who was eager to close the deal.
The timing reference in the Bill of the LEGISLATIVE COUNSEL’s DIGEST reads “Until January 1, 2013, and as applied to residential mortgage loans made from January 1, 2003, to December 31, 2007, inclusive, that are for owner- occupied residences, this bill would, among other things, require a mortgagee, trustee, beneficiary, or authorized agent to wait 30 days after contact is made with the borrower, or 30 days after satisfing due diligence requirements to contact the borrower, before filing a notice of default.”
Are they joking. Don’t they think that lenders are in contact with borrowers as they fail to make their monthly payments and go into default?
I would hope that lenders would prefer that the loans are maintained until paid-in-full up to 30 years later with a predictable and continuous revenue stream?
OH Wait a minute. We are worried about the state and local economy? So with that concern being acknowledged in SB1137 we continue to spend more revenue than we take in? Great leadership.
Just my thoughts.
People knowingly took out loans, spent down their equity, and speculated in the housing market. There should be no bailout for them or for the banks. There needs to be market discipline.
http://www.beyondthemargin.net/2008/06/housing-bailout-close-to-fruition.html