Archive for December, 2008
Foreclosures Would Cost More than Keeping People in Their Homes
Wednesday, December 31st, 2008The U.S. Treasury Department has already used billions of dollars from the $700 federal bailout fund called the Troubled Asset Relief Program (TARP) to help banking giants and financial institutions deal with the current financial crisis.
However, several sectors have criticized the government for these actions, blaming them for not taking direct actions in dealing with the root cause of the problem – foreclosures. Treasury Secretary has defended the government’s action to use the bailout money for banks saying that the TARP was designed for investments and not spending, where giving direct financial support to homeowners facing foreclosures would be classified.
Foreclosure properties have flooded the market. This has brought a frightening decrease in home property values and putting more families at risk. The previous actions by the federal government to stem this tide of foreclosures have proven ineffective in stopping this flow.
The Housing and Urban Development’s Hope for Homeowners program, which was established to prevent foreclosures, has only attracted 111 applicants as compared to the millions of homeowners facing foreclosures.
Community organizations are pushing for loan modifications as a solution to the current crisis. They have argued that it would cost the government and everyone else more in allowing foreclosures to happen than bailing out homeowners and keeping them in their homes.
They are relying on a report by the Communities Creating Opportunity which indicated that a foreclosure would cost $80,000 with banks taking the brunt, together with losses for the state, cities, communities and homeowners. It is a far cry from $3,300 which is the amount needed to modify a loan.
Representatives and leaders from faith-based organizations are seeking a discussion with the Treasury secretary to discuss the foreclosure crisis and to urge the government for some direct action. They will push for the loan modification plan put forward by FDIC’s Sheila Bair which will require part of the bailout money as a guarantee to banks. Keeping families in their homes is a top priority, and finalizing concrete actions is critical for this to happen.
Democrats: Pro FDIC Loan Plan
Tuesday, December 30th, 2008A $24 billion bailout money proposal by Federal Deposit Insurance Corporation (FDIC) to support 1.5 million struggling borrowers will supposedly prevent foreclosures through modified loans by end of year 2009. It can be recalled that the same proposal was opposed by the Bush Administration and was once again moved last week by FDIC Chairman Sheila Bair.
During a hearing last week, Bair urged a more aggressive action by the government in helping millions of borrowers avoid foreclosures. She said it would be a necessary move to achieve economic recovery.
This has brought a division among the house with Democrats supporting the proposal. Even House Speaker Nancy Pelosi, from the District of California, insisted the opposing Treasury Secretary Henry Paulson, publicly to side with the FDIC plan. Also, in a statement made by Pelosi, solutions to home foreclosure problems have been present for a while and it would be an unacceptable move if they are delayed further.
However, dissatisfaction of lawmakers also plays a significant role especially since the Congress is capable of imposing new conditions on bailout money use. Although Democrats are for the idea of pushing money for the aid of challenged auto industry as well as struggling homeowners, legislative move is seemingly frozen until President-elect Barrack Obama’s administration starts on mid-January 2009.
Paulson reaffirmed his opposition, even citing a program during the previous year wherein borrowers serviced by Fannie Mae and Freddie Mac, two of the government mortgage giants, would be allowed longer terms for a more affordable payment or even reduction of interest rates which would help the homeowner prevent foreclosures. This statement however, was criticized by Bair stating the plan had fallen short of the needs.
With FDIC’s proposal, 2.2 million of the top at risk loans of struggling homeowners would be allowed modification of their mortgages to avoid foreclosures. Apart from that, even the servicer gets to benefit — being granted $1,000 for every loan modified.
Controlling Foreclosures: A Key to Recession
Monday, December 29th, 2008The number of foreclosures has increased in staggering proportions since last year, with figures almost doubling in the last few months. 2007 registered 1.5 million foreclosures proceedings. This figure was almost matched during the first 6 months of 2008. If this trend goes on, more families will lose their homes to foreclosures during the next two years. The Federal Deposit Insurance Corporation (FDIC) estimates this figure between 4 to 5 million homes.
Various sectors have mixed emotions towards people who are currently in imminent danger of foreclosures. Many are blaming them for triggering this financial crisis by their exuberance in taking on mortgages on homes and loans that they will not be able to pay in the first place.
Others consider these people victims of misleading sales practices making them believe in the perpetual increase of home values and enticing them to take on loans with high risks just to close the deal on that fabulous home.
The same system that allowed these troubled homeowners facing foreclosures to take on unrealistic loans tumbled down upon them when interest rates adjusted beyond their paying capacities. This triggered a wave of delinquencies resulting in foreclosures, which in turn became a catalyst for unemployment, recession, severe drops in market prices for median homes and economic instability. A vicious cycle unfolded that should end before everything is too late.
Several good ideas have been put forward from various sectors, from using the federal bailout fund to provide direct financial assistance to homeowners facing foreclosures, to a 120-day moratorium on foreclosures. One proposal allows banks to rent out foreclosure properties to former owners. Great efforts are also being placed in making homeowners and lenders discuss a restructuring of the loan that will benefit both in the long run.
However, proposals for direct assistance to homeowners are being resisted directly from the top, and economists are hoping that a change in administration would produce better action. Homeowners have nothing else to do but hope.
Losing Homes to Foreclosure: A Price to Pay for Health?
Tuesday, December 23rd, 2008Due to the burden of mortgages on homes, a lot of Americans are left with the choice of setting their health aside just so they keep their homes from being foreclosed. The weakening economy does not help in the situation a lot with the increasing number of individuals losing their jobs, also losing their health insurance.
Despite programs that help people who need medical care and are challenged – having low income, senior citizens and disabled; a lot of people are still at risk of losing their homes to foreclosure. Medicaid and Medicare, two government programs that provide health insurance, may still be insufficient for continuous compliance of a patient to his costs, be it in drug or surgery.
According to Freddie Mac, one of the mortgage giants of the government, one of the reasons for failure of a homeowner to pay for their mortgages is illness. Almost 15 percent of delinquencies during the first half of the year are accounted for poor health condition of homeowner, aside from loss or lack of income. Another reason is having other debts like medical bills; electric bills etc., other than the house mortgage.
How does health care cost end up becoming housing problems?
Lack of income or job makes a person ineligible to health benefits a company may provide. For people who have health complications and needing constant medical care, even surgery and/or therapy and have no other means for paying for medical bills, they carry it on their house mortgages. And if the mortgage fails to meet the bills, they end up losing their homes to foreclosures.
This is why some people have considered putting off their medical care than ending up with home foreclosures, leaving them homeless.
This is why consumer advocates does not encourage people to use their homes as collateral to their medical bills? As compared to banks, hospitals are more forgiving when it comes to debts, even setting low payments. Besides, with sufficient documentation of medical bills, a patient may be able to make loan modifications with lenders, preventing foreclosures.
Paulson Explains Change in Foreclosure Fund Spending
Monday, December 22nd, 2008In a prepared statement to be delivered at the U.S. House Financial Services Committee hearing on Tuesday, Treasury Secretary Henry Paulson said the Troubled Asset Relief Program (TARP) was not intended to be an economic recovery and stimulus package. He said that the $700 billion TARP was meant to stabilize the country’s financial system.
Paulson further explained that since the summer when the proposal was handed to Congress, the U.S. financial crisis has spread worldwide, worsening further the U.S. financial situation that the Treasury had to take action to save failed financial institutions in order to stabilize the country’s financial system.
As a response to expected questions about foreclosure prevention, Paulson stated in the prepared document that the Treasury’s decision to buy equities in U.S. financial institutions will ultimately become more effective in preventing foreclosures than if Treasury carried out the proposed purchase of delinquent loans from mortgage banks. He explained that there are other programs being worked out to help troubled homeowners avoid foreclosures.
Paulson is expected to be interrogated intensely at the House hearing, especially by Democratic lawmakers who have previously expressed their disappointment at Paulson’s decision. The Democrats said they approved TARP mainly because they expected the program to help millions of Americans facing foreclosures and help stop the soaring number of home foreclosures across the country.
Among the lawmakers that Paulson faces at the hearing will be Democratic Representative Frank Barney, chairman of the House Financial Services Committee, who has been vocal in his assertions that the foreclosure prevention objective was clearly spelled out as one of the options in the original TARP proposal presented to and approved by Congress in the summer.
Of the first $350 billion that Paulson got from the $700 billion TARP, $125 billion was given to nine major banking firms, including JPMorgan Chase, Citigroup and Wells Fargo, and $40 billion was provided to international insurance firm AIG.
Tampa Officials Announced Plan to Help Solve the Problem in Florida Foreclosures
Friday, December 19th, 2008The city of Tampa in Florida will receive a federal grant of $13.6 million to manage foreclosure properties in its area. The said funding aims to purchase and refurbish the recorded 100 abandoned and home foreclosures in West Tampa and Sulphur Springs.
The funding that came from the Neighborhood Stabilization Program was passed by Congress and signed by President Bush. The said funds were approved in line with the government’s drive to help solve foreclosure crisis.
California firm RealtyTrac said that the rates of Florida foreclosures were ranked as the third highest in the country’s overall figures. The company also said that the state receives foreclosure filings from one out of every 157 homes in the area.
Tampa’s Growth Management and Development Services Director Cyndy Miller said that the city would tap contractors, developers, financial and non-profit institutions to aid them in the program. The local government of Tampa believes that they should also contribute to the programs that aim to decrease the number of Florida foreclosures.
Miller was reported to have said that her office will work very hard for this project. She also said that they are seeking ways to help address the worsening problem of foreclosures in the state.
Meanwhile, Major John Bennett of the Tampa Police Department is looking forward to the said program. He believes that crime rate would definitely go down at Sulphur Springs once the abandoned and foreclosure homes in the area are reoccupied.
Tampa will not be the lone state to receive funding from the government. Hillsborough County will also be receiving a $19 million fund from the same federal program.
Analysts said that the funding from the Neighborhood Stabilization Program will definitely aid local communities with their foreclosure problems. However, they still believe that such funding will not completely solve the local housing crisis.
Homeless Middleclass Rising Amid Foreclosures
Thursday, December 18th, 2008Middleclass families have always survived on their own, without taking anything from the social services offered to the class below them. But as the foreclosure crisis escalates across the country, more and more middleclass families and children have been joining lines at free lunch programs, food pantries and community centers.
And what is surprising is they also have been lining up at homeless shelters. How and why did these middleclass families lose their homes?
According to analysts, the subprime mortgage market collapsed because of the overwhelming use of the adjustable rate mortgage option and the loose lending standards applied by banks. Taking a mortgage loan has become just like taking an appliance loan as home loans became available to almost everyone.
ARMs were attractive to borrowers because they required low monthly payments during the introductory period. But once the easy year was over, the monthly payments increased, and a rising number of borrowers were not able to pay. At the same time, fuel prices soared, causing price increases in food and all other items that people need to live. The mortgage banks, also troubled by rising costs and losses, began to foreclose, starting the foreclosure crisis that has not stopped in its onrush.
The soaring number of foreclosure homes that flooded the market caused a free fall in home prices and further hastened foreclosures as more and more homes became worthless compared to what they owe the banks.
The Contra Costa Times and other newspapers have described situations in which homeless shelters and public agencies are being approached by more and more homeless middleclass families who have been driven out of their home foreclosures.
For those who have not been forced out of their homes, it is time to prepare and protect themselves from the harsh realities of foreclosure and homelessness by living frugal lives.
Florida Reeling From Staggering Increase in Foreclosures
Wednesday, December 17th, 2008A pre-foreclosure statistical company has announced a staggering 325 percent increase in South Florida foreclosures last October as compared to the same month last year. Statistics show that Miami-Dade County led the pack with 5,886 foreclosures followed by Broward County at 4,099 homes and Palm Beach with 3,05 home foreclosures.
Affected areas in Miami-Dade County include Miami, Hialeah, Homestead, Miami-beach and Doral. For Broward County, areas that were hardest hit by foreclosures are Fort Lauderdale, Hollywood, Miramar, Pompano Beach and Pembroke Pines. Areas affected in Palm Beach County include West Palm Beach, Lake Worth, Boca Raton, Boynton Beach and Delray Beach.
The company did not report all gloom however, as statistics show an improving monthly trend with declining numbers from September to October of this year. Experts are optimistic that this trend could signal stability in the region, with inventories of foreclosure properties tapering down. With less inventories of marked-down properties sold at very low rates, the housing industry could bounce back with more stabilized home prices.
However, experts are worried that stabilizing home prices may not be affordable for low income buyers. Income flows have not been commensurate with housing rates and is further aggravated by more job losses and unemployment. The increases in foreclosures in the previous months have flooded the market with more housing units than there are homeowners.
Nationwide, the count amounts to 24 million vacant homes. Banks and financial institutions are trying to sell these homes at much lower rates to get them off their books. The Neighborhood Stabilization Program is also aiming to purchase some of these properties for rehabilitation to be sold to low-income families under government subsidies.
Experts are optimistic that the incoming President Barack Obama will provide more support to the housing industry and put the economy back up. In Florida, a rebound in the real estate industry could spell more economic stability for the region.
Elgin to Receive $2.16 Million in HUD Foreclosure Funds
Tuesday, December 16th, 2008The city of Elgin is set to receive its allocation of $2.16 million from the U.S. Department of Housing and Urban Development to rehabilitate its neighborhoods plagued by home foreclosures and abandoned properties.
Jerry Deering, community development director of Elgin, said that the funds would be spent to acquire and rehabilitate foreclosed properties and to demolish units that have become eyesores. Some portion of the money could also be used to help lower-income families afford the down payments of restored repo homes.
The city will work with neighborhood associations such as the Chicago Community Loan Fund and the Neighborhood Housing Services of Elgin to identify the neediest neighborhoods and to distribute the money according to a set of factors.
The factors would include percentage of house foreclosures, percentage of subprime mortgage loans taken, probabilities of further increases in foreclosures and extent of positive impact on the area.
In addition to Deering’s proposals, Matthew Fitzgibbon, Elgin’s assistant community development manager, also said that portions of the funds will be spent to revive older neighborhoods around Elgin’s downtown. At a public meeting where city council leaders approved Elgin’s allocation application, Bill Klaves of Northern Fox Valley’s Habitat for Humanity called on the leaders to consider Habitat as a partner in the community rebuilding program.
The $2.16 million is part of the $3.92 billion Neighborhood Stabilization Program established by the HUD to enable states to help their communities with the highest rates of foreclosures. The Housing and Economic Recovery Act that authorized the neighborhood program required that the funds must be used to help families whose income does not surpass 120 percent of average income in the area.
Other Illinois cities receiving funds from the HUD’s neighborhood stabilization and foreclosure prevention program are Chicago, Cicero, Aurora, Joliet and Rockford, with the city of Chicago receiving $55 million.
Bailouts Worsen Foreclosure Crisis, Economist Says
Monday, December 15th, 2008Bailing out home foreclosures will only worsen the crisis it is trying to solve, according to Federal Reserve Bank of Boston economist Paul Willen. He said that bailouts will lead to more delinquencies and write-offs and will be more costly to both mortgage banks and taxpayers.
Willen co-wrote a study proving that U.S. foreclosures in 2007 and 2008 are following a historical foreclosure pattern and not causing a catastrophic avalanche of foreclosures.
He explained that offering bailouts will encourage homeowners who have been paying their amortizations on time to default and go into foreclosure in order to take advantage of cheaper payments. He said that taxpayers’ money would be spent on scores of homeowners who do not really need help.
Willen’s proposal is to allow the housing market to find its level without artificial supports and to ultimately find the level where houses become affordable to many, encouraging homebuyers and investors to return and thereby stimulate the housing market naturally.
Two of the leading foreclosure prevention schemes analyzed by Willen are the HOPE for Homeowners Program (H4H), run by the Federal Housing Administration (FHA), and the loan modification program run by the Federal Deposit Insurance Corporation (FDIC). Both of the programs are optional; the mortgage banks are not mandated to offer them to their borrowers.
Under the H4H, the mortgage bank takes a loss to reduce a homeowners’ loan balance and then transfers the new loan to the FHA. Under the FDIC plan, the bank lowers the interest rate to reduce monthly payments. The FDIC guarantees up to 50 percent of the bad loan if the borrower again defaults.
It is to be noted that both bailout plans have adverse consequences to all parties, namely the government, the taxpayers, the banks and the borrowers themselves. How? The plans would attract scores of homeowners who would use the plans not to avoid foreclosure, but to reduce to a large extent the total cost of their homes.
OR Search By Zip Code
HUD Fair Housing Equal Opportunity
