Easy money, risky loans drive area home losses
70,000 filings for foreclosure in the past two years; Worst isn't over as mortgage rates adjust up
Ron French and Mike Wilkinson / The Detroit News
A lot of people made money on Ethel Cochran's home during the years.
There was the nice man who sat in her living room in 2004 and offered to lower her house payments. There was the company that sent her a letter the next year proposing a way to pay off her bills by refinancing. In 2006, she refinanced again when a gentleman on the phone claimed he could lower her payments and get her some cash. A few months later, a woman knocked on her door with yet another offer.
"I thought she was a nice lady," said Cochran, 68, of Detroit. "She said she could help me."
After buying her home for $8,000 in 1987, Cochran now owes 14 times that amount -- multiple refinancings larded with commissions have left her with a $116,000 mortgage she can't repay. Her latest lender took a $30,000 loss on the house. Her neighbors are losing money, too: Foreclosures drop the value of nearby homes.
Cochran took family photos off the walls this month, waiting to be evicted from her home of 20 years. "I don't know what happened," Cochran said.
A Detroit News investigation reveals that a cash-drunk mortgage industry with virtually no government oversight has turned Metro Detroit into a foreclosure factory, where foreclosure notices were served on 260 homes a day in August -- the equivalent of wiping out two subdivisions every 24 hours.
More than 70,000 homes in Metro Detroit -- equal to every residence in Southfield and Livonia -- have entered some phase of foreclosure in less than two years, according to The Detroit News analysis of foreclosure data. A pace that was already an all-time record in January 2006 has jumped six-fold since then, crippling the mortgage industry, driving down property values and leaving tens of thousands of families financially broken.
The News found that the economic cancer rooted in the foreclosure crisis has spread deeper and wider than previously known. More than 1 million homes in Metro Detroit -- 2 out of 3 households -- are worth less today because their value has been damaged by nearby foreclosures, according to a study by the Center for Responsible Lending, a consumer advocacy group focused on predatory lending.
The cost in Metro Detroit home values, lost assets and unrecovered property taxes so far: an estimated $1.6 billion, according to the Center for Responsible Lending -- enough to buy every home in the city of Grosse Pointe and Grosse Pointe Shores.
Once a relatively isolated event, foreclosures have become an economic plague, infecting the poorest and wealthiest neighborhoods and afflicting even residents who have never had a mortgage.
And it's going to get worse. The number of risky adjustable-rate loans scheduled to reset to higher interest rates is still going up, with the peak expected in March. That means foreclosures likely will rise for at least another year.
How Metro Detroit became one of the foreclosure capitals of America -- and the far-reaching impact of that title -- is a story of old vices and new schemes, where a system fueled by cash emptied the bank accounts of tens of thousands area residents.
"At the time, it was like the wild, wild West out there," said former mortgage loan officer Nicole Jackson. "We didn't realize what the fallout would be."
Mortgage crisis rocks banks
The savings and loan debacle of the 1980s is considered to be the costliest banking scandal in history, costing investors, banks and the government about $150 billion. Yet that financial crisis may be dwarfed by the final cost of the current mortgage meltdown. Bad mortgage debt may cost banks as much as $400 billion, according to Deutsche Bank; property values may sink another $223 billion. The human cost is even more alarming: As many as 2 million Americans may lose their homes before the housing meltdown ends.
But the nation's foreclosure crisis pales in comparison to Metro Detroit's housing implosion. The United States is struggling with an all-time high rate of one foreclosure filing for every 80 households in the country since January 2006, according to RealtyTrac data. In Metro Detroit, using the same data, 1 in 21 homes has been in some phase of foreclosure in that time. The city of Detroit's foreclosure rate is eight times the national average.
Not all notices lead to foreclosures. Some homeowners catch up on their payments while others negotiate more manageable terms. The majority find a way to refinance their overdue loans, often with loans that begin with affordable "teaser" rates, before escalating quickly. Still, the number of foreclosure filings offers a glimpse at the scope of the crisis in the region and the nation.
There are some Detroit neighborhoods where 1 in 7 homes received a foreclosure notice between January 2006 and September 2007. In the city as a whole, 1 in 10 homes has had a foreclosure notice in that time.
Relatively affluent suburban neighborhoods don't escape unscathed. In Lathrup Village, where the median household income is $107,000, 1 in 20 homeowners have been in some phase of foreclosure since 2006; in Lyon Township, 1 in 27 are in financial straits. In all, 112 of Metro Detroit's 130 communities -- where 92 percent of area residents live -- have foreclosure rates above the national average.
Michigan is first in the nation in delinquencies of subprime loans -- loans made to riskier borrowers in which the interest rate is at least 3 percent higher than for loans that can be offered to those with good credit. Delinquencies are the first step on the road to foreclosures. The state is first in FHA delinquencies, second in VA delinquencies and fourth in delinquencies on loans at better prime rates.
Five of the 10 worst ZIP codes in the nation for foreclosure are in the city of Detroit. A ZIP code in Cleveland is No. 1, followed by Detroit's 48228 and 48205. Chicago, Indianapolis and Atlanta also have ZIP codes in the top 10.
'Confluence of ugliness'
Michigan is an anomaly in the foreclosure crisis. Other states with the highest rates of foreclosure -- California, Florida and Nevada -- experienced housing booms in recent years with rampant speculation. Investors bought homes only to sell them six months later for a profit.
Michigan real estate never escalated -- or plummeted -- as much as in those states. It's not because its biggest city, Detroit, is one of the poorest big cities in America -- it's been poor for years and not had such high foreclosure rates.
Michigan's recession and nation-leading unemployment have played a role, but Michigan has had unemployment rates twice as high as it is today without approaching the current levels of foreclosure.
The sky-high foreclosure rate of Michigan -- and particularly Metro Detroit -- has as much to do with the mortgage industry as the auto industry.
"It was a confluence of ugliness," said John Kloster, an investment adviser based in Sylvan Lake. "It was our one-state recession, people trying to maintain their lifestyles, and money that was incredibly easy to borrow."
Kloster traces the origins of today's meltdown to 1984, when credit card interest stopped being tax-deductible.
After that, it made sense for homeowners to finance a better lifestyle with equity loans, on which the interest remained tax-deductible.
During the past few years as the state's economy drooped, "people lost their auto jobs. If you're struggling to keep your kid in college and keep your nice cars, the easiest way to do it was to suck money out of your house."
Metro residents pay more
Metro Detroiters paid higher mortgage interest rates and were more likely to get adjustable-rate mortgages for those loans than homeowners anywhere else in the nation. About 55 percent of mortgage loans in the region in 2006 were subprime, meaning the interest rates were at least 3 percentage points higher than the rates supposedly available to borrowers with good credit. That's double the national average, according to an analysis of national loan data by Association of Community Organizations for Reform Now (ACORN), a national consumer advocacy group. In Wayne County, 2 out of 3 home loans were subprime.
A lot of those homeowners probably qualified for better loans. A Fannie Mae study found that one-third of home buyers who received subprime loans qualified for prime loans, which could have saved them between $50,000 and $100,000 during the course of the loan and greatly decreased the odds of foreclosure. Unwitting home buyers were sold more costly loans by officers who often received bonuses for doing so.
The reasons why the region's residents received worse loans than borrowers elsewhere has as much to do with Wall Street as Cass Avenue.
Until the 1980s, almost all foreclosures were caused by personal tragedies of some kind -- death of a breadwinner, divorce, job loss or medical bills. While the majority of foreclosures are still the result of those factors, Cochran and thousands like her are losing their homes from causes that didn't exist 25 years ago.
Most mortgages today are sold in bundles of hundreds or thousands on the bond market. Investors -- and managers of the mutual funds many of us own in our 401(k) plans -- purchased the bonds because the interest they received on those mortgages was higher than their return on investment on other bonds. While housing values were rising and foreclosures low, those mortgage-backed bonds were big moneymakers.
To meet the market's demand for more mortgage-backed bonds, the mortgage industry had to sell more loans. To do that, lenders had to find new borrowers, and they often found them in urban areas traditionally shunned by banks. To make loans to low-income home buyers, many of whom had questionable credit, lenders loosened loan qualification standards.
"Wall Street got an appetite for high-interest loans, so lenders published ridiculously (lenient) loan guidelines," said Emil Izrailov, who started his career as a subprime mortgage officer and is now chief operations officer for Kaye Financial Corp. in Bloomfield Hills.
Along Detroit's poor streets such as Cass Avenue, lenders found homeowners who were both eager to borrow money, and who often lacked the sophistication to evaluate the risks of the loans.
Once numerous subprime mortgage shops opened in Detroit and marketed heavily on radio and billboards, the risky loans spread to the suburbs.
'Immoral and unethical'
Lenders worked on volume. "In the name of production, a lot of lenders took those products and inappropriately applied them to consumers," said Bill Matthews, senior vice president of the Conference of State Bank Supervisors, which advocates for state banking systems. "It was immoral and unethical."
It didn't matter if homeowners couldn't afford their adjustable-rate mortgages after their low, teaser rates ended; the profits from those who would refinance would offset the losses of those whose homes were foreclosed.
Some lenders were unwilling to work with homeowners who fell behind on payments, often because the company collecting payments was separate from the company that owned the loan.
When Karen Buegel lost a job and her income was cut in half, she called her mortgage company repeatedly, offering to make partial payments on her St. Clair Shores home until she could get back on her feet.
"I said, 'Let me pay something,' " Buegel said, "and they said they weren't interested unless I had the whole payment."
When her home was foreclosed earlier this year, Buegel owed about $135,000. The house sold at auction for $103,000.
If the lender was willing to lose money by selling the home for less than Buegel owed, why weren't they willing to accept less money from her, Buegel wonders.
The reason, Matthews explains, has nothing to do with the credit worthiness of the struggling homeowner, and everything to do with the "bundling" of loans to investors.
"When you pool a lot of mortgages together, it gives you diversity," Matthews said. "If you have a high enough yield on those mortgages, it doesn't matter if some of these loans go bad.
"What the hedge fund manager is missing, is it's destroying communities."
Many stuck with homes
Sharon Baldwin is a victim of foreclosure, and she's never missed a payment on her Huntington Woods house.
The 30-year-old accepted a great job in a Chicago public relations firm in early 2006, with an office that looked out over Lake Michigan. She loved the city and the job, but quit nine months later to return to Metro Detroit.
"I couldn't sell my house," said Baldwin, who couldn't afford a house payment in Michigan and rent in Chicago. "I know two other people like me who moved back from Chicago because they couldn't sell their homes. Whether it's foreclosures or economy, it's pulling the whole area down."
Millions of Metro residents have become collateral damage of the foreclosure explosion. From people such as Baldwin, who are virtually prisoners because no one will buy their homes, to Realtors whose income has been gutted, to homeowners afraid of the drug dealers setting up shop in vacant homes, foreclosures are hurting almost everyone. The housing meltdown has become the economic equivalent of secondhand smoke, causing damage to anyone nearby.
The tab for foreclosures -- in lost assets, unrecoverable loans, lost property value and uncollected property taxes -- on subprime loans made in 2005 and 2006 could reach $1 billion in Wayne County alone, according to an analysis of federal loan reporting data by the Center for Responsible Lending. In Oakland County, the cost is projected to be $363 million; in Macomb County, $289 million.
About 90 percent of those costs are borne by people and institutions other than the foreclosed homeowners. According to a study by the Association of Community Organizations for Reform Now (ACORN), lenders are the biggest losers, absorbing 38 percent of the cost. The flood of foreclosures has forced a number of mortgage lenders in the region to shut their doors in recent months, putting hundreds out of work.
Local governments are estimated to absorb 21 percent of the cost of foreclosures, mainly in losses in tax revenue.
Residents who don't even have mortgages are being financially damaged by the foreclosure crisis. Metro Detroit home prices have plummeted 18 percent since 2004; in Wayne County, values have dropped by more than a third in that same time. Rising interest rates, tighter lending standards and a nation-high unemployment level are likely the leading causes, but foreclosures are accelerating the decline. Industry experts estimate conservatively that every foreclosure drops the value of other homes within a block by 0.9 percent. That means an average home in Farmington Hills loses more than $2,000 in value when a nearby home is foreclosed.
Foreclosed homes are often sold at fire-sale prices by lenders eager to get rid of them. Those sale prices are then used to help calculate the value of neighboring homes.
Often, foreclosed homes fall into disrepair, further damaging the value of neighboring homes.
In Taylor, Ellen Cook's neighborhood is buzzing about a $250,000 home in foreclosure that has become an eyesore, in which the homeowner took the brick pavers from the driveway and a hot tub built into the deck.
"We're already having a problem in the neighborhood with prices going down," Cook said. "We've had people try to refinance and they can't get anything because their value has dropped."
And the pain won't stop anytime soon. About 90 percent of all recent foreclosures are on loans with adjustable rates -- loans in which payments start off cheap and then rise rapidly after a predetermined length of time, typically two or three years. According to Bank of America data, the number of adjustable-rate mortgages resetting to higher rates continues to rise, with a peak nationally expected in March. About $110 billion in loans will reset to higher rates in that one month alone -- five times the dollar amount of loans that reset in January.
There is a lag between ARMs resetting to higher rates and subsequent foreclosures, as homeowners fall behind on payments. Loans that reset in March won't reach foreclosure until the summer and fall of next year.
U.S. Treasury Secretary Henry Paulson warned last week that things will get worse next year. "The nature of the problem will be significantly bigger next year because 2006 (mortgages, which will reset to higher rates in 2008) had lower underwriting standards, no amortization, and no down payments," Paulson told the Wall Street Journal.
In short, 2008 may make 2007 look like the good old days.
Thursday, December 6, 2007
Home foreclosures hit record high
Home foreclosures hit record high
Jeannine Aversa / Associated Press
WASHINGTON -- Home foreclosures shot up to an all-time high in the third quarter, fresh evidence of the problems afflicting distressed homeowners amid the housing meltdown.
The Mortgage Bankers Association in its quarterly snapshot of the mortgage market released today said that the percentage of all mortgages nationwide that started the foreclosure process jumped to a record high of 0.78 percent during the July-to-September period. That surpassed the previous high of 0.65 percent set in the prior quarter.
More homeowners also fell behind on their monthly payments.
The delinquency rate for all mortgages climbed to 5.59 percent in the third quarter. That was up from 5.12 percent in the second quarter and was the highest since 1986, the association said. Payments are considered delinquent if they are 30 or more days past due.
Homeowners with spotty credit who have subprime adjustable-rate loans were especially hard hit. Foreclosures and late payments for these borrowers also reached all-time highs in the third quarter.
In monthly foreclosure data compiled by RealtyTrac Inc., Michigan ranks among the top for the highest foreclosure rates among states, and Wayne County is near the top among metropolitan areas.
Jeannine Aversa / Associated Press
WASHINGTON -- Home foreclosures shot up to an all-time high in the third quarter, fresh evidence of the problems afflicting distressed homeowners amid the housing meltdown.
The Mortgage Bankers Association in its quarterly snapshot of the mortgage market released today said that the percentage of all mortgages nationwide that started the foreclosure process jumped to a record high of 0.78 percent during the July-to-September period. That surpassed the previous high of 0.65 percent set in the prior quarter.
More homeowners also fell behind on their monthly payments.
The delinquency rate for all mortgages climbed to 5.59 percent in the third quarter. That was up from 5.12 percent in the second quarter and was the highest since 1986, the association said. Payments are considered delinquent if they are 30 or more days past due.
Homeowners with spotty credit who have subprime adjustable-rate loans were especially hard hit. Foreclosures and late payments for these borrowers also reached all-time highs in the third quarter.
In monthly foreclosure data compiled by RealtyTrac Inc., Michigan ranks among the top for the highest foreclosure rates among states, and Wayne County is near the top among metropolitan areas.
Foreclosure mess to get help
Foreclosure mess to get help
White House plan expected to freeze interest rates 5 years
December 6, 2007
BY TODD SPANGLER
FREE PRESS WASHINGTON STAFF
WASHINGTON -- Help from Washington soon could be on the way for subprime borrowers in metro Detroit, one of the hardest hit areas of the country for home foreclosures.
The Bush administration is expected to announce a plan today to freeze interest rates for five years, a person familiar with the plan told the Free Press on Wednesday.
A congressional aide speaking on condition of anonymity because the plan is not coming from Congress confirmed an Associated Press report that an agreement between lenders and the administration has been reached.
The aide could not provide details about how many borrowers would qualify or which loans -- and from what period -- would fall under the agreement.
Another aide, to Rep. Thaddeus McCotter, a Livonia Republican and a member of the House Financial Services Committee, said the congressman received confirmation of the report from the committee.
President George W. Bush's schedule indicated he would make an announcement on housing issues from the White House today followed by a news conference at the Treasury Department.
Even with many specifics unknown, reaction in metro Detroit was generally positive.
"They're doing something, and that's a good thing," said Deborah Jones, president of the Detroit Alliance for Fair Banking, a group that monitors banking practices and works to ensure credit access for underserved communities.
Jones has spent months working with families who are grappling with foreclosures and negotiating on their behalf with lenders, trying to reach deals to allow people to keep their homes and prop up neighborhoods threatened by sinking property values when homes are foreclosed.
Any plan, she said, will have to be far-reaching to help people in metro Detroit. From July 1 to Sept. 30, the region ranked second highest among the nation's largest 100 metro areas in the rate of foreclosure filings, with 1 for every 33 households. According to RealtyTrac, which tracks foreclosed properties, only Stockton, Calif., had a higher rate.
Michigan's housing problems are exacerbated by the state's 7.7% unemployment rate -- which leads the nation.
That, in itself, could be an issue for how effective the program could be: In other areas of the nation, the question is how much a person can afford to pay. For some in southeastern Michigan, it's a question of whether the person is working.
"Will this person have an income stream in the near future?" Meg Burns, director of the U.S. Department of Housing and Urban Development's Office of Single Family Program Development, said Monday. "If they have no job, how long can this person make this payment?"
McCotter said Tuesday: "The best way to stop homeowner foreclosures at this point is to make sure people have jobs."
The administration agreement with lenders is a signal that government is catching up with the problem, but it is far from the only one. In Lansing, the state House passed legislation Tuesday authorizing lower, fixed rate loans for homeowners through the Michigan State Housing Development Authority. The bill has a less certain fate in the Senate.
Capitol Hill has been increasingly interested as well. The House has passed legislation to modernize the Federal Housing Administration, raising the amounts the agency can loan for homesand strengthening laws to restrict predatory lending.
Another proposal, by Democratic Michigan Sen. Debbie Stabenow, would forgive the taxes a homeowner gets if he or she settles a mortgage for less than the original value of the loan.
"It's not happening fast enough," Stabenow said. "This is a fundamental issue in the economy. There needs to be quick action."
That delay is also part of the debate. While some are pushing for immediate action, others in Congress say quick fixes could lead to more problems and a new wave of foreclosures down the road.
Rep. Tim Walberg, a Tipton Republican, voted against the legislation aimed at restricting predatory lending, for instance, believing it was no more than a political move and could result in less money being made available for home lending.
That doesn't mean, however, that he's against regulating the industry; in fact, he says he believes Michigan -- one of a dozen states with no licensing program for those selling mortgages -- needs more control over agents.
"There are certain regulations even a conservative like me thinks are appropriate," he said Tuesday.
Another key measure likely to be passed soon is an appropriations bill including $200 million for nonprofits offering credit counseling, a measure that may seem modest on its face but is touted by industry experts, administration officials and lawmakers as a significant means of getting lenders and homeowners together before foreclosures begin.
Meanwhile, policy makers, lenders and fair-housing advocates like the Washington-based Center for Responsible Lending are waiting for details of Bush's plan.
On Tuesday, the president said there have to be limits: "In other words," he said, "we shouldn't be using taxpayers' money and say, 'OK, you made a lousy loan, therefore we're going to subsidize you.' "
That leaves questions about who will qualify and how investors -- who may hold securities backed by subprime loans as investments -- may react.
"On the other side, there are many low- and moderate-income homebuyers who either took out fixed rate mortgages or already saw their" adjustable rate mortgage "reset to a higher rate," said Dean Baker, codirector of the Washington-based Center for Economic Policy Research, on his blog Tuesday. "This freeze does nothing for them."
Rep. John Dingell, a Dearborn Democrat, said he wants to make sure lenders are part of the solution and is concerned the Bush plan could be a voluntary one.
"Anytime this administration says it wants something voluntary, it means something that looks good that doesn't do much," he said Tuesday.
But Democratic New York Sen. Charles Schumer, chairman of the Joint Economic Committee, said Wednesday: "The $64,000 question remains: Will investors who might balk at going along with this be able to maintain legal roadblocks and prevent the plan from going in to effect?"
White House plan expected to freeze interest rates 5 years
December 6, 2007
BY TODD SPANGLER
FREE PRESS WASHINGTON STAFF
WASHINGTON -- Help from Washington soon could be on the way for subprime borrowers in metro Detroit, one of the hardest hit areas of the country for home foreclosures.
The Bush administration is expected to announce a plan today to freeze interest rates for five years, a person familiar with the plan told the Free Press on Wednesday.
A congressional aide speaking on condition of anonymity because the plan is not coming from Congress confirmed an Associated Press report that an agreement between lenders and the administration has been reached.
The aide could not provide details about how many borrowers would qualify or which loans -- and from what period -- would fall under the agreement.
Another aide, to Rep. Thaddeus McCotter, a Livonia Republican and a member of the House Financial Services Committee, said the congressman received confirmation of the report from the committee.
President George W. Bush's schedule indicated he would make an announcement on housing issues from the White House today followed by a news conference at the Treasury Department.
Even with many specifics unknown, reaction in metro Detroit was generally positive.
"They're doing something, and that's a good thing," said Deborah Jones, president of the Detroit Alliance for Fair Banking, a group that monitors banking practices and works to ensure credit access for underserved communities.
Jones has spent months working with families who are grappling with foreclosures and negotiating on their behalf with lenders, trying to reach deals to allow people to keep their homes and prop up neighborhoods threatened by sinking property values when homes are foreclosed.
Any plan, she said, will have to be far-reaching to help people in metro Detroit. From July 1 to Sept. 30, the region ranked second highest among the nation's largest 100 metro areas in the rate of foreclosure filings, with 1 for every 33 households. According to RealtyTrac, which tracks foreclosed properties, only Stockton, Calif., had a higher rate.
Michigan's housing problems are exacerbated by the state's 7.7% unemployment rate -- which leads the nation.
That, in itself, could be an issue for how effective the program could be: In other areas of the nation, the question is how much a person can afford to pay. For some in southeastern Michigan, it's a question of whether the person is working.
"Will this person have an income stream in the near future?" Meg Burns, director of the U.S. Department of Housing and Urban Development's Office of Single Family Program Development, said Monday. "If they have no job, how long can this person make this payment?"
McCotter said Tuesday: "The best way to stop homeowner foreclosures at this point is to make sure people have jobs."
The administration agreement with lenders is a signal that government is catching up with the problem, but it is far from the only one. In Lansing, the state House passed legislation Tuesday authorizing lower, fixed rate loans for homeowners through the Michigan State Housing Development Authority. The bill has a less certain fate in the Senate.
Capitol Hill has been increasingly interested as well. The House has passed legislation to modernize the Federal Housing Administration, raising the amounts the agency can loan for homesand strengthening laws to restrict predatory lending.
Another proposal, by Democratic Michigan Sen. Debbie Stabenow, would forgive the taxes a homeowner gets if he or she settles a mortgage for less than the original value of the loan.
"It's not happening fast enough," Stabenow said. "This is a fundamental issue in the economy. There needs to be quick action."
That delay is also part of the debate. While some are pushing for immediate action, others in Congress say quick fixes could lead to more problems and a new wave of foreclosures down the road.
Rep. Tim Walberg, a Tipton Republican, voted against the legislation aimed at restricting predatory lending, for instance, believing it was no more than a political move and could result in less money being made available for home lending.
That doesn't mean, however, that he's against regulating the industry; in fact, he says he believes Michigan -- one of a dozen states with no licensing program for those selling mortgages -- needs more control over agents.
"There are certain regulations even a conservative like me thinks are appropriate," he said Tuesday.
Another key measure likely to be passed soon is an appropriations bill including $200 million for nonprofits offering credit counseling, a measure that may seem modest on its face but is touted by industry experts, administration officials and lawmakers as a significant means of getting lenders and homeowners together before foreclosures begin.
Meanwhile, policy makers, lenders and fair-housing advocates like the Washington-based Center for Responsible Lending are waiting for details of Bush's plan.
On Tuesday, the president said there have to be limits: "In other words," he said, "we shouldn't be using taxpayers' money and say, 'OK, you made a lousy loan, therefore we're going to subsidize you.' "
That leaves questions about who will qualify and how investors -- who may hold securities backed by subprime loans as investments -- may react.
"On the other side, there are many low- and moderate-income homebuyers who either took out fixed rate mortgages or already saw their" adjustable rate mortgage "reset to a higher rate," said Dean Baker, codirector of the Washington-based Center for Economic Policy Research, on his blog Tuesday. "This freeze does nothing for them."
Rep. John Dingell, a Dearborn Democrat, said he wants to make sure lenders are part of the solution and is concerned the Bush plan could be a voluntary one.
"Anytime this administration says it wants something voluntary, it means something that looks good that doesn't do much," he said Tuesday.
But Democratic New York Sen. Charles Schumer, chairman of the Joint Economic Committee, said Wednesday: "The $64,000 question remains: Will investors who might balk at going along with this be able to maintain legal roadblocks and prevent the plan from going in to effect?"
Monday, December 3, 2007
Home owners lose in 3 ways
Home owners lose in 3 ways
Taxes can rise, values fall and services shrink
December 3, 2007
BY JOHN WISELY, KATHLEEN GRAY, STEVE NEAVLING and CHRISTINA HALL
FREE PRESS STAFF WRITERS
By springtime, many homeowners in metro Detroit could face an unwelcome and seemingly improbable trifecta:
Higher taxes, lower home values and shrinking services.
Local government finance experts say Michigan's foreclosure epidemic, state budget woes and quirks in the property tax system are conspiring to wound homeowners and the bottom line of local governments, including schools.
Consider:
• Oakland County officials have projected that the county government will experience at least three consecutive years of decline in county property tax revenue totaling $27.5 million.
• In Wayne County, for the fiscal year that ended Sept. 30, property values declined in all 43 municipalities.
• Many communities are anticipating reduced property tax collections in 2008 because of the foreclosure crisis. Here's a sampling: Royal Oak, $760,000; Warren, between $700,000 and $1 million; Farmington Hills, $2.5 million, and Clinton Township, $1.5 million.
• The state faces an estimated loss of $125 million in property, sales and transfer tax revenues in 2008 because of increasing foreclosures. Financing for public schools could suffer.
"With the decline in values, you'll start to see even more of a stretch on communities and schools," Wayne County Executive Robert Ficano said Friday. "In addition, you've got millages for parks and rec, the jail and community colleges."
Oakland County officials, anticipating record numbers of homeowners contesting property tax assessments, are encouraging communities to provide security.
Angry reactions are likely when assessors explain to many homeowners why their taxes will increase even as housing values have plunged, said Robert Daddow, deputy Oakland County executive.
"Explaining that to people is going to be very, very hard," said Frank Audia of Plante Moran, an accounting firm that advises dozens of local governments.
People who have bought a home in recent years could see their taxes decline because their starting point for taxable value is based on the assessment the year the home was purchased.
But those who have been in the same home for many years and taken advantage of a state law (Proposal A of 1994) that kept their taxes from increasing beyond the rate of inflation when housing values were rapidly escalating will suffer the downside of the same law. Their taxes can increase at the rate of inflation until the assessed value reaches actual market value.
Oakland, Michigan's richest county, expects its overall taxable value to shrink 0.4% in 2008 after decades of growth. The reduction will mean less tax money to pay for services such as police, firefighters, parks and libraries.
The hits come after years of local government belt-tightening prompted by declining state aid and skyrocketing health insurance costs for employees. Michigan communities have cut more than 1,600 police officers and more than 2,000 firefighters since 2001, according to state estimates.
"Every community we represent in metro Detroit has contingency plans for more layoffs," said Fred Timpner, executive director of the Michigan Association of Police.
Earlier attention
Some city officials are dealing with finances sooner than usual.
"We're starting our budget sessions early. Our first one is Dec. 8," said Don Johnson, finance director in Royal Oak. "Normally we wouldn't do that until the end of January."
City officials will have to determine what to cut, but Johnson said the $760,000 revenue loss anticipated for Royal Oak is more than the entire street lighting budget. The 0.4% decline in values predicted by the county caught him off guard.
"Last spring, I was still projecting a 4% increase," Johnson said.
Audia of Plante Moran said local officials generally thought they would see an increase of at least 2% to 3%.
"If that's not there, they are going to be shocked," Audia said. "Everybody is panicked about it."
Farmington Hills Finance Director Robert Spaman plans to cut about $2.5 million out of the city's $54-million budget because of lower property values. That could mean leaving city positions unfilled and tapping a rainy-day account.
In Clinton Township, where residential property values are expected to fall 5% to 6%, Supervisor Robert Cannon said the township will lose $1.5 million in property tax revenue. He is to present options for possible cuts to township officials Tuesday.
"We've pared things to the bone and now we're looking at what part of the bone to pare," Cannon said. "There's nothing that we won't be looking at."
That includes not filling vacant positions, delaying capital expenditures and eliminating township-owned cars for some employees.
Other cities vary
In metro Detroit's second-largest city, Warren, where two-thirds of the budget comes from property taxes, the 1.5% decline in assessed values will be difficult to manage, city officials said.
"You still have to put cops and firefighters on the street. You just have fewer pennies to pay for it," said Warren Assessor Philip O. Mastin III.
In Canton, commercial development has boomed, diluting the impact of lower home values.
"The amount of commercial development we're getting is historic," said Canton Township Supervisor Thomas Yack. "It's pretty startling. I thought nobody had any money."
Still, he expects the foreclosure crisis to hit township tax collections heavily in 2009 and is making plans for it.
Contracts for all of the township's 325 employees will be up for negotiation before then and workers, who don't have co-pays on their health insurance, may be asked to, Yack said.
In Wyandotte, a significant gap between assessed and taxable values remains and the city is somewhat protected by its biggest corporate presence -- BASF -- which is expanding operations in the city.
Still, new development has been stalled or canceled, said Finance Director Todd Drysdale.
The city invested more than $1 million to buy and clean an old industrial parcel for a development of 80 homes. After putting up 12 homes and selling just three, the developer has stopped.
"We also have four to five other condo projects that have stalled," said Drysdale. "It's going to take awhile before the actual taxable value is reduced, but that doesn't mean that the housing market isn't a concern."
Taxes can rise, values fall and services shrink
December 3, 2007
BY JOHN WISELY, KATHLEEN GRAY, STEVE NEAVLING and CHRISTINA HALL
FREE PRESS STAFF WRITERS
By springtime, many homeowners in metro Detroit could face an unwelcome and seemingly improbable trifecta:
Higher taxes, lower home values and shrinking services.
Local government finance experts say Michigan's foreclosure epidemic, state budget woes and quirks in the property tax system are conspiring to wound homeowners and the bottom line of local governments, including schools.
Consider:
• Oakland County officials have projected that the county government will experience at least three consecutive years of decline in county property tax revenue totaling $27.5 million.
• In Wayne County, for the fiscal year that ended Sept. 30, property values declined in all 43 municipalities.
• Many communities are anticipating reduced property tax collections in 2008 because of the foreclosure crisis. Here's a sampling: Royal Oak, $760,000; Warren, between $700,000 and $1 million; Farmington Hills, $2.5 million, and Clinton Township, $1.5 million.
• The state faces an estimated loss of $125 million in property, sales and transfer tax revenues in 2008 because of increasing foreclosures. Financing for public schools could suffer.
"With the decline in values, you'll start to see even more of a stretch on communities and schools," Wayne County Executive Robert Ficano said Friday. "In addition, you've got millages for parks and rec, the jail and community colleges."
Oakland County officials, anticipating record numbers of homeowners contesting property tax assessments, are encouraging communities to provide security.
Angry reactions are likely when assessors explain to many homeowners why their taxes will increase even as housing values have plunged, said Robert Daddow, deputy Oakland County executive.
"Explaining that to people is going to be very, very hard," said Frank Audia of Plante Moran, an accounting firm that advises dozens of local governments.
People who have bought a home in recent years could see their taxes decline because their starting point for taxable value is based on the assessment the year the home was purchased.
But those who have been in the same home for many years and taken advantage of a state law (Proposal A of 1994) that kept their taxes from increasing beyond the rate of inflation when housing values were rapidly escalating will suffer the downside of the same law. Their taxes can increase at the rate of inflation until the assessed value reaches actual market value.
Oakland, Michigan's richest county, expects its overall taxable value to shrink 0.4% in 2008 after decades of growth. The reduction will mean less tax money to pay for services such as police, firefighters, parks and libraries.
The hits come after years of local government belt-tightening prompted by declining state aid and skyrocketing health insurance costs for employees. Michigan communities have cut more than 1,600 police officers and more than 2,000 firefighters since 2001, according to state estimates.
"Every community we represent in metro Detroit has contingency plans for more layoffs," said Fred Timpner, executive director of the Michigan Association of Police.
Earlier attention
Some city officials are dealing with finances sooner than usual.
"We're starting our budget sessions early. Our first one is Dec. 8," said Don Johnson, finance director in Royal Oak. "Normally we wouldn't do that until the end of January."
City officials will have to determine what to cut, but Johnson said the $760,000 revenue loss anticipated for Royal Oak is more than the entire street lighting budget. The 0.4% decline in values predicted by the county caught him off guard.
"Last spring, I was still projecting a 4% increase," Johnson said.
Audia of Plante Moran said local officials generally thought they would see an increase of at least 2% to 3%.
"If that's not there, they are going to be shocked," Audia said. "Everybody is panicked about it."
Farmington Hills Finance Director Robert Spaman plans to cut about $2.5 million out of the city's $54-million budget because of lower property values. That could mean leaving city positions unfilled and tapping a rainy-day account.
In Clinton Township, where residential property values are expected to fall 5% to 6%, Supervisor Robert Cannon said the township will lose $1.5 million in property tax revenue. He is to present options for possible cuts to township officials Tuesday.
"We've pared things to the bone and now we're looking at what part of the bone to pare," Cannon said. "There's nothing that we won't be looking at."
That includes not filling vacant positions, delaying capital expenditures and eliminating township-owned cars for some employees.
Other cities vary
In metro Detroit's second-largest city, Warren, where two-thirds of the budget comes from property taxes, the 1.5% decline in assessed values will be difficult to manage, city officials said.
"You still have to put cops and firefighters on the street. You just have fewer pennies to pay for it," said Warren Assessor Philip O. Mastin III.
In Canton, commercial development has boomed, diluting the impact of lower home values.
"The amount of commercial development we're getting is historic," said Canton Township Supervisor Thomas Yack. "It's pretty startling. I thought nobody had any money."
Still, he expects the foreclosure crisis to hit township tax collections heavily in 2009 and is making plans for it.
Contracts for all of the township's 325 employees will be up for negotiation before then and workers, who don't have co-pays on their health insurance, may be asked to, Yack said.
In Wyandotte, a significant gap between assessed and taxable values remains and the city is somewhat protected by its biggest corporate presence -- BASF -- which is expanding operations in the city.
Still, new development has been stalled or canceled, said Finance Director Todd Drysdale.
The city invested more than $1 million to buy and clean an old industrial parcel for a development of 80 homes. After putting up 12 homes and selling just three, the developer has stopped.
"We also have four to five other condo projects that have stalled," said Drysdale. "It's going to take awhile before the actual taxable value is reduced, but that doesn't mean that the housing market isn't a concern."
Thursday, November 29, 2007
Foreclosures in Shelby Township neighborhood raise suspicions
Foreclosures in Shelby Township neighborhood raise suspicions
Mike Wilkinson / The Detroit News
SHELBY TOWNSHIP -- Dan DeKubber was a construction worker making $15 an hour when he says his boss suggested he buy a home. Not just any home, but a 3,800-square-foot, four-bedroom house in the northern Macomb County suburbs.
Price: $760,000.
Just 26 years old and single, DeKubber had neither the money nor the need for a McMansion.
"How can I possibly get the loan?" he asked John H. Floyd. Floyd assured him that he'd help DeKubber prove he earned enough to warrant the loan and also suggested that he'd make a $30,000 profit when he resold the house, DeKubber claims.
A year after the deal was done, the home is in foreclosure, DeKubber's credit is destroyed and soon, he says, he'll be evicted.
And the profit?
"I didn't get any money out of it," he said.
The transaction was one of at least seven in this otherwise affluent neighborhood that township officials considered suspicious. The selling prices were so high, officials ruled them out as "comparable sales" for the purposes of assessing property.
The foreclosures open a window on the mortgage industry's lending practices that allowed some people to get into homes that they couldn't have years earlier using high-interest, no-money down loans they ultimately couldn't afford. It's also an example of what happens when foreclosure ravages a neighborhood.
At one now-vacant home, once owned by Floyd, the pool sits full, fallen leaves staining the water. A makeshift chicken-wire fence surrounds it. For neighbor Sharon Nazione, it's a potential danger.
"We have so many little kids around here," she said.
Floyd is in no position to drain the pool or improve his property. He's in eastern Kentucky serving a 78-month federal prison term for conspiracy to sell hundreds of pounds of marijuana. He was indicted two days before he borrowed $825,000 for the 4,300-square-foot home in the Woodlands subdivision. Through contact with the prison's administration, Floyd declined to be interviewed for this story.
Big homes, mortgages
In the Woodlands subdivision in Shelby Township, the homes come in two sizes: big and bigger. Three-car garages, tiled pools and circular driveways are common.
The mortgages are supersized, too, and for some, living there requires the down payment of a life's savings.
But for a handful of folks, all it took was high-interest, no-money-down loans from financial institutions scattered across the country.
The Woodlands' sales caught the attention of township officials, including the assessor. The prices were well above what other homes in the area were going for, averaging nearly 40 percent more per square foot.
The township sent the FBI a list of homes that had been sold at prices so high that the township wouldn't use them as comparable sales, township Supervisor Ralph "Skip" Maccarone said. All seven of the foreclosed homes in the Woodlands were on that list.
The FBI said it cannot confirm whether an investigation is ongoing. Mark Bowling, the FBI's supervisory senior resident agent for Macomb, St. Clair and Sanilac counties, said his agents are actively working mortgage fraud cases throughout the county.
For Maccarone, the waves of foreclosure have cast a pall over communities throughout the area. Homes are vacant, creating a blight. Lawns are unkempt or nonexistent, windows are uncovered. One person's dream home sits beside an eyesore.
"This isn't what neighborhoods are about," Maccarone said.
Woman had 3 homes
Floyd bought his 4,300-square-foot Woodlands home in 2006, borrowing $825,000. It now sits vacant, its pool area unfinished, plywood covering one window; a screen door leaning against the back of the two-story brick home. It's one of three Macomb County homes Floyd owned that went into foreclosure.
Shannon Macleod, who has a child with Floyd, once owned three different homes in the Woodlands neighborhood, and borrowed more than $2 million for them. All properties ended up in foreclosure, as did a condominium she bought elsewhere in the township.
In August 2005, for example, she bought a house in the 12700 block of Partridge Run for $865,000. It went into foreclosure and in March, the home reverted back to Countrywide Home Loans, which lent her the money for the home. A pending sale on the property is listed at $559,000 -- more than $200,000 less than Macleod bought the home for; and less than the $596,380 that the township believes it is worth.
Macleod could not be reached for comment. But her brother Scott and Ray Tallerday, an attorney who represented Macleod in a bankruptcy case filed in June, said she was duped by Floyd.
Neighbors fear impact
Left in the wake of the foreclosures is a neighborhood trying to understand what happened. At first, they feared the high sales prices would drive their taxes skyward. When those fears were mollified by skeptical township officials, they worried about the vacancies that surround them.
For those who need to sell, those homes create obstacles. With so many homes on the market, it's difficult to sell anything.
"Are these foreclosures killing me?" said real estate agent Mike O'Donnell, who's trying to sell a home on Loon Court. "The answer is absolutely."
Nazione, who with her husband, Joe, lives on Partridge Run, can walk down her street and see several foreclosed properties. They have tell-tale signs: little to no landscaping and a for-sale sign. It's not what the Naziones expected when they moved in.
But Sharon Nazione said she believes most of the problem centered on the banks and other lending institutions who granted the big loans. "What's the matter with these mortgage companies? Shame on them."
Mike Wilkinson / The Detroit News
SHELBY TOWNSHIP -- Dan DeKubber was a construction worker making $15 an hour when he says his boss suggested he buy a home. Not just any home, but a 3,800-square-foot, four-bedroom house in the northern Macomb County suburbs.
Price: $760,000.
Just 26 years old and single, DeKubber had neither the money nor the need for a McMansion.
"How can I possibly get the loan?" he asked John H. Floyd. Floyd assured him that he'd help DeKubber prove he earned enough to warrant the loan and also suggested that he'd make a $30,000 profit when he resold the house, DeKubber claims.
A year after the deal was done, the home is in foreclosure, DeKubber's credit is destroyed and soon, he says, he'll be evicted.
And the profit?
"I didn't get any money out of it," he said.
The transaction was one of at least seven in this otherwise affluent neighborhood that township officials considered suspicious. The selling prices were so high, officials ruled them out as "comparable sales" for the purposes of assessing property.
The foreclosures open a window on the mortgage industry's lending practices that allowed some people to get into homes that they couldn't have years earlier using high-interest, no-money down loans they ultimately couldn't afford. It's also an example of what happens when foreclosure ravages a neighborhood.
At one now-vacant home, once owned by Floyd, the pool sits full, fallen leaves staining the water. A makeshift chicken-wire fence surrounds it. For neighbor Sharon Nazione, it's a potential danger.
"We have so many little kids around here," she said.
Floyd is in no position to drain the pool or improve his property. He's in eastern Kentucky serving a 78-month federal prison term for conspiracy to sell hundreds of pounds of marijuana. He was indicted two days before he borrowed $825,000 for the 4,300-square-foot home in the Woodlands subdivision. Through contact with the prison's administration, Floyd declined to be interviewed for this story.
Big homes, mortgages
In the Woodlands subdivision in Shelby Township, the homes come in two sizes: big and bigger. Three-car garages, tiled pools and circular driveways are common.
The mortgages are supersized, too, and for some, living there requires the down payment of a life's savings.
But for a handful of folks, all it took was high-interest, no-money-down loans from financial institutions scattered across the country.
The Woodlands' sales caught the attention of township officials, including the assessor. The prices were well above what other homes in the area were going for, averaging nearly 40 percent more per square foot.
The township sent the FBI a list of homes that had been sold at prices so high that the township wouldn't use them as comparable sales, township Supervisor Ralph "Skip" Maccarone said. All seven of the foreclosed homes in the Woodlands were on that list.
The FBI said it cannot confirm whether an investigation is ongoing. Mark Bowling, the FBI's supervisory senior resident agent for Macomb, St. Clair and Sanilac counties, said his agents are actively working mortgage fraud cases throughout the county.
For Maccarone, the waves of foreclosure have cast a pall over communities throughout the area. Homes are vacant, creating a blight. Lawns are unkempt or nonexistent, windows are uncovered. One person's dream home sits beside an eyesore.
"This isn't what neighborhoods are about," Maccarone said.
Woman had 3 homes
Floyd bought his 4,300-square-foot Woodlands home in 2006, borrowing $825,000. It now sits vacant, its pool area unfinished, plywood covering one window; a screen door leaning against the back of the two-story brick home. It's one of three Macomb County homes Floyd owned that went into foreclosure.
Shannon Macleod, who has a child with Floyd, once owned three different homes in the Woodlands neighborhood, and borrowed more than $2 million for them. All properties ended up in foreclosure, as did a condominium she bought elsewhere in the township.
In August 2005, for example, she bought a house in the 12700 block of Partridge Run for $865,000. It went into foreclosure and in March, the home reverted back to Countrywide Home Loans, which lent her the money for the home. A pending sale on the property is listed at $559,000 -- more than $200,000 less than Macleod bought the home for; and less than the $596,380 that the township believes it is worth.
Macleod could not be reached for comment. But her brother Scott and Ray Tallerday, an attorney who represented Macleod in a bankruptcy case filed in June, said she was duped by Floyd.
Neighbors fear impact
Left in the wake of the foreclosures is a neighborhood trying to understand what happened. At first, they feared the high sales prices would drive their taxes skyward. When those fears were mollified by skeptical township officials, they worried about the vacancies that surround them.
For those who need to sell, those homes create obstacles. With so many homes on the market, it's difficult to sell anything.
"Are these foreclosures killing me?" said real estate agent Mike O'Donnell, who's trying to sell a home on Loon Court. "The answer is absolutely."
Nazione, who with her husband, Joe, lives on Partridge Run, can walk down her street and see several foreclosed properties. They have tell-tale signs: little to no landscaping and a for-sale sign. It's not what the Naziones expected when they moved in.
But Sharon Nazione said she believes most of the problem centered on the banks and other lending institutions who granted the big loans. "What's the matter with these mortgage companies? Shame on them."
Michigan 6th in Oct. foreclosures
State 6th in Oct. foreclosures
Nathan Hurst / The Detroit News
DETROIT -- Foreclosure filings in Michigan rose 63 percent in October compared with the same month in 2006, but were down 5.8 percent compared with last month, according to a report released Wednesday.
A total of 13,415 foreclosures were filed in Michigan in October, according to data released by RealtyTrac, an Irvine, Calif.-based company that tracks foreclosures throughout the nation.
The October foreclosure rate of one filing for every 334 households ranked Michigan sixth in the nation, behind Nevada, California, Florida, Ohio and Georgia. The national foreclosure rate for October was one filing for every 555 households.
Other data from the RealtyTrac report:
• Wayne County: 6,399 foreclosure filings in October, one for every 131 households.
• Oakland County: 1,215 filings, one for every 427 homes.
• Macomb County: 1,025 filings, one for every 338 homes.
• Livingston County: 315 filings, one for every 224 homes.
Nathan Hurst / The Detroit News
DETROIT -- Foreclosure filings in Michigan rose 63 percent in October compared with the same month in 2006, but were down 5.8 percent compared with last month, according to a report released Wednesday.
A total of 13,415 foreclosures were filed in Michigan in October, according to data released by RealtyTrac, an Irvine, Calif.-based company that tracks foreclosures throughout the nation.
The October foreclosure rate of one filing for every 334 households ranked Michigan sixth in the nation, behind Nevada, California, Florida, Ohio and Georgia. The national foreclosure rate for October was one filing for every 555 households.
Other data from the RealtyTrac report:
• Wayne County: 6,399 foreclosure filings in October, one for every 131 households.
• Oakland County: 1,215 filings, one for every 427 homes.
• Macomb County: 1,025 filings, one for every 338 homes.
• Livingston County: 315 filings, one for every 224 homes.
State moves to ease crisis
State moves to ease crisis
Ron French / The Detroit News
LANSING -- Homeowners struggling with adjustable-rate mortgages may get help from a set of bills passed by the House Committee on Banking and Financial Services on Wednesday.
The bills would allow the state to assist homeowners refinance adjustable-rate mortgages to fixed-rate loans. The $4.2 billion program would be funded by bonds.
The bills are part of a plan unveiled by Gov. Jennifer Granholm last month aimed at slowing the foreclosure crisis.
They are among dozens of bills that would clamp down on an industry that consumer advocates blame for the loss of thousands of homes in Metro Detroit.
Some of those bills would:
• Allow the state housing authority to use bond money to help homeowners struggling with adjustable rate mortgages to refinance to 30-year fixed loans.
• License loan officers.
• Require six hours of training per year to keep a license.
• Deny licenses to anyone with prior felony or misdemeanor convictions for embezzlement, forgery, fraud or criminal violations involving financial transactions or securities in the past 10 years.
• Require license applicants to pay a fee that would offset the cost to the state of licensing and monitoring loan officers.
• Ban predatory lending practices such as pre-payment penalties that stop homeowners from refinancing, or selling a refinance to a homeowner when there is no tangible financial benefit to the borrower.
Kirt Gundry, director of the state's Office of Financial and Insurance Services, which polices the mortgage industry, said he is hopeful that bills to regulate lenders and loan officers will pass this session.
He would like to triple the number of examiners; currently, there are 12 examiners to monitor 2,800 lending entities.
Those examiners are paid through licensing fees charged to lenders and brokers.
Those fees could cover the cost of additional examiners if the Legislature doesn't again raid the fund to help with another budget crisis in future years.
David Lagstein, head organizer for the Association of Community Organizations for Reform Now (ACORN) of Michigan, said he is pleased that the state is now considering tightening controls of the mortgage industry.
But much of the problem that legislation is meant to correct doesn't happen anymore.
The type of risky loans that sent tens of thousands of families into foreclosure is seldom made in Michigan today, because those lenders have closed or raised standards.
"We do realize that this legislation is designed to help families going forward, but it doesn't help the people who are facing these adjustable rates in the coming months," Lagstein said.
"If this legislation had passed three or five years ago, it would have saved thousands and thousands of families from suffering."
Ron French / The Detroit News
LANSING -- Homeowners struggling with adjustable-rate mortgages may get help from a set of bills passed by the House Committee on Banking and Financial Services on Wednesday.
The bills would allow the state to assist homeowners refinance adjustable-rate mortgages to fixed-rate loans. The $4.2 billion program would be funded by bonds.
The bills are part of a plan unveiled by Gov. Jennifer Granholm last month aimed at slowing the foreclosure crisis.
They are among dozens of bills that would clamp down on an industry that consumer advocates blame for the loss of thousands of homes in Metro Detroit.
Some of those bills would:
• Allow the state housing authority to use bond money to help homeowners struggling with adjustable rate mortgages to refinance to 30-year fixed loans.
• License loan officers.
• Require six hours of training per year to keep a license.
• Deny licenses to anyone with prior felony or misdemeanor convictions for embezzlement, forgery, fraud or criminal violations involving financial transactions or securities in the past 10 years.
• Require license applicants to pay a fee that would offset the cost to the state of licensing and monitoring loan officers.
• Ban predatory lending practices such as pre-payment penalties that stop homeowners from refinancing, or selling a refinance to a homeowner when there is no tangible financial benefit to the borrower.
Kirt Gundry, director of the state's Office of Financial and Insurance Services, which polices the mortgage industry, said he is hopeful that bills to regulate lenders and loan officers will pass this session.
He would like to triple the number of examiners; currently, there are 12 examiners to monitor 2,800 lending entities.
Those examiners are paid through licensing fees charged to lenders and brokers.
Those fees could cover the cost of additional examiners if the Legislature doesn't again raid the fund to help with another budget crisis in future years.
David Lagstein, head organizer for the Association of Community Organizations for Reform Now (ACORN) of Michigan, said he is pleased that the state is now considering tightening controls of the mortgage industry.
But much of the problem that legislation is meant to correct doesn't happen anymore.
The type of risky loans that sent tens of thousands of families into foreclosure is seldom made in Michigan today, because those lenders have closed or raised standards.
"We do realize that this legislation is designed to help families going forward, but it doesn't help the people who are facing these adjustable rates in the coming months," Lagstein said.
"If this legislation had passed three or five years ago, it would have saved thousands and thousands of families from suffering."
Lax oversight spurs foreclosures
Lax oversight spurs foreclosures
Mortgage brokers not licensed
Ron French / The Detroit News
As Michigan's foreclosure crisis was growing in the fall of 2006, state legislators jumped into action.
They took money away from the state office that investigates mortgage fraud.
To help alleviate a budget deficit, the Legislature raided $7 million from a fund set aside by law to pay the salaries of mortgage examiners. It would have been enough to increase the number of examiners six-fold.
Diverting money from the policing of mortgage companies is the latest example of the state's laissez-faire attitude toward the industry, a Detroit News investigation found.
Lax regulations, an undermanned examiners office and reluctant prosecutors turned Metro Detroit into a hub of fraud, where con men and those on the fringes of the law steered buyers into loans that increased the odds of foreclosure.
"There was a belief that unbridled competition would deal with this problem," said Rep. Steve Tobocman, D-Detroit, who has been frustrated in past years by the failure of the Legislature to address a lack of oversight of home loans. "There was a knee-jerk reaction to regulation. Now that the crisis has hit, there's more attention being paid."
Metro Detroit has one of the highest foreclosure rates in the nation, with more than 70,000 homes in some phase of foreclosure since January 2006, according to RealtyTrac data. Michigan's recession and nation-leading unemployment rate are typically blamed for the state's housing meltdown. Less known is the role of state government in a crisis where, in Metro Detroit alone, foreclosures were filed at a rate of 10 per hour in August.
"There's not enough regulatory presence in the marketplace," said Kirt Gundry, director of the state's Office of Financial and Insurance Services, the office charged with monitoring the mortgage industry.
"A lot of the brokers tell us there's no one out there to police them."
There are only 12 examiners to monitor 2,800 licensed mortgage companies. The state had six examiners until this year. Compare that with the 42 bank examiners Michigan employs to keep an eye on 136 banks.
Exams typically take four months or more, meaning it would take the state's reviewers 77 years to get to every mortgage company.
The lack of examiners forces the office to perform a kind of triage on mortgage fraud complaints, investigating only the most egregious cases. In those exams, investigators find fraud in 80 percent of the mortgage companies reviewed. With more examiners, they'd find even more, said Heidi White, lead mortgage examiner for the state.
"We have a number of cases that we would like to pursue, but we don't do it as timely as we'd like because of the lack of resources," White said.
Gundry believes the state could triple the number of mortgage examiners and still struggle to police the unwieldy industry. Even though the salaries of those examiners would be paid through fees from the mortgage industry, thus not costing taxpayers anything, legislators have not agreed to add staff.
Even though it's not coming out of the state budget, the positions are still considered full-time positions, meaning the department must jockey for jobs with other state offices.
No license? No problem
When Lolita Haley ran a barbershop on Livernois in Detroit, she needed a state license to trim bangs. But no license was necessary when she changed the sign outside her business from Lolita's Salon to Prime Financial Plus and began selling mortgages.
Haley earned a Realtor's license to sell real estate as part of her business, but she and the state's other estimated 30,000 loan officers don't need any training, licensing or monitoring to do business in Michigan.
Because the state does not license loan officers, no one knows who is selling mortgages. Michigan is one of 12 states that does not require background checks of those selling mortgages, allowing convicted scam artists to ply their trade with relative impunity. Those who want to be fair to customers seldom have training in the intricacies of home loan laws or government programs that often offer better interest rates to low-income buyers.
It was only after Nicole Jackson left the mortgage industry that she learned some of the home buyers she steered into risky, high-interest loans may have qualified for safer, lower-interest government loans.
"Maybe MSHDA (Michigan State Housing Development Authority, which offers home-loan programs) didn't have the budget to advertise," said Jackson of Detroit.
"I know they never came to my office to talk about their programs."
Those who defraud home buyers or lenders stand little chance of getting caught.
Even in the rare cases when mortgage companies are investigated, those examinations often lead to relatively minor victories, such as issuance of prohibitions against individuals operating as loan officers. Mortgage companies are by law not allowed to employ loan officers who have been issued prohibitions, but since there is no licensing of loan officers, it's difficult for the state to say whether the prohibited officers have been re-employed.
Loan companies only know if an employee is prohibited from being a loan officer if they looked at a list published on the Office of Financial and Insurance Services Web site.
In the past four years, 38 people have been prohibited from being loan officers, but there are glaring absences from the list. Bashar Farraj and Samer Fawaz pleaded guilty to a mortgage scam in federal court in Detroit and killed a fellow loan officer when the scheme was about to be revealed. Yet Farraj and Fawaz are not prohibited from selling mortgages after they serve their 20-year murder sentences.
Safi Sobh ran a mortgage fraud class, where he taught con men how to scam hundreds of thousands of dollars out of lenders. He's now serving 10 years in prison, but has yet to be prohibited from re-entering the business when he is released.
'No one is going to jail'
In other cases, state financial services examiners have uncovered evidence of massive fraud conducted by loan companies, only to find their investigation ignored by county prosecutors and the Michigan Attorney General's office.
Examiners shut down Financial One LLC after finding evidence that the company and its employees had stripped almost $1 million in equity from at least 39 homes in Detroit and Dearborn. Yet that case has yielded no criminal charges.
"There hasn't been an interest in pursuing smaller fraud crimes," White said. "The FBI, the Secret Service, they've been busy with terrorism (investigations)."
Cases are complex and time-consuming. Prosecutors must shoe-horn mortgage fraud cases into one of several different types of fraud crimes, because legislators have never made mortgage fraud a crime of its own.
Gundry, head of the state's mortgage monitoring agency, said he is frustrated by the lack of mortgage fraud prosecutions brought by the attorney general.
"We've been giving them cases on a silver platter," Gundry said.
The state's chief law enforcement officer pointed the finger back at Gundry, claiming OFIS has only referred one case to the attorney general's office for prosecution. "If it's a silver platter, it's pretty empty," AG spokesman Matt Frendewey said.
After a press conference Wednesday in Detroit announcing a forum on avoiding foreclosure, Attorney General Mike Cox told The News he asked OFIS in May to pay the cost of an attorney dedicated to investigating mortgage fraud and OFIS officials declined. "They figured this wasn't worth paying for," Cox said.
In a news release from Wednesday's press conference, Cox said he "continues to work on ways to help Michigan homeowners through this rough time and let them know that they are not alone in the fight to save their home."
Cox's office currently is prosecuting one mortgage fraud case, with other cases being investigated.
"There's a frustration level that no one is going to jail," Gundry said.
"That's one of the keys in fighting mortgage fraud -- for people to see there are consequences."
While mortgage companies aren't supposed to hire people who have been issued prohibitions, there's nothing to stop companies from hiring loan officers who have criminal records.
"As state employees, we can only do what the statutes say," Gundry said with a shrug.
Mortgage brokers not licensed
Ron French / The Detroit News
As Michigan's foreclosure crisis was growing in the fall of 2006, state legislators jumped into action.
They took money away from the state office that investigates mortgage fraud.
To help alleviate a budget deficit, the Legislature raided $7 million from a fund set aside by law to pay the salaries of mortgage examiners. It would have been enough to increase the number of examiners six-fold.
Diverting money from the policing of mortgage companies is the latest example of the state's laissez-faire attitude toward the industry, a Detroit News investigation found.
Lax regulations, an undermanned examiners office and reluctant prosecutors turned Metro Detroit into a hub of fraud, where con men and those on the fringes of the law steered buyers into loans that increased the odds of foreclosure.
"There was a belief that unbridled competition would deal with this problem," said Rep. Steve Tobocman, D-Detroit, who has been frustrated in past years by the failure of the Legislature to address a lack of oversight of home loans. "There was a knee-jerk reaction to regulation. Now that the crisis has hit, there's more attention being paid."
Metro Detroit has one of the highest foreclosure rates in the nation, with more than 70,000 homes in some phase of foreclosure since January 2006, according to RealtyTrac data. Michigan's recession and nation-leading unemployment rate are typically blamed for the state's housing meltdown. Less known is the role of state government in a crisis where, in Metro Detroit alone, foreclosures were filed at a rate of 10 per hour in August.
"There's not enough regulatory presence in the marketplace," said Kirt Gundry, director of the state's Office of Financial and Insurance Services, the office charged with monitoring the mortgage industry.
"A lot of the brokers tell us there's no one out there to police them."
There are only 12 examiners to monitor 2,800 licensed mortgage companies. The state had six examiners until this year. Compare that with the 42 bank examiners Michigan employs to keep an eye on 136 banks.
Exams typically take four months or more, meaning it would take the state's reviewers 77 years to get to every mortgage company.
The lack of examiners forces the office to perform a kind of triage on mortgage fraud complaints, investigating only the most egregious cases. In those exams, investigators find fraud in 80 percent of the mortgage companies reviewed. With more examiners, they'd find even more, said Heidi White, lead mortgage examiner for the state.
"We have a number of cases that we would like to pursue, but we don't do it as timely as we'd like because of the lack of resources," White said.
Gundry believes the state could triple the number of mortgage examiners and still struggle to police the unwieldy industry. Even though the salaries of those examiners would be paid through fees from the mortgage industry, thus not costing taxpayers anything, legislators have not agreed to add staff.
Even though it's not coming out of the state budget, the positions are still considered full-time positions, meaning the department must jockey for jobs with other state offices.
No license? No problem
When Lolita Haley ran a barbershop on Livernois in Detroit, she needed a state license to trim bangs. But no license was necessary when she changed the sign outside her business from Lolita's Salon to Prime Financial Plus and began selling mortgages.
Haley earned a Realtor's license to sell real estate as part of her business, but she and the state's other estimated 30,000 loan officers don't need any training, licensing or monitoring to do business in Michigan.
Because the state does not license loan officers, no one knows who is selling mortgages. Michigan is one of 12 states that does not require background checks of those selling mortgages, allowing convicted scam artists to ply their trade with relative impunity. Those who want to be fair to customers seldom have training in the intricacies of home loan laws or government programs that often offer better interest rates to low-income buyers.
It was only after Nicole Jackson left the mortgage industry that she learned some of the home buyers she steered into risky, high-interest loans may have qualified for safer, lower-interest government loans.
"Maybe MSHDA (Michigan State Housing Development Authority, which offers home-loan programs) didn't have the budget to advertise," said Jackson of Detroit.
"I know they never came to my office to talk about their programs."
Those who defraud home buyers or lenders stand little chance of getting caught.
Even in the rare cases when mortgage companies are investigated, those examinations often lead to relatively minor victories, such as issuance of prohibitions against individuals operating as loan officers. Mortgage companies are by law not allowed to employ loan officers who have been issued prohibitions, but since there is no licensing of loan officers, it's difficult for the state to say whether the prohibited officers have been re-employed.
Loan companies only know if an employee is prohibited from being a loan officer if they looked at a list published on the Office of Financial and Insurance Services Web site.
In the past four years, 38 people have been prohibited from being loan officers, but there are glaring absences from the list. Bashar Farraj and Samer Fawaz pleaded guilty to a mortgage scam in federal court in Detroit and killed a fellow loan officer when the scheme was about to be revealed. Yet Farraj and Fawaz are not prohibited from selling mortgages after they serve their 20-year murder sentences.
Safi Sobh ran a mortgage fraud class, where he taught con men how to scam hundreds of thousands of dollars out of lenders. He's now serving 10 years in prison, but has yet to be prohibited from re-entering the business when he is released.
'No one is going to jail'
In other cases, state financial services examiners have uncovered evidence of massive fraud conducted by loan companies, only to find their investigation ignored by county prosecutors and the Michigan Attorney General's office.
Examiners shut down Financial One LLC after finding evidence that the company and its employees had stripped almost $1 million in equity from at least 39 homes in Detroit and Dearborn. Yet that case has yielded no criminal charges.
"There hasn't been an interest in pursuing smaller fraud crimes," White said. "The FBI, the Secret Service, they've been busy with terrorism (investigations)."
Cases are complex and time-consuming. Prosecutors must shoe-horn mortgage fraud cases into one of several different types of fraud crimes, because legislators have never made mortgage fraud a crime of its own.
Gundry, head of the state's mortgage monitoring agency, said he is frustrated by the lack of mortgage fraud prosecutions brought by the attorney general.
"We've been giving them cases on a silver platter," Gundry said.
The state's chief law enforcement officer pointed the finger back at Gundry, claiming OFIS has only referred one case to the attorney general's office for prosecution. "If it's a silver platter, it's pretty empty," AG spokesman Matt Frendewey said.
After a press conference Wednesday in Detroit announcing a forum on avoiding foreclosure, Attorney General Mike Cox told The News he asked OFIS in May to pay the cost of an attorney dedicated to investigating mortgage fraud and OFIS officials declined. "They figured this wasn't worth paying for," Cox said.
In a news release from Wednesday's press conference, Cox said he "continues to work on ways to help Michigan homeowners through this rough time and let them know that they are not alone in the fight to save their home."
Cox's office currently is prosecuting one mortgage fraud case, with other cases being investigated.
"There's a frustration level that no one is going to jail," Gundry said.
"That's one of the keys in fighting mortgage fraud -- for people to see there are consequences."
While mortgage companies aren't supposed to hire people who have been issued prohibitions, there's nothing to stop companies from hiring loan officers who have criminal records.
"As state employees, we can only do what the statutes say," Gundry said with a shrug.
Wednesday, November 28, 2007
Foreclosure fears? Get answers at forum
Foreclosure fears? Get answers at forum
November 28, 2007
By KATHLEEN GRAY
FREE PRESS STAFF WRITER
Michigan Attorney General Mike Cox along with 18 mortgage lenders will host a community forum Dec. 13 to help people avoid getting their homes foreclosed.
Roughly 31,500 people who are on the edge of a foreclosure — one to three months behind in payments — will receive letters this week about the forum, where the 18 lenders and 31 counselors from the U.S. Housing and Urban Development Department will be on hand at the Cobo Hall forum to offer on advice and practical help on getting caught up.
“Borrowers can talk in person with the companies that are servicing their notes on how to save their homes,” Cox said Wednesday.
In some cases, the homeowner can renegotiate the loan with the lender, especially if the interest rate on an adjustable rate mortgage is scheduled to increase within the next year, Cox said.
The state is limited in what it can do to work on the foreclosure problem in Michigan because of a recent U.S. Supreme Court decision. So the forum, which will run from noon to 8 p.m. Dec. 13, was one of the few ways Cox said he could help.
“We’re not going to be able to solve everyone’s problem,” he said. “But we’re trying to find a niche where we can help.”
The 18 mortgage lenders participating in the program are Carrington Mortgage Services; Saxon Mortgage Co.; GMAC ResCap; Countrywide; Wells Fargo; Ocwen; Option One; Chase; EMC; Wilshire; HomEq Servicing; HSBC; National City Bank; Washington Mutual; Select Portfolio Servicing; Litton Loan Servicing; CitiMortgage and Home Loan Services.
For homeowners with a different mortgage lender, the HUD counselors will be able to offer help. Residents also can call the Attorney General’s consumer assistance hotline at 877-765-8388.
November 28, 2007
By KATHLEEN GRAY
FREE PRESS STAFF WRITER
Michigan Attorney General Mike Cox along with 18 mortgage lenders will host a community forum Dec. 13 to help people avoid getting their homes foreclosed.
Roughly 31,500 people who are on the edge of a foreclosure — one to three months behind in payments — will receive letters this week about the forum, where the 18 lenders and 31 counselors from the U.S. Housing and Urban Development Department will be on hand at the Cobo Hall forum to offer on advice and practical help on getting caught up.
“Borrowers can talk in person with the companies that are servicing their notes on how to save their homes,” Cox said Wednesday.
In some cases, the homeowner can renegotiate the loan with the lender, especially if the interest rate on an adjustable rate mortgage is scheduled to increase within the next year, Cox said.
The state is limited in what it can do to work on the foreclosure problem in Michigan because of a recent U.S. Supreme Court decision. So the forum, which will run from noon to 8 p.m. Dec. 13, was one of the few ways Cox said he could help.
“We’re not going to be able to solve everyone’s problem,” he said. “But we’re trying to find a niche where we can help.”
The 18 mortgage lenders participating in the program are Carrington Mortgage Services; Saxon Mortgage Co.; GMAC ResCap; Countrywide; Wells Fargo; Ocwen; Option One; Chase; EMC; Wilshire; HomEq Servicing; HSBC; National City Bank; Washington Mutual; Select Portfolio Servicing; Litton Loan Servicing; CitiMortgage and Home Loan Services.
For homeowners with a different mortgage lender, the HUD counselors will be able to offer help. Residents also can call the Attorney General’s consumer assistance hotline at 877-765-8388.
Tuesday, November 27, 2007
Is Foreclosure for You?
Is Foreclosure for You?
Deciding to walk away or struggle with mortgage payments
Nov 20, 2007 | Updated: 5:16 p.m. ET Nov 20, 2007
Hyacinth O'Meally recalls the thrill she felt, less than two years ago, when she bought a two-bedroom, two-bath condo in Pembroke Pines, Fla. But as December approaches, she hasn't made her November mortgage payment yet—and she's searching for a way out. "I am thinking about walking away," she told me last week. "Would I be liable for the taxes and the balance of the mortgage? What would you do? Would you ride it out or walk away?"
Handing the keys back to the bank is a process nobody talked about during the housing boom, when we were all too busy choosing granite countertops and watching "Flip This House." But with the fallout from the subprime mortgage mess spreading, lenders say thousands of homeowners are looking for options. In O'Meally's case, she's considering a "deed in lieu of foreclosure," in which a distressed homeowner signs a property over to the bank to avoid a full-blown foreclosure. In certain circumstances, doing a "deed in lieu" can be win-win: the bank avoids the legal hassles of foreclosure, and the borrower's credit rating takes a smaller hit.
O'Meally, 61, bought her Florida condo in February 2006 for $228,000. She put down 10 percent of the purchase price. Due to various fees (the details of which remain murky), she paid $41,000 before closing. She ended up with an adjustable-rate subprime loan with an interest rate of 9.5 percent and a monthly payment of $1,669. Ouch. If those high closing costs weren't enough, O'Meally received a second surprise soon after the closing. She assumed her monthly nut of $1,669 included escrowed payments for property taxes and homeowners insurance. It didn't. Soon she was looking at property tax bills of approximately $4,000 per year on top of her mortgage. It was too much for her budget, she says.
Her situation grew worse last fall, when she was laid off from her $50,000-a-year job as a payroll administrator. She found a new one, but at a lower salary. By 2007 her monthly take-home pay had settled around $2,600 per month—and her mortgage, taxes and insurance ran more than $2,000, she says.
For the last year she has dipped into savings to pay her mortgage. But several months ago, with her rainy day fund depleted, she called the bank. After she sent in pay stubs and tax records, her loan servicer, Chase (which was not involved when she bought the property), agreed to modify her loan, adjusting her interest rate downward to 5 percent until 2009. At first, O'Meally was thrilled with her new $1,114 monthly payment. But this month Chase began including her property tax payment in with the loan—which bumped the monthly payment back up to nearly $1,700. With no savings to supplement her income, O'Meally says she can't do it. "I don't even have $10 in the bank now," she says.
Should she walk away—and would the lender allow it? I ran that question by several lenders and housing counselors. While her circumstances are unique, their advice applies to anyone who's in serious mortgage distress. Here's a rundown:
Call Early, Call Often Lots of troubled borrowers hide from their problems instead of being proactive. In contrast, O'Meally asked for a modification, and the pros give her credit for doing that. Give some credit to Chase, too, for cutting her interest rate nearly in half. It's an example of why it pays to be proactive. "Whenever a borrower has a problem, they should call," says Chase media relations staffer Tom Kelly. Chase has already modified 17 percent of its subprime ARMs that were due to reset in the next nine months, suggesting some degree of flexibility.
Revisit That Closing Every professional who looked at the numbers guesses that O'Meally got fleeced by someone—perhaps a mortgage broker—when she took out her loan. "It sounds likely she was really ripped off terribly at the beginning," says Ray Hooper, education and housing director at the Consumer Credit Counseling Service of Dallas. What can she do about it now? The Department of Housing and Urban Development offers forms for homeowners to file a predatory lending complaint without an attorney. While this won't solve her immediate problems, it might eventually help her get back some of the upfront cash she put into the condo.
Examine Your Budget Housing counselors aren't just interested in your mortgage. They also want to look at car loans, credit card debt, cell phone and cable bills. By cutting back in other areas, they figure, you might find a way to make your mortgage. Some counselors may suggest taking on a second job or finding a roommate to pay rent. "The best-case scenario is you're able to increase your income by $500 a month, you get back on track, and everybody is happy," says Josh Fuhrman, director of counseling at the ++Homeownership Preservation Foundation. While O'Meally sees no hope of this, Chase says that before it modifies a loan like hers it typically scrutinizes a borrower's finances to ensure that she's able to make her new payments. Says Kelly, the Chase spokesman, "We'll only do a modification if we think it's going to work for the longer term." So there may be wrinkle in her financial picture a pro can see that she can't.
Walking Away Isn't Easy O'Meally has already talked with three real-estate agents about doing a "short sale," in which the lender agrees to allow someone to buy the property for less than the outstanding mortgage, waiving the shortfall. The realtors were unenthusiastic; the glut of nearby listings would make it hard to sell, they said, and they were worried about who would pay their commission. It doesn't help that O'Meally estimates that her home is now worth $175,000, more than $50,000 less than she paid for it. Even if a buyer did emerge, lenders caution that getting the green light on a short sale can take lots of time and paperwork.
That's also true for a "deed in lieu," in which the bank ends up owning the home. Unless the buyer is truly on the brink of foreclosure, the bank isn't likely to agree to this, the pros say. With O'Meally less than 30 days behind on her payments, she seems an unlikely candidate for this option—at least for now.
So what does RESIDENT EXPERT think O'Meally should do? In this case I'm going to defer to a housing counselor. She can find one by calling 888-995-HOPE, which is the referral line for the Homeownership Preservation Foundation. They'll send her to a no-cost local counselor who will dissect her monthly budget in search of wiggle room. Together they can also decide whether it's worth filing a predatory lending complaint to try to recoup some of those closing fees.
On the menu of choices facing borrowers like O'Meally, none is very pleasant. But give her credit for trying to find a solution. Like many of life's problems, this one won't go away on its own.
Daniel McGinn is a national correspondent at NEWSWEEK
Deciding to walk away or struggle with mortgage payments
Nov 20, 2007 | Updated: 5:16 p.m. ET Nov 20, 2007
Hyacinth O'Meally recalls the thrill she felt, less than two years ago, when she bought a two-bedroom, two-bath condo in Pembroke Pines, Fla. But as December approaches, she hasn't made her November mortgage payment yet—and she's searching for a way out. "I am thinking about walking away," she told me last week. "Would I be liable for the taxes and the balance of the mortgage? What would you do? Would you ride it out or walk away?"
Handing the keys back to the bank is a process nobody talked about during the housing boom, when we were all too busy choosing granite countertops and watching "Flip This House." But with the fallout from the subprime mortgage mess spreading, lenders say thousands of homeowners are looking for options. In O'Meally's case, she's considering a "deed in lieu of foreclosure," in which a distressed homeowner signs a property over to the bank to avoid a full-blown foreclosure. In certain circumstances, doing a "deed in lieu" can be win-win: the bank avoids the legal hassles of foreclosure, and the borrower's credit rating takes a smaller hit.
O'Meally, 61, bought her Florida condo in February 2006 for $228,000. She put down 10 percent of the purchase price. Due to various fees (the details of which remain murky), she paid $41,000 before closing. She ended up with an adjustable-rate subprime loan with an interest rate of 9.5 percent and a monthly payment of $1,669. Ouch. If those high closing costs weren't enough, O'Meally received a second surprise soon after the closing. She assumed her monthly nut of $1,669 included escrowed payments for property taxes and homeowners insurance. It didn't. Soon she was looking at property tax bills of approximately $4,000 per year on top of her mortgage. It was too much for her budget, she says.
Her situation grew worse last fall, when she was laid off from her $50,000-a-year job as a payroll administrator. She found a new one, but at a lower salary. By 2007 her monthly take-home pay had settled around $2,600 per month—and her mortgage, taxes and insurance ran more than $2,000, she says.
For the last year she has dipped into savings to pay her mortgage. But several months ago, with her rainy day fund depleted, she called the bank. After she sent in pay stubs and tax records, her loan servicer, Chase (which was not involved when she bought the property), agreed to modify her loan, adjusting her interest rate downward to 5 percent until 2009. At first, O'Meally was thrilled with her new $1,114 monthly payment. But this month Chase began including her property tax payment in with the loan—which bumped the monthly payment back up to nearly $1,700. With no savings to supplement her income, O'Meally says she can't do it. "I don't even have $10 in the bank now," she says.
Should she walk away—and would the lender allow it? I ran that question by several lenders and housing counselors. While her circumstances are unique, their advice applies to anyone who's in serious mortgage distress. Here's a rundown:
Call Early, Call Often Lots of troubled borrowers hide from their problems instead of being proactive. In contrast, O'Meally asked for a modification, and the pros give her credit for doing that. Give some credit to Chase, too, for cutting her interest rate nearly in half. It's an example of why it pays to be proactive. "Whenever a borrower has a problem, they should call," says Chase media relations staffer Tom Kelly. Chase has already modified 17 percent of its subprime ARMs that were due to reset in the next nine months, suggesting some degree of flexibility.
Revisit That Closing Every professional who looked at the numbers guesses that O'Meally got fleeced by someone—perhaps a mortgage broker—when she took out her loan. "It sounds likely she was really ripped off terribly at the beginning," says Ray Hooper, education and housing director at the Consumer Credit Counseling Service of Dallas. What can she do about it now? The Department of Housing and Urban Development offers forms for homeowners to file a predatory lending complaint without an attorney. While this won't solve her immediate problems, it might eventually help her get back some of the upfront cash she put into the condo.
Examine Your Budget Housing counselors aren't just interested in your mortgage. They also want to look at car loans, credit card debt, cell phone and cable bills. By cutting back in other areas, they figure, you might find a way to make your mortgage. Some counselors may suggest taking on a second job or finding a roommate to pay rent. "The best-case scenario is you're able to increase your income by $500 a month, you get back on track, and everybody is happy," says Josh Fuhrman, director of counseling at the ++Homeownership Preservation Foundation. While O'Meally sees no hope of this, Chase says that before it modifies a loan like hers it typically scrutinizes a borrower's finances to ensure that she's able to make her new payments. Says Kelly, the Chase spokesman, "We'll only do a modification if we think it's going to work for the longer term." So there may be wrinkle in her financial picture a pro can see that she can't.
Walking Away Isn't Easy O'Meally has already talked with three real-estate agents about doing a "short sale," in which the lender agrees to allow someone to buy the property for less than the outstanding mortgage, waiving the shortfall. The realtors were unenthusiastic; the glut of nearby listings would make it hard to sell, they said, and they were worried about who would pay their commission. It doesn't help that O'Meally estimates that her home is now worth $175,000, more than $50,000 less than she paid for it. Even if a buyer did emerge, lenders caution that getting the green light on a short sale can take lots of time and paperwork.
That's also true for a "deed in lieu," in which the bank ends up owning the home. Unless the buyer is truly on the brink of foreclosure, the bank isn't likely to agree to this, the pros say. With O'Meally less than 30 days behind on her payments, she seems an unlikely candidate for this option—at least for now.
So what does RESIDENT EXPERT think O'Meally should do? In this case I'm going to defer to a housing counselor. She can find one by calling 888-995-HOPE, which is the referral line for the Homeownership Preservation Foundation. They'll send her to a no-cost local counselor who will dissect her monthly budget in search of wiggle room. Together they can also decide whether it's worth filing a predatory lending complaint to try to recoup some of those closing fees.
On the menu of choices facing borrowers like O'Meally, none is very pleasant. But give her credit for trying to find a solution. Like many of life's problems, this one won't go away on its own.
Daniel McGinn is a national correspondent at NEWSWEEK
Metro Detroit housing prices drop nearly 10% in year
Metro Detroit housing prices drop nearly 10% in year
November 27, 2007
By GRETA GUEST
FREE PRESS BUSINESS WRITER
Metro Detroit home prices have plunged 9.6% during the past year, according to the S&P/Case-Shiller home price index released this morning.
The index data through Sept. 30 also tracked a record decline in national home prices for the quarter, with a 4.5% drop from the third quarter of 2006 and a 1.7% drop when compared to the second quarter.
Robert J. Shiller, chief economist at MacroMarkets LLC, said the national decline was notable for two reasons. First, the third-quarter decline was the largest quarterly decline in the index's 21-year history and second, the year-over-year decline of 4.5% was the second consecutive record low.
"Consistent with prior 2007 reports, there is no real positive news in today's data," Shiller said. "Most of the metro areas continue to show declining or decelerating returns on both an annual and monthly basis."
All 20 major metro areas were in decline in September when compared to September 2006, the data shows. Detroit tied with San Diego for third place among the major U.S. metro areas. Tampa had the largest decline in home prices with an 11.1% fall, and Miami had a 10% decline over the past 12 months.
November 27, 2007
By GRETA GUEST
FREE PRESS BUSINESS WRITER
Metro Detroit home prices have plunged 9.6% during the past year, according to the S&P/Case-Shiller home price index released this morning.
The index data through Sept. 30 also tracked a record decline in national home prices for the quarter, with a 4.5% drop from the third quarter of 2006 and a 1.7% drop when compared to the second quarter.
Robert J. Shiller, chief economist at MacroMarkets LLC, said the national decline was notable for two reasons. First, the third-quarter decline was the largest quarterly decline in the index's 21-year history and second, the year-over-year decline of 4.5% was the second consecutive record low.
"Consistent with prior 2007 reports, there is no real positive news in today's data," Shiller said. "Most of the metro areas continue to show declining or decelerating returns on both an annual and monthly basis."
All 20 major metro areas were in decline in September when compared to September 2006, the data shows. Detroit tied with San Diego for third place among the major U.S. metro areas. Tampa had the largest decline in home prices with an 11.1% fall, and Miami had a 10% decline over the past 12 months.
Foreclosure crisis to pinch everyone, mayors' report says
Foreclosure crisis to pinch everyone, mayors' report says
November 27, 2007
BY ZACHARY GORCHOW
FREE PRESS STAFF WRITER
The foreclosure crisis is rippling far beyond threatening homeownership, now robbing the economy of consumer purchases, governments of tax revenue and workers of jobs, according to a report to be unveiled today in Detroit.
Commissioned by the U.S. Conference of Mayors, the report puts specific numbers on the broader impact and is being released as several of the nation's mayors meet at the MGM Grand Detroit to discuss what to do about the problem.
The Detroit region ranks seventh in the nation in loss of economic activity among metro areas with a hit of $3.2 billion because of the foreclosure epidemic, the report states. Economic activity is defined as the total value of goods and purchases.
And Michigan overall takes a wallop -- a 75% decline in projected housing starts in 2008 from 2005 and a loss of $124 million in tax revenue from lost property, sales and real estate transfer taxes.
"The foreclosure crisis is no longer just about mortgages," Detroit Mayor Kwame Kilpatrick, host of the conference, said in a prepared statement. "Entire neighborhoods are being negatively affected on several levels. This issue is now the No. 1 economic challenge of many major American cities."
With more of the subprime loans that in many ways triggered the crisis still to reset at higher interest rates, the problem will worsen into 2008, the report said.
"Unless institutional arrangements are made to bring mortgage holders together with buyers, 2007 will see foreclosure activity accelerate," the report said.
The report, prepared by Massachusetts-based Global Insight, will be one of the topics when mayors, lenders and borrower advocates convene at the casino to discuss how to confront the foreclosure problem.
But the meeting will take place behind closed doors, with officials citing the need for candid conversation in the decision to shut out access.
Officials initially planned to make the meetings open to the public, but the closed meeting on such a pressing national and local issue has angered one activist group, which plans to demonstrate outside the casino.
"It's our belief that the banks are the very institutions that are responsible for the foreclosure crisis that exists in Detroit and all of the other cities," said Jerry Goldberg, an organizer with Michigan Emergency Committee Against War & Injustice.
"You don't talk to the source of the problem," he said. "You talk to the people affected by the problem to find real solutions."
Goldberg, who lives in the East English Village neighborhood of Detroit, said the foreclosure crisis has left once nice homes vacant in the generally stable neighborhood.
Sam Riddle, a political consultant, said he inquired about letting Flint city officials attend, but was told the meeting was by invitation only.
He said he understands the need to keep the meeting manageable, but called the approach "a little disappointing."
Officials decided closing the meeting to the public would mean a more fruitful discussion, said James Canning, spokesman for Kilpatrick.
"It's so they can have real frank conversations with everyone in the room," he said.
The mayors will be asking for greater accountability from lenders in the maintenance of foreclosed homes, and lenders could ask pointed questions of government officials, Canning said.
Among the mayors coming to Detroit will be those from Trenton, N.J., Louisville, Ky., and Columbus, Ohio. Southfield Mayor Brenda Lawrence also will participate.
November 27, 2007
BY ZACHARY GORCHOW
FREE PRESS STAFF WRITER
The foreclosure crisis is rippling far beyond threatening homeownership, now robbing the economy of consumer purchases, governments of tax revenue and workers of jobs, according to a report to be unveiled today in Detroit.
Commissioned by the U.S. Conference of Mayors, the report puts specific numbers on the broader impact and is being released as several of the nation's mayors meet at the MGM Grand Detroit to discuss what to do about the problem.
The Detroit region ranks seventh in the nation in loss of economic activity among metro areas with a hit of $3.2 billion because of the foreclosure epidemic, the report states. Economic activity is defined as the total value of goods and purchases.
And Michigan overall takes a wallop -- a 75% decline in projected housing starts in 2008 from 2005 and a loss of $124 million in tax revenue from lost property, sales and real estate transfer taxes.
"The foreclosure crisis is no longer just about mortgages," Detroit Mayor Kwame Kilpatrick, host of the conference, said in a prepared statement. "Entire neighborhoods are being negatively affected on several levels. This issue is now the No. 1 economic challenge of many major American cities."
With more of the subprime loans that in many ways triggered the crisis still to reset at higher interest rates, the problem will worsen into 2008, the report said.
"Unless institutional arrangements are made to bring mortgage holders together with buyers, 2007 will see foreclosure activity accelerate," the report said.
The report, prepared by Massachusetts-based Global Insight, will be one of the topics when mayors, lenders and borrower advocates convene at the casino to discuss how to confront the foreclosure problem.
But the meeting will take place behind closed doors, with officials citing the need for candid conversation in the decision to shut out access.
Officials initially planned to make the meetings open to the public, but the closed meeting on such a pressing national and local issue has angered one activist group, which plans to demonstrate outside the casino.
"It's our belief that the banks are the very institutions that are responsible for the foreclosure crisis that exists in Detroit and all of the other cities," said Jerry Goldberg, an organizer with Michigan Emergency Committee Against War & Injustice.
"You don't talk to the source of the problem," he said. "You talk to the people affected by the problem to find real solutions."
Goldberg, who lives in the East English Village neighborhood of Detroit, said the foreclosure crisis has left once nice homes vacant in the generally stable neighborhood.
Sam Riddle, a political consultant, said he inquired about letting Flint city officials attend, but was told the meeting was by invitation only.
He said he understands the need to keep the meeting manageable, but called the approach "a little disappointing."
Officials decided closing the meeting to the public would mean a more fruitful discussion, said James Canning, spokesman for Kilpatrick.
"It's so they can have real frank conversations with everyone in the room," he said.
The mayors will be asking for greater accountability from lenders in the maintenance of foreclosed homes, and lenders could ask pointed questions of government officials, Canning said.
Among the mayors coming to Detroit will be those from Trenton, N.J., Louisville, Ky., and Columbus, Ohio. Southfield Mayor Brenda Lawrence also will participate.
How home loan boom went bust
How home loan boom went bust
Ron French / The Detroit News
Derek Brown knew Detroit had a problem when a grocery clerk he knew quit his job to become a mortgage loan officer.
"Everyone was selling mortgages. There were mortgage offices on every block," said Brown, president of Quorum Commercial and past president of the Detroit Real Estate Brokers Association. "One day bagging groceries and the next day selling my mother a mortgage? What the hell is that?"
In few places did the subprime mortgage frenzy hit with such a dramatic impact as in Detroit where, almost overnight, residents went from struggling to get loans from banks to having loan officers knock on their doors, offering subprime refinance deals -- with interest rates that are higher than those on conventional loans.
Today, many of those sweet deals are turning sour. In August alone, there were 3,900 new foreclosure notices in Detroit.
Those foreclosures are the hangover from a heady time, when almost anyone could get -- or sell -- a mortgage.
Foreclosures have existed since there were mortgages. Money is lent on the condition of repayment. When homeowners don't make payments, the institution "holding the paper" can demand return of the house.
In the past, banks lent their own money to home buyers; if they weren't paid, banks often lost money. Thus, banks had an interest in making good loans. Today, the vast majority of loans aren't held by the institution that made the loan. Instead, loans are bundled with others and sold to bigger lenders, until they end up as mortgage-backed bonds on Wall Street.
Mortgage-backed bonds today are a Wall Street staple. Most people own some of them in their 401(k)s. With thousands of loans bundled in one bond, the financial risk of any particular loan failing is diluted.
In effect, mortgage lenders today act less like banks than like car dealers: Once a mortgage is sold, their interaction with the homeowner is done. Instead of making money on 30 years of interest, lenders make their money on closing fees.
As lenders became further separated from the risk of bad loans, their goal changed: Quality didn't matter; quantity did.
No licensing required
In 2005, at the peak of the subprime mortgage market, an estimated 30,000 people were selling mortgages in Michigan -- a number inflated by the fact that Michigan is one of only a dozen states that does not require licensing, training or background checks to make loans.
"There was no policing of the industry and no barrier to get in," said Emil Izrailov, who started his career selling subprime mortgages and is now chief operations officer of Kaye Financial Corp. in Bloomfield Hills. "There were people who couldn't read or define a loan application who were selling $300,000 loans."
On the other side of the table, home buyers were asking for loans that would have seemed outrageous a few years earlier.
In Shelby Township, John Karpinki got a $650,000 no-money-down mortgage just 22 months after he was released from prison, where he spent 12 years. The home is now in foreclosure.
"People would come in and tell me what kind of loan they wanted," said Nicole Jackson, who worked in the subprime market in Detroit for years. "If I didn't sell them a loan, the person down the street would."
Jackson said she believes she treated home buyers fairly, but she knows some loan officers took advantage of buyers to make more money.
She recalled sales representatives from big subprime lenders such as Countrywide Financial and Long Beach Mortgage bringing lunches to her office as they pitched their new mortgage products. Loan officers decided which loan to offer buyers "by profit, by ease of use, by how much it worked for our clientele, even by how much we liked the sales rep," Jackson said.
Sometimes, she and others would sell home buyers risky mortgages when there were better loans available through government programs. "There were bad products out there we were selling," Jackson said.
Modern get-rich scheme
Types of loans that had been reserved for homeowners and businesses with unusual circumstances began being applied to everyone who walked in. There were low-document loans and no-document loans (that quickly earned the nickname "liar loans"); there were loans made for 100 percent of an inflated appraised value of a house, and loans in which the payment was so low, debt actually increased each month.
The result was an anything-goes atmosphere where almost anyone could qualify, if they or their loan officer were creative.
Izrailov worked at a loan company where he was trained to answer the phone with, "Yes, you're approved."
"You weren't allowed to sell (home buyers on) the rate," Izrailov said. "If they ask your rate, you tell them the payment instead. You weren't selling the (best) rate; you were selling the savings they'd have per month."
Homeowners were able to get home improvement loans and loans to move to better neighborhoods. As prices rose, many took out loans turning that equity into cash. Those making the loans were making $2,000 to $10,000 on every mortgage and refinance. It was quick and easy, and highly profitable.
Selling mortgages between 2002 and 2005 became a get-rich scheme much like day trading in the late 1990s.
Izrailov knew a doctor who sold mortgages in the evening from his home.
The lack of training and porous policing led to abuses. Thomas Stallworth, executive director of the Black Caucus Foundation of Michigan, said he believes Metro Detroit was targeted by "aggressive salespeople, taking advantage of people with a lack of sophistication." The bigger the loan, the more those loan officers make in commission. "So they encourage consumers to take out larger loans than they can afford or they really need," he said.
"They don't get paid unless they sell a mortgage," Brown said. "Nobody thought about what would happen when the music stopped."
Ron French / The Detroit News
Derek Brown knew Detroit had a problem when a grocery clerk he knew quit his job to become a mortgage loan officer.
"Everyone was selling mortgages. There were mortgage offices on every block," said Brown, president of Quorum Commercial and past president of the Detroit Real Estate Brokers Association. "One day bagging groceries and the next day selling my mother a mortgage? What the hell is that?"
In few places did the subprime mortgage frenzy hit with such a dramatic impact as in Detroit where, almost overnight, residents went from struggling to get loans from banks to having loan officers knock on their doors, offering subprime refinance deals -- with interest rates that are higher than those on conventional loans.
Today, many of those sweet deals are turning sour. In August alone, there were 3,900 new foreclosure notices in Detroit.
Those foreclosures are the hangover from a heady time, when almost anyone could get -- or sell -- a mortgage.
Foreclosures have existed since there were mortgages. Money is lent on the condition of repayment. When homeowners don't make payments, the institution "holding the paper" can demand return of the house.
In the past, banks lent their own money to home buyers; if they weren't paid, banks often lost money. Thus, banks had an interest in making good loans. Today, the vast majority of loans aren't held by the institution that made the loan. Instead, loans are bundled with others and sold to bigger lenders, until they end up as mortgage-backed bonds on Wall Street.
Mortgage-backed bonds today are a Wall Street staple. Most people own some of them in their 401(k)s. With thousands of loans bundled in one bond, the financial risk of any particular loan failing is diluted.
In effect, mortgage lenders today act less like banks than like car dealers: Once a mortgage is sold, their interaction with the homeowner is done. Instead of making money on 30 years of interest, lenders make their money on closing fees.
As lenders became further separated from the risk of bad loans, their goal changed: Quality didn't matter; quantity did.
No licensing required
In 2005, at the peak of the subprime mortgage market, an estimated 30,000 people were selling mortgages in Michigan -- a number inflated by the fact that Michigan is one of only a dozen states that does not require licensing, training or background checks to make loans.
"There was no policing of the industry and no barrier to get in," said Emil Izrailov, who started his career selling subprime mortgages and is now chief operations officer of Kaye Financial Corp. in Bloomfield Hills. "There were people who couldn't read or define a loan application who were selling $300,000 loans."
On the other side of the table, home buyers were asking for loans that would have seemed outrageous a few years earlier.
In Shelby Township, John Karpinki got a $650,000 no-money-down mortgage just 22 months after he was released from prison, where he spent 12 years. The home is now in foreclosure.
"People would come in and tell me what kind of loan they wanted," said Nicole Jackson, who worked in the subprime market in Detroit for years. "If I didn't sell them a loan, the person down the street would."
Jackson said she believes she treated home buyers fairly, but she knows some loan officers took advantage of buyers to make more money.
She recalled sales representatives from big subprime lenders such as Countrywide Financial and Long Beach Mortgage bringing lunches to her office as they pitched their new mortgage products. Loan officers decided which loan to offer buyers "by profit, by ease of use, by how much it worked for our clientele, even by how much we liked the sales rep," Jackson said.
Sometimes, she and others would sell home buyers risky mortgages when there were better loans available through government programs. "There were bad products out there we were selling," Jackson said.
Modern get-rich scheme
Types of loans that had been reserved for homeowners and businesses with unusual circumstances began being applied to everyone who walked in. There were low-document loans and no-document loans (that quickly earned the nickname "liar loans"); there were loans made for 100 percent of an inflated appraised value of a house, and loans in which the payment was so low, debt actually increased each month.
The result was an anything-goes atmosphere where almost anyone could qualify, if they or their loan officer were creative.
Izrailov worked at a loan company where he was trained to answer the phone with, "Yes, you're approved."
"You weren't allowed to sell (home buyers on) the rate," Izrailov said. "If they ask your rate, you tell them the payment instead. You weren't selling the (best) rate; you were selling the savings they'd have per month."
Homeowners were able to get home improvement loans and loans to move to better neighborhoods. As prices rose, many took out loans turning that equity into cash. Those making the loans were making $2,000 to $10,000 on every mortgage and refinance. It was quick and easy, and highly profitable.
Selling mortgages between 2002 and 2005 became a get-rich scheme much like day trading in the late 1990s.
Izrailov knew a doctor who sold mortgages in the evening from his home.
The lack of training and porous policing led to abuses. Thomas Stallworth, executive director of the Black Caucus Foundation of Michigan, said he believes Metro Detroit was targeted by "aggressive salespeople, taking advantage of people with a lack of sophistication." The bigger the loan, the more those loan officers make in commission. "So they encourage consumers to take out larger loans than they can afford or they really need," he said.
"They don't get paid unless they sell a mortgage," Brown said. "Nobody thought about what would happen when the music stopped."
From Birmingham to Detroit, no Metro city is immune
From Birmingham to Detroit, no Metro city is immune
Ron French / The Detroit News
Bentler Street and East Lincoln are separated by 13 miles and millions of dollars.
Bentler strays through the rundown Brightmoor district of Detroit, one of the poorest neighborhoods in the poorest big city in America. Thirteen miles away, East Lincoln saunters through a picturesque neighborhood of Birmingham, one of the region's poshest enclaves.
But walk slowly along both streets, and you'll see the telltale curtainless windows and dusty front porches of foreclosed homes.
The number and size of the bad loans are different between the communities. Yet both streets illustrate how no community, no matter how rich or poor, is immune from the housing meltdown.
East Lincoln is a street in transition. Half the homes are 1,000-square-foot bungalows and half are new "big-foot" homes, filling the small lots from end to end.
"This was a tear-down area," said Birmingham real estate agent Rebecca Meisner. "They may have paid $200,000 for a lot."
There are three foreclosures in a long block of East Lincoln just east of Woodward. For-sale signs dot the avenue.
"Property values have just tanked," said Michael Druzynski, the owner of a bungalow in the 1300 block of East Lincoln. "A house this size five years ago would have sold for $225,000. Now, you'd be lucky to get $150,000."
Foreclosures are pushing those values down. There are 125 homes in Birmingham that have been in some phase of foreclosure since January 2006. It's a low rate compared with much of Metro Detroit. But even this ritzy ZIP code has a rate above the national average.
The same thing is happening in the equally posh Grosse Pointes, where 318 homes were in some phase of foreclosure through August 2007 -- nearly triple the number in the first eight months of 2006.
"A lot of people were on ARMs (adjustable-rate mortgages)," Meisner said. "When the ARMs became due (reset to a higher interest rate), they couldn't make the payments anymore, and they couldn't sell because the property value had dropped."
Today along East Lincoln, there are homes that have been for sale for more than a year.
"In the neighborhood 10 years ago, homes were sold before the signs went up," Druzynski said. "That's how I knew the economy had changed -- when I saw for sale signs stay up for more than a week."
"We never used to see foreclosures in Birmingham, Bloomfield or Oakland County," Meisner said. "Now, they're everywhere."
On Bentler Street, foreclosures lead to worse things than declining property values. There, vacant homes become drug houses or are stripped of everything of value.
"As soon as a house is vacant, it gets vandalized," said Karen Reed of the 15700 block of Bentler. "They steal the copper. They stole the awning off a home."
On Reed's block, there are seven homes that have been in some phase of foreclosure since January 2006. Most are vacant and boarded up.
The street has never had much luck. Built in the 1920s as tract housing for autoworkers, the neighborhood went from harboring bootleggers to crack dealers.
Recently, the crime du jour turned to mortgage scams, said John O'Brien, executive director of the Brightmoor Alliance, a neighborhood community development organization.
"People have always taken advantage of the people here," O'Brien said. "You get a classy salesman and they get you into a home for less than you pay in rent, and then they get swamped by taxes and insurance."
Today, a street that always struggled with vacant homes has about a third of its homes empty. Some are boarded up, and others have signs announcing sheriff sales in the windows.
"Look at the block," Reed said. "Who's going to want to move here?"
Ron French / The Detroit News
Bentler Street and East Lincoln are separated by 13 miles and millions of dollars.
Bentler strays through the rundown Brightmoor district of Detroit, one of the poorest neighborhoods in the poorest big city in America. Thirteen miles away, East Lincoln saunters through a picturesque neighborhood of Birmingham, one of the region's poshest enclaves.
But walk slowly along both streets, and you'll see the telltale curtainless windows and dusty front porches of foreclosed homes.
The number and size of the bad loans are different between the communities. Yet both streets illustrate how no community, no matter how rich or poor, is immune from the housing meltdown.
East Lincoln is a street in transition. Half the homes are 1,000-square-foot bungalows and half are new "big-foot" homes, filling the small lots from end to end.
"This was a tear-down area," said Birmingham real estate agent Rebecca Meisner. "They may have paid $200,000 for a lot."
There are three foreclosures in a long block of East Lincoln just east of Woodward. For-sale signs dot the avenue.
"Property values have just tanked," said Michael Druzynski, the owner of a bungalow in the 1300 block of East Lincoln. "A house this size five years ago would have sold for $225,000. Now, you'd be lucky to get $150,000."
Foreclosures are pushing those values down. There are 125 homes in Birmingham that have been in some phase of foreclosure since January 2006. It's a low rate compared with much of Metro Detroit. But even this ritzy ZIP code has a rate above the national average.
The same thing is happening in the equally posh Grosse Pointes, where 318 homes were in some phase of foreclosure through August 2007 -- nearly triple the number in the first eight months of 2006.
"A lot of people were on ARMs (adjustable-rate mortgages)," Meisner said. "When the ARMs became due (reset to a higher interest rate), they couldn't make the payments anymore, and they couldn't sell because the property value had dropped."
Today along East Lincoln, there are homes that have been for sale for more than a year.
"In the neighborhood 10 years ago, homes were sold before the signs went up," Druzynski said. "That's how I knew the economy had changed -- when I saw for sale signs stay up for more than a week."
"We never used to see foreclosures in Birmingham, Bloomfield or Oakland County," Meisner said. "Now, they're everywhere."
On Bentler Street, foreclosures lead to worse things than declining property values. There, vacant homes become drug houses or are stripped of everything of value.
"As soon as a house is vacant, it gets vandalized," said Karen Reed of the 15700 block of Bentler. "They steal the copper. They stole the awning off a home."
On Reed's block, there are seven homes that have been in some phase of foreclosure since January 2006. Most are vacant and boarded up.
The street has never had much luck. Built in the 1920s as tract housing for autoworkers, the neighborhood went from harboring bootleggers to crack dealers.
Recently, the crime du jour turned to mortgage scams, said John O'Brien, executive director of the Brightmoor Alliance, a neighborhood community development organization.
"People have always taken advantage of the people here," O'Brien said. "You get a classy salesman and they get you into a home for less than you pay in rent, and then they get swamped by taxes and insurance."
Today, a street that always struggled with vacant homes has about a third of its homes empty. Some are boarded up, and others have signs announcing sheriff sales in the windows.
"Look at the block," Reed said. "Who's going to want to move here?"
Easy money, risky loans drive area home losses
Easy money, risky loans drive area home losses
70,000 filings for foreclosure in the past two years; Worst isn't over as mortgage rates adjust up
Ron French and Mike Wilkinson / The Detroit News
A lot of people made money on Ethel Cochran's home during the years.
There was the nice man who sat in her living room in 2004 and offered to lower her house payments. There was the company that sent her a letter the next year proposing a way to pay off her bills by refinancing. In 2006, she refinanced again when a gentleman on the phone claimed he could lower her payments and get her some cash. A few months later, a woman knocked on her door with yet another offer.
"I thought she was a nice lady," said Cochran, 68, of Detroit. "She said she could help me."
After buying her home for $8,000 in 1987, Cochran now owes 14 times that amount -- multiple refinancings larded with commissions have left her with a $116,000 mortgage she can't repay. Her latest lender took a $30,000 loss on the house. Her neighbors are losing money, too: Foreclosures drop the value of nearby homes.
Cochran took family photos off the walls this month, waiting to be evicted from her home of 20 years. "I don't know what happened," Cochran said.
A Detroit News investigation reveals that a cash-drunk mortgage industry with virtually no government oversight has turned Metro Detroit into a foreclosure factory, where foreclosure notices were served on 260 homes a day in August -- the equivalent of wiping out two subdivisions every 24 hours.
More than 70,000 homes in Metro Detroit -- equal to every residence in Southfield and Livonia -- have entered some phase of foreclosure in less than two years, according to The Detroit News analysis of foreclosure data. A pace that was already an all-time record in January 2006 has jumped six-fold since then, crippling the mortgage industry, driving down property values and leaving tens of thousands of families financially broken.
The News found that the economic cancer rooted in the foreclosure crisis has spread deeper and wider than previously known. More than 1 million homes in Metro Detroit -- 2 out of 3 households -- are worth less today because their value has been damaged by nearby foreclosures, according to a study by the Center for Responsible Lending, a consumer advocacy group focused on predatory lending.
The cost in Metro Detroit home values, lost assets and unrecovered property taxes so far: an estimated $1.6 billion, according to the Center for Responsible Lending -- enough to buy every home in the city of Grosse Pointe and Grosse Pointe Shores.
Once a relatively isolated event, foreclosures have become an economic plague, infecting the poorest and wealthiest neighborhoods and afflicting even residents who have never had a mortgage.
And it's going to get worse. The number of risky adjustable-rate loans scheduled to reset to higher interest rates is still going up, with the peak expected in March. That means foreclosures likely will rise for at least another year.
How Metro Detroit became one of the foreclosure capitals of America -- and the far-reaching impact of that title -- is a story of old vices and new schemes, where a system fueled by cash emptied the bank accounts of tens of thousands area residents.
"At the time, it was like the wild, wild West out there," said former mortgage loan officer Nicole Jackson. "We didn't realize what the fallout would be."
Mortgage crisis rocks banks
The savings and loan debacle of the 1980s is considered to be the costliest banking scandal in history, costing investors, banks and the government about $150 billion. Yet that financial crisis may be dwarfed by the final cost of the current mortgage meltdown. Bad mortgage debt may cost banks as much as $400 billion, according to Deutsche Bank; property values may sink another $223 billion. The human cost is even more alarming: As many as 2 million Americans may lose their homes before the housing meltdown ends.
But the nation's foreclosure crisis pales in comparison to Metro Detroit's housing implosion. The United States is struggling with an all-time high rate of one foreclosure filing for every 80 households in the country since January 2006, according to RealtyTrac data. In Metro Detroit, using the same data, 1 in 21 homes has been in some phase of foreclosure in that time. The city of Detroit's foreclosure rate is eight times the national average.
Not all notices lead to foreclosures. Some homeowners catch up on their payments while others negotiate more manageable terms. The majority find a way to refinance their overdue loans, often with loans that begin with affordable "teaser" rates, before escalating quickly. Still, the number of foreclosure filings offers a glimpse at the scope of the crisis in the region and the nation.
There are some Detroit neighborhoods where 1 in 7 homes received a foreclosure notice between January 2006 and September 2007. In the city as a whole, 1 in 10 homes has had a foreclosure notice in that time.
Relatively affluent suburban neighborhoods don't escape unscathed. In Lathrup Village, where the median household income is $107,000, 1 in 20 homeowners have been in some phase of foreclosure since 2006; in Lyon Township, 1 in 27 are in financial straits. In all, 112 of Metro Detroit's 130 communities -- where 92 percent of area residents live -- have foreclosure rates above the national average.
Michigan is first in the nation in delinquencies of subprime loans -- loans made to riskier borrowers in which the interest rate is at least 3 percent higher than for loans that can be offered to those with good credit. Delinquencies are the first step on the road to foreclosures. The state is first in FHA delinquencies, second in VA delinquencies and fourth in delinquencies on loans at better prime rates.
Five of the 10 worst ZIP codes in the nation for foreclosure are in the city of Detroit. A ZIP code in Cleveland is No. 1, followed by Detroit's 48228 and 48205. Chicago, Indianapolis and Atlanta also have ZIP codes in the top 10.
'Confluence of ugliness'
Michigan is an anomaly in the foreclosure crisis. Other states with the highest rates of foreclosure -- California, Florida and Nevada -- experienced housing booms in recent years with rampant speculation. Investors bought homes only to sell them six months later for a profit.
Michigan real estate never escalated -- or plummeted -- as much as in those states. It's not because its biggest city, Detroit, is one of the poorest big cities in America -- it's been poor for years and not had such high foreclosure rates.
Michigan's recession and nation-leading unemployment have played a role, but Michigan has had unemployment rates twice as high as it is today without approaching the current levels of foreclosure.
The sky-high foreclosure rate of Michigan -- and particularly Metro Detroit -- has as much to do with the mortgage industry as the auto industry.
"It was a confluence of ugliness," said John Kloster, an investment adviser based in Sylvan Lake. "It was our one-state recession, people trying to maintain their lifestyles, and money that was incredibly easy to borrow."
Kloster traces the origins of today's meltdown to 1984, when credit card interest stopped being tax-deductible.
After that, it made sense for homeowners to finance a better lifestyle with equity loans, on which the interest remained tax-deductible.
During the past few years as the state's economy drooped, "people lost their auto jobs. If you're struggling to keep your kid in college and keep your nice cars, the easiest way to do it was to suck money out of your house."
Metro residents pay more
Metro Detroiters paid higher mortgage interest rates and were more likely to get adjustable-rate mortgages for those loans than homeowners anywhere else in the nation. About 55 percent of mortgage loans in the region in 2006 were subprime, meaning the interest rates were at least 3 percentage points higher than the rates supposedly available to borrowers with good credit. That's double the national average, according to an analysis of national loan data by Association of Community Organizations for Reform Now (ACORN), a national consumer advocacy group. In Wayne County, 2 out of 3 home loans were subprime.
A lot of those homeowners probably qualified for better loans. A Fannie Mae study found that one-third of home buyers who received subprime loans qualified for prime loans, which could have saved them between $50,000 and $100,000 during the course of the loan and greatly decreased the odds of foreclosure. Unwitting home buyers were sold more costly loans by officers who often received bonuses for doing so.
The reasons why the region's residents received worse loans than borrowers elsewhere has as much to do with Wall Street as Cass Avenue.
Until the 1980s, almost all foreclosures were caused by personal tragedies of some kind -- death of a breadwinner, divorce, job loss or medical bills. While the majority of foreclosures are still the result of those factors, Cochran and thousands like her are losing their homes from causes that didn't exist 25 years ago.
Most mortgages today are sold in bundles of hundreds or thousands on the bond market. Investors -- and managers of the mutual funds many of us own in our 401(k) plans -- purchased the bonds because the interest they received on those mortgages was higher than their return on investment on other bonds. While housing values were rising and foreclosures low, those mortgage-backed bonds were big moneymakers.
To meet the market's demand for more mortgage-backed bonds, the mortgage industry had to sell more loans. To do that, lenders had to find new borrowers, and they often found them in urban areas traditionally shunned by banks. To make loans to low-income home buyers, many of whom had questionable credit, lenders loosened loan qualification standards.
"Wall Street got an appetite for high-interest loans, so lenders published ridiculously (lenient) loan guidelines," said Emil Izrailov, who started his career as a subprime mortgage officer and is now chief operations officer for Kaye Financial Corp. in Bloomfield Hills.
Along Detroit's poor streets such as Cass Avenue, lenders found homeowners who were both eager to borrow money, and who often lacked the sophistication to evaluate the risks of the loans.
Once numerous subprime mortgage shops opened in Detroit and marketed heavily on radio and billboards, the risky loans spread to the suburbs.
'Immoral and unethical'
Lenders worked on volume. "In the name of production, a lot of lenders took those products and inappropriately applied them to consumers," said Bill Matthews, senior vice president of the Conference of State Bank Supervisors, which advocates for state banking systems. "It was immoral and unethical."
It didn't matter if homeowners couldn't afford their adjustable-rate mortgages after their low, teaser rates ended; the profits from those who would refinance would offset the losses of those whose homes were foreclosed.
Some lenders were unwilling to work with homeowners who fell behind on payments, often because the company collecting payments was separate from the company that owned the loan.
When Karen Buegel lost a job and her income was cut in half, she called her mortgage company repeatedly, offering to make partial payments on her St. Clair Shores home until she could get back on her feet.
"I said, 'Let me pay something,' " Buegel said, "and they said they weren't interested unless I had the whole payment."
When her home was foreclosed earlier this year, Buegel owed about $135,000. The house sold at auction for $103,000.
If the lender was willing to lose money by selling the home for less than Buegel owed, why weren't they willing to accept less money from her, Buegel wonders.
The reason, Matthews explains, has nothing to do with the credit worthiness of the struggling homeowner, and everything to do with the "bundling" of loans to investors.
"When you pool a lot of mortgages together, it gives you diversity," Matthews said. "If you have a high enough yield on those mortgages, it doesn't matter if some of these loans go bad.
"What the hedge fund manager is missing, is it's destroying communities."
Many stuck with homes
Sharon Baldwin is a victim of foreclosure, and she's never missed a payment on her Huntington Woods house.
The 30-year-old accepted a great job in a Chicago public relations firm in early 2006, with an office that looked out over Lake Michigan. She loved the city and the job, but quit nine months later to return to Metro Detroit.
"I couldn't sell my house," said Baldwin, who couldn't afford a house payment in Michigan and rent in Chicago. "I know two other people like me who moved back from Chicago because they couldn't sell their homes. Whether it's foreclosures or economy, it's pulling the whole area down."
Millions of Metro residents have become collateral damage of the foreclosure explosion. From people such as Baldwin, who are virtually prisoners because no one will buy their homes, to Realtors whose income has been gutted, to homeowners afraid of the drug dealers setting up shop in vacant homes, foreclosures are hurting almost everyone. The housing meltdown has become the economic equivalent of secondhand smoke, causing damage to anyone nearby.
The tab for foreclosures -- in lost assets, unrecoverable loans, lost property value and uncollected property taxes -- on subprime loans made in 2005 and 2006 could reach $1 billion in Wayne County alone, according to an analysis of federal loan reporting data by the Center for Responsible Lending. In Oakland County, the cost is projected to be $363 million; in Macomb County, $289 million.
About 90 percent of those costs are borne by people and institutions other than the foreclosed homeowners. According to a study by the Association of Community Organizations for Reform Now (ACORN), lenders are the biggest losers, absorbing 38 percent of the cost. The flood of foreclosures has forced a number of mortgage lenders in the region to shut their doors in recent months, putting hundreds out of work.
Local governments are estimated to absorb 21 percent of the cost of foreclosures, mainly in losses in tax revenue.
Residents who don't even have mortgages are being financially damaged by the foreclosure crisis. Metro Detroit home prices have plummeted 18 percent since 2004; in Wayne County, values have dropped by more than a third in that same time. Rising interest rates, tighter lending standards and a nation-high unemployment level are likely the leading causes, but foreclosures are accelerating the decline. Industry experts estimate conservatively that every foreclosure drops the value of other homes within a block by 0.9 percent. That means an average home in Farmington Hills loses more than $2,000 in value when a nearby home is foreclosed.
Foreclosed homes are often sold at fire-sale prices by lenders eager to get rid of them. Those sale prices are then used to help calculate the value of neighboring homes.
Often, foreclosed homes fall into disrepair, further damaging the value of neighboring homes.
In Taylor, Ellen Cook's neighborhood is buzzing about a $250,000 home in foreclosure that has become an eyesore, in which the homeowner took the brick pavers from the driveway and a hot tub built into the deck.
"We're already having a problem in the neighborhood with prices going down," Cook said. "We've had people try to refinance and they can't get anything because their value has dropped."
And the pain won't stop anytime soon. About 90 percent of all recent foreclosures are on loans with adjustable rates -- loans in which payments start off cheap and then rise rapidly after a predetermined length of time, typically two or three years. According to Bank of America data, the number of adjustable-rate mortgages resetting to higher rates continues to rise, with a peak nationally expected in March. About $110 billion in loans will reset to higher rates in that one month alone -- five times the dollar amount of loans that reset in January.
There is a lag between ARMs resetting to higher rates and subsequent foreclosures, as homeowners fall behind on payments. Loans that reset in March won't reach foreclosure until the summer and fall of next year.
U.S. Treasury Secretary Henry Paulson warned last week that things will get worse next year. "The nature of the problem will be significantly bigger next year because 2006 (mortgages, which will reset to higher rates in 2008) had lower underwriting standards, no amortization, and no down payments," Paulson told the Wall Street Journal.
In short, 2008 may make 2007 look like the good old days.
70,000 filings for foreclosure in the past two years; Worst isn't over as mortgage rates adjust up
Ron French and Mike Wilkinson / The Detroit News
A lot of people made money on Ethel Cochran's home during the years.
There was the nice man who sat in her living room in 2004 and offered to lower her house payments. There was the company that sent her a letter the next year proposing a way to pay off her bills by refinancing. In 2006, she refinanced again when a gentleman on the phone claimed he could lower her payments and get her some cash. A few months later, a woman knocked on her door with yet another offer.
"I thought she was a nice lady," said Cochran, 68, of Detroit. "She said she could help me."
After buying her home for $8,000 in 1987, Cochran now owes 14 times that amount -- multiple refinancings larded with commissions have left her with a $116,000 mortgage she can't repay. Her latest lender took a $30,000 loss on the house. Her neighbors are losing money, too: Foreclosures drop the value of nearby homes.
Cochran took family photos off the walls this month, waiting to be evicted from her home of 20 years. "I don't know what happened," Cochran said.
A Detroit News investigation reveals that a cash-drunk mortgage industry with virtually no government oversight has turned Metro Detroit into a foreclosure factory, where foreclosure notices were served on 260 homes a day in August -- the equivalent of wiping out two subdivisions every 24 hours.
More than 70,000 homes in Metro Detroit -- equal to every residence in Southfield and Livonia -- have entered some phase of foreclosure in less than two years, according to The Detroit News analysis of foreclosure data. A pace that was already an all-time record in January 2006 has jumped six-fold since then, crippling the mortgage industry, driving down property values and leaving tens of thousands of families financially broken.
The News found that the economic cancer rooted in the foreclosure crisis has spread deeper and wider than previously known. More than 1 million homes in Metro Detroit -- 2 out of 3 households -- are worth less today because their value has been damaged by nearby foreclosures, according to a study by the Center for Responsible Lending, a consumer advocacy group focused on predatory lending.
The cost in Metro Detroit home values, lost assets and unrecovered property taxes so far: an estimated $1.6 billion, according to the Center for Responsible Lending -- enough to buy every home in the city of Grosse Pointe and Grosse Pointe Shores.
Once a relatively isolated event, foreclosures have become an economic plague, infecting the poorest and wealthiest neighborhoods and afflicting even residents who have never had a mortgage.
And it's going to get worse. The number of risky adjustable-rate loans scheduled to reset to higher interest rates is still going up, with the peak expected in March. That means foreclosures likely will rise for at least another year.
How Metro Detroit became one of the foreclosure capitals of America -- and the far-reaching impact of that title -- is a story of old vices and new schemes, where a system fueled by cash emptied the bank accounts of tens of thousands area residents.
"At the time, it was like the wild, wild West out there," said former mortgage loan officer Nicole Jackson. "We didn't realize what the fallout would be."
Mortgage crisis rocks banks
The savings and loan debacle of the 1980s is considered to be the costliest banking scandal in history, costing investors, banks and the government about $150 billion. Yet that financial crisis may be dwarfed by the final cost of the current mortgage meltdown. Bad mortgage debt may cost banks as much as $400 billion, according to Deutsche Bank; property values may sink another $223 billion. The human cost is even more alarming: As many as 2 million Americans may lose their homes before the housing meltdown ends.
But the nation's foreclosure crisis pales in comparison to Metro Detroit's housing implosion. The United States is struggling with an all-time high rate of one foreclosure filing for every 80 households in the country since January 2006, according to RealtyTrac data. In Metro Detroit, using the same data, 1 in 21 homes has been in some phase of foreclosure in that time. The city of Detroit's foreclosure rate is eight times the national average.
Not all notices lead to foreclosures. Some homeowners catch up on their payments while others negotiate more manageable terms. The majority find a way to refinance their overdue loans, often with loans that begin with affordable "teaser" rates, before escalating quickly. Still, the number of foreclosure filings offers a glimpse at the scope of the crisis in the region and the nation.
There are some Detroit neighborhoods where 1 in 7 homes received a foreclosure notice between January 2006 and September 2007. In the city as a whole, 1 in 10 homes has had a foreclosure notice in that time.
Relatively affluent suburban neighborhoods don't escape unscathed. In Lathrup Village, where the median household income is $107,000, 1 in 20 homeowners have been in some phase of foreclosure since 2006; in Lyon Township, 1 in 27 are in financial straits. In all, 112 of Metro Detroit's 130 communities -- where 92 percent of area residents live -- have foreclosure rates above the national average.
Michigan is first in the nation in delinquencies of subprime loans -- loans made to riskier borrowers in which the interest rate is at least 3 percent higher than for loans that can be offered to those with good credit. Delinquencies are the first step on the road to foreclosures. The state is first in FHA delinquencies, second in VA delinquencies and fourth in delinquencies on loans at better prime rates.
Five of the 10 worst ZIP codes in the nation for foreclosure are in the city of Detroit. A ZIP code in Cleveland is No. 1, followed by Detroit's 48228 and 48205. Chicago, Indianapolis and Atlanta also have ZIP codes in the top 10.
'Confluence of ugliness'
Michigan is an anomaly in the foreclosure crisis. Other states with the highest rates of foreclosure -- California, Florida and Nevada -- experienced housing booms in recent years with rampant speculation. Investors bought homes only to sell them six months later for a profit.
Michigan real estate never escalated -- or plummeted -- as much as in those states. It's not because its biggest city, Detroit, is one of the poorest big cities in America -- it's been poor for years and not had such high foreclosure rates.
Michigan's recession and nation-leading unemployment have played a role, but Michigan has had unemployment rates twice as high as it is today without approaching the current levels of foreclosure.
The sky-high foreclosure rate of Michigan -- and particularly Metro Detroit -- has as much to do with the mortgage industry as the auto industry.
"It was a confluence of ugliness," said John Kloster, an investment adviser based in Sylvan Lake. "It was our one-state recession, people trying to maintain their lifestyles, and money that was incredibly easy to borrow."
Kloster traces the origins of today's meltdown to 1984, when credit card interest stopped being tax-deductible.
After that, it made sense for homeowners to finance a better lifestyle with equity loans, on which the interest remained tax-deductible.
During the past few years as the state's economy drooped, "people lost their auto jobs. If you're struggling to keep your kid in college and keep your nice cars, the easiest way to do it was to suck money out of your house."
Metro residents pay more
Metro Detroiters paid higher mortgage interest rates and were more likely to get adjustable-rate mortgages for those loans than homeowners anywhere else in the nation. About 55 percent of mortgage loans in the region in 2006 were subprime, meaning the interest rates were at least 3 percentage points higher than the rates supposedly available to borrowers with good credit. That's double the national average, according to an analysis of national loan data by Association of Community Organizations for Reform Now (ACORN), a national consumer advocacy group. In Wayne County, 2 out of 3 home loans were subprime.
A lot of those homeowners probably qualified for better loans. A Fannie Mae study found that one-third of home buyers who received subprime loans qualified for prime loans, which could have saved them between $50,000 and $100,000 during the course of the loan and greatly decreased the odds of foreclosure. Unwitting home buyers were sold more costly loans by officers who often received bonuses for doing so.
The reasons why the region's residents received worse loans than borrowers elsewhere has as much to do with Wall Street as Cass Avenue.
Until the 1980s, almost all foreclosures were caused by personal tragedies of some kind -- death of a breadwinner, divorce, job loss or medical bills. While the majority of foreclosures are still the result of those factors, Cochran and thousands like her are losing their homes from causes that didn't exist 25 years ago.
Most mortgages today are sold in bundles of hundreds or thousands on the bond market. Investors -- and managers of the mutual funds many of us own in our 401(k) plans -- purchased the bonds because the interest they received on those mortgages was higher than their return on investment on other bonds. While housing values were rising and foreclosures low, those mortgage-backed bonds were big moneymakers.
To meet the market's demand for more mortgage-backed bonds, the mortgage industry had to sell more loans. To do that, lenders had to find new borrowers, and they often found them in urban areas traditionally shunned by banks. To make loans to low-income home buyers, many of whom had questionable credit, lenders loosened loan qualification standards.
"Wall Street got an appetite for high-interest loans, so lenders published ridiculously (lenient) loan guidelines," said Emil Izrailov, who started his career as a subprime mortgage officer and is now chief operations officer for Kaye Financial Corp. in Bloomfield Hills.
Along Detroit's poor streets such as Cass Avenue, lenders found homeowners who were both eager to borrow money, and who often lacked the sophistication to evaluate the risks of the loans.
Once numerous subprime mortgage shops opened in Detroit and marketed heavily on radio and billboards, the risky loans spread to the suburbs.
'Immoral and unethical'
Lenders worked on volume. "In the name of production, a lot of lenders took those products and inappropriately applied them to consumers," said Bill Matthews, senior vice president of the Conference of State Bank Supervisors, which advocates for state banking systems. "It was immoral and unethical."
It didn't matter if homeowners couldn't afford their adjustable-rate mortgages after their low, teaser rates ended; the profits from those who would refinance would offset the losses of those whose homes were foreclosed.
Some lenders were unwilling to work with homeowners who fell behind on payments, often because the company collecting payments was separate from the company that owned the loan.
When Karen Buegel lost a job and her income was cut in half, she called her mortgage company repeatedly, offering to make partial payments on her St. Clair Shores home until she could get back on her feet.
"I said, 'Let me pay something,' " Buegel said, "and they said they weren't interested unless I had the whole payment."
When her home was foreclosed earlier this year, Buegel owed about $135,000. The house sold at auction for $103,000.
If the lender was willing to lose money by selling the home for less than Buegel owed, why weren't they willing to accept less money from her, Buegel wonders.
The reason, Matthews explains, has nothing to do with the credit worthiness of the struggling homeowner, and everything to do with the "bundling" of loans to investors.
"When you pool a lot of mortgages together, it gives you diversity," Matthews said. "If you have a high enough yield on those mortgages, it doesn't matter if some of these loans go bad.
"What the hedge fund manager is missing, is it's destroying communities."
Many stuck with homes
Sharon Baldwin is a victim of foreclosure, and she's never missed a payment on her Huntington Woods house.
The 30-year-old accepted a great job in a Chicago public relations firm in early 2006, with an office that looked out over Lake Michigan. She loved the city and the job, but quit nine months later to return to Metro Detroit.
"I couldn't sell my house," said Baldwin, who couldn't afford a house payment in Michigan and rent in Chicago. "I know two other people like me who moved back from Chicago because they couldn't sell their homes. Whether it's foreclosures or economy, it's pulling the whole area down."
Millions of Metro residents have become collateral damage of the foreclosure explosion. From people such as Baldwin, who are virtually prisoners because no one will buy their homes, to Realtors whose income has been gutted, to homeowners afraid of the drug dealers setting up shop in vacant homes, foreclosures are hurting almost everyone. The housing meltdown has become the economic equivalent of secondhand smoke, causing damage to anyone nearby.
The tab for foreclosures -- in lost assets, unrecoverable loans, lost property value and uncollected property taxes -- on subprime loans made in 2005 and 2006 could reach $1 billion in Wayne County alone, according to an analysis of federal loan reporting data by the Center for Responsible Lending. In Oakland County, the cost is projected to be $363 million; in Macomb County, $289 million.
About 90 percent of those costs are borne by people and institutions other than the foreclosed homeowners. According to a study by the Association of Community Organizations for Reform Now (ACORN), lenders are the biggest losers, absorbing 38 percent of the cost. The flood of foreclosures has forced a number of mortgage lenders in the region to shut their doors in recent months, putting hundreds out of work.
Local governments are estimated to absorb 21 percent of the cost of foreclosures, mainly in losses in tax revenue.
Residents who don't even have mortgages are being financially damaged by the foreclosure crisis. Metro Detroit home prices have plummeted 18 percent since 2004; in Wayne County, values have dropped by more than a third in that same time. Rising interest rates, tighter lending standards and a nation-high unemployment level are likely the leading causes, but foreclosures are accelerating the decline. Industry experts estimate conservatively that every foreclosure drops the value of other homes within a block by 0.9 percent. That means an average home in Farmington Hills loses more than $2,000 in value when a nearby home is foreclosed.
Foreclosed homes are often sold at fire-sale prices by lenders eager to get rid of them. Those sale prices are then used to help calculate the value of neighboring homes.
Often, foreclosed homes fall into disrepair, further damaging the value of neighboring homes.
In Taylor, Ellen Cook's neighborhood is buzzing about a $250,000 home in foreclosure that has become an eyesore, in which the homeowner took the brick pavers from the driveway and a hot tub built into the deck.
"We're already having a problem in the neighborhood with prices going down," Cook said. "We've had people try to refinance and they can't get anything because their value has dropped."
And the pain won't stop anytime soon. About 90 percent of all recent foreclosures are on loans with adjustable rates -- loans in which payments start off cheap and then rise rapidly after a predetermined length of time, typically two or three years. According to Bank of America data, the number of adjustable-rate mortgages resetting to higher rates continues to rise, with a peak nationally expected in March. About $110 billion in loans will reset to higher rates in that one month alone -- five times the dollar amount of loans that reset in January.
There is a lag between ARMs resetting to higher rates and subsequent foreclosures, as homeowners fall behind on payments. Loans that reset in March won't reach foreclosure until the summer and fall of next year.
U.S. Treasury Secretary Henry Paulson warned last week that things will get worse next year. "The nature of the problem will be significantly bigger next year because 2006 (mortgages, which will reset to higher rates in 2008) had lower underwriting standards, no amortization, and no down payments," Paulson told the Wall Street Journal.
In short, 2008 may make 2007 look like the good old days.
Report: Foreclosures to hit metro areas
DETROIT - Rising foreclosures will lead to billions of dollars in lost economic activity next year in the nation's major metropolitan areas, but homeowners and financial institutions have the ability to work together to contain the effects, according to a report compiled for the U.S. Conference of Mayors.
The report was released Tuesday ahead of a meeting of mayors from across the country in Detroit, where they hope to create policy recommendations to help address the nation's housing crisis.
Prepared by forecasting and consulting firm Global Insight, the report said weak residential investment, lower spending and income in the construction industry and curtailed consumer spending because of falling home values will combine to hold back the nation's economic activity.
"The wave of foreclosures that has rippled across the U.S. has already battered some of our largest financial institutions, created ghost towns of once vibrant neighborhoods — and it's not over yet," the report said.
The biggest losses in economic activity are projected for some of the nation's largest metropolitan areas. New York is expected to lose $10.4 billion in economic activity in 2008, followed by Los Angeles at $8.3 billion, Dallas and Washington at $4 billion each, and Chicago at $3.9 billion.
The report estimates U.S. gross domestic product growth in 2008 will be 1.9 percent, coming in about $166 billion — or one percentage point — lower as a result of mortgage problems. GDP is the value of goods and services produced and is considered the best barometer of the country's economic fitness.
The report also projects property values will decline by $1.2 trillion in 2008, due in part to the foreclosure crisis, with drops in home prices across the U.S. averaging 7 percent. And it said the loss of property, sales and real estate transfer taxes will hurt local and state governments.
But homeowners, banks, holders of mortgage-backed securities and loan servicers can work together to ease the economic effects, the report said. Agreeing to new payment terms on some loans, for example, could make the difference between a family keeping a home and losing it in foreclosure.
"Such actions will help to lessen the number of foreclosures thereby avoiding the further negative effects on local housing markets and on the broader economy," according to the report, titled "The Mortgage Crisis: Economic and Fiscal Implications for Metro Areas."
The National Forum on Homeownership Preservation and Foreclosures, organized by the Conference of Mayors, includes discussions about the state of the mortgage industry, ways homeowners can avoid foreclosure, and strategies to keep foreclosed properties from dragging down the quality of life in neighborhoods.
Recommendations developed at Tuesday's forum, which is closed to the media, are to be presented at a Conference of Mayors meeting in January.
"We're coming to Detroit with a dogged determination to fight for the families in our cities, our cities and the national economy," said Douglas Palmer, mayor of Trenton, N.J., and president of the mayors group. "We're optimistic that we're going to come up with models that will work."
In addition to Palmer and Detroit Mayor Kwame Kilpatrick, who is hosting the gathering, mayors expected to attend include Jerry Abramson from Louisville, Ky.; Michael Coleman from Columbus, Ohio; Richard Kaplan of Lauderhill, Fla.; Brenda Lawrence of Southfield, Mich.; and Elaine Walker of Bowling Green, Ky.
The housing market slump has made it harder for financially strapped home buyers to sell their homes and avoid missing payments or losing their homes in foreclosure. Increasingly, many borrowers who took out adjustable-rate mortgages and other loans with monthly payments that increase after an initial period also are finding they can't afford the higher payments.
Jim Diffley, managing director of Global Insight's regional services group, wrote the report with his team and was to discuss the forecasts during the mayors' meeting. He said the goal was to provide a broad look at the effect of foreclosures, a problem mayors are keenly aware of locally.
"This is not a new issue," Diffley said. "We've know about it. It's been swelling up."
The report was released Tuesday ahead of a meeting of mayors from across the country in Detroit, where they hope to create policy recommendations to help address the nation's housing crisis.
Prepared by forecasting and consulting firm Global Insight, the report said weak residential investment, lower spending and income in the construction industry and curtailed consumer spending because of falling home values will combine to hold back the nation's economic activity.
"The wave of foreclosures that has rippled across the U.S. has already battered some of our largest financial institutions, created ghost towns of once vibrant neighborhoods — and it's not over yet," the report said.
The biggest losses in economic activity are projected for some of the nation's largest metropolitan areas. New York is expected to lose $10.4 billion in economic activity in 2008, followed by Los Angeles at $8.3 billion, Dallas and Washington at $4 billion each, and Chicago at $3.9 billion.
The report estimates U.S. gross domestic product growth in 2008 will be 1.9 percent, coming in about $166 billion — or one percentage point — lower as a result of mortgage problems. GDP is the value of goods and services produced and is considered the best barometer of the country's economic fitness.
The report also projects property values will decline by $1.2 trillion in 2008, due in part to the foreclosure crisis, with drops in home prices across the U.S. averaging 7 percent. And it said the loss of property, sales and real estate transfer taxes will hurt local and state governments.
But homeowners, banks, holders of mortgage-backed securities and loan servicers can work together to ease the economic effects, the report said. Agreeing to new payment terms on some loans, for example, could make the difference between a family keeping a home and losing it in foreclosure.
"Such actions will help to lessen the number of foreclosures thereby avoiding the further negative effects on local housing markets and on the broader economy," according to the report, titled "The Mortgage Crisis: Economic and Fiscal Implications for Metro Areas."
The National Forum on Homeownership Preservation and Foreclosures, organized by the Conference of Mayors, includes discussions about the state of the mortgage industry, ways homeowners can avoid foreclosure, and strategies to keep foreclosed properties from dragging down the quality of life in neighborhoods.
Recommendations developed at Tuesday's forum, which is closed to the media, are to be presented at a Conference of Mayors meeting in January.
"We're coming to Detroit with a dogged determination to fight for the families in our cities, our cities and the national economy," said Douglas Palmer, mayor of Trenton, N.J., and president of the mayors group. "We're optimistic that we're going to come up with models that will work."
In addition to Palmer and Detroit Mayor Kwame Kilpatrick, who is hosting the gathering, mayors expected to attend include Jerry Abramson from Louisville, Ky.; Michael Coleman from Columbus, Ohio; Richard Kaplan of Lauderhill, Fla.; Brenda Lawrence of Southfield, Mich.; and Elaine Walker of Bowling Green, Ky.
The housing market slump has made it harder for financially strapped home buyers to sell their homes and avoid missing payments or losing their homes in foreclosure. Increasingly, many borrowers who took out adjustable-rate mortgages and other loans with monthly payments that increase after an initial period also are finding they can't afford the higher payments.
Jim Diffley, managing director of Global Insight's regional services group, wrote the report with his team and was to discuss the forecasts during the mayors' meeting. He said the goal was to provide a broad look at the effect of foreclosures, a problem mayors are keenly aware of locally.
"This is not a new issue," Diffley said. "We've know about it. It's been swelling up."
Saturday, November 24, 2007
Foreclosure lists long, grim
Foreclosure lists long, grim
Counties publish property tax delinquencies
November 24, 2007
BY KATHLEEN GRAY
FREE PRESS STAFF WRITER
From the well-heeled streets of the Pointes to the desolate neighborhoods of Detroit, thousands of people are facing foreclosure of their properties because they haven't paid taxes for at least two years.
In 121 printed pages of the Sunday Free Press, Wayne County Treasurer Raymond Wojtowicz listed more than 18,000 properties across Wayne County facing foreclosure. Notices sent to homeowners since March have whittled the list from 161,000 properties that had been delinquent on tax payments.
The advertisement will run the next two Sundays. The printed pages cost the county more than $400,000, and are required by law. It's just one more way the county tries to make sure property owners know that they're facing foreclosure.
"No one should ever be embarrassed if they have some debt," Wojtowicz said. "We all get into a scrape every so often, and during these tough economic times, we want to do everything we can to keep people in their homes."
Property owners can go to an administrative hearing on Jan. 7, 8 or 9 to make arrangements to pay their delinquent taxes. The hearings begin at 9 a.m. at the International Center, 400 Monroe, Suite 320, in Detroit.
Once that process is done, Wojtowicz estimates, the list likely will be cut down to less than 4,000 properties and up to 90% of those will be vacant or abandoned. Then, employees from the Treasurer's Office will begin to knock on doors of owner-occupied homes to make sure the owners know they are on the list, so as few property owners as possible lose their assets.
In Oakland County, 8,300 properties are facing foreclosure because of delinquent taxes. At the end of December, the county will publish 19,757 names in the Observer/Eccentric newspapers of people who have had some sort of interest in the property over the years.
"That's the largest number of tax foreclosures we've had," Oakland County Treasurer Patrick Dohany said. "It is an issue, putting people's name in the paper, but it gets people identified."
Oakland's tax foreclosure hearings will be held at 9 a.m. Feb. 13 in the Oakland County Courthouse, 1200 North Telegraph, Pontiac.
In Macomb County, 1,700 properties facing foreclosure will be published in the Macomb Daily on three consecutive Thursdays in December.
"That's about a third more than last year," Macomb County Treasurer Ted Wahby said. "And so far, it's worked really well. We've always collected 100% of the delinquent taxes."
Wahby will meet with property owners facing foreclosure at 10 a.m. Jan. 8 at his office, 1 S. Main, Mt. Clemens. The foreclosure hearings will be held at 8:30 a.m. Feb. 1 in Judge Matt Switalski's chambers, 40 N. Main, in Mt. Clemens.
Counties publish property tax delinquencies
November 24, 2007
BY KATHLEEN GRAY
FREE PRESS STAFF WRITER
From the well-heeled streets of the Pointes to the desolate neighborhoods of Detroit, thousands of people are facing foreclosure of their properties because they haven't paid taxes for at least two years.
In 121 printed pages of the Sunday Free Press, Wayne County Treasurer Raymond Wojtowicz listed more than 18,000 properties across Wayne County facing foreclosure. Notices sent to homeowners since March have whittled the list from 161,000 properties that had been delinquent on tax payments.
The advertisement will run the next two Sundays. The printed pages cost the county more than $400,000, and are required by law. It's just one more way the county tries to make sure property owners know that they're facing foreclosure.
"No one should ever be embarrassed if they have some debt," Wojtowicz said. "We all get into a scrape every so often, and during these tough economic times, we want to do everything we can to keep people in their homes."
Property owners can go to an administrative hearing on Jan. 7, 8 or 9 to make arrangements to pay their delinquent taxes. The hearings begin at 9 a.m. at the International Center, 400 Monroe, Suite 320, in Detroit.
Once that process is done, Wojtowicz estimates, the list likely will be cut down to less than 4,000 properties and up to 90% of those will be vacant or abandoned. Then, employees from the Treasurer's Office will begin to knock on doors of owner-occupied homes to make sure the owners know they are on the list, so as few property owners as possible lose their assets.
In Oakland County, 8,300 properties are facing foreclosure because of delinquent taxes. At the end of December, the county will publish 19,757 names in the Observer/Eccentric newspapers of people who have had some sort of interest in the property over the years.
"That's the largest number of tax foreclosures we've had," Oakland County Treasurer Patrick Dohany said. "It is an issue, putting people's name in the paper, but it gets people identified."
Oakland's tax foreclosure hearings will be held at 9 a.m. Feb. 13 in the Oakland County Courthouse, 1200 North Telegraph, Pontiac.
In Macomb County, 1,700 properties facing foreclosure will be published in the Macomb Daily on three consecutive Thursdays in December.
"That's about a third more than last year," Macomb County Treasurer Ted Wahby said. "And so far, it's worked really well. We've always collected 100% of the delinquent taxes."
Wahby will meet with property owners facing foreclosure at 10 a.m. Jan. 8 at his office, 1 S. Main, Mt. Clemens. The foreclosure hearings will be held at 8:30 a.m. Feb. 1 in Judge Matt Switalski's chambers, 40 N. Main, in Mt. Clemens.
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