ABC news had a couple of different articles highlighting recent suicides that are related to housing issues and the economic crisis as a whole. Last night the acting chief financial officer for Freddie Mac committed suicide by hanging himself in his basement. I, like many others, believe there was a great deal of deceit and unethical behavior by the up and ups in Freddie Mac and Fannie Mae, but I wouldn't want to see them committing suicide. Some might see it as a sign of guilt, perhaps this man felt the company and situation was beyond repair. If he has a family I wish them the best.
ABC also had an article detailing foreclosure related suicides. With financial woes comes increased levels of depression and suicide.
I reiterate what I noted on my post detailing the additional costs of foreclosure....while we are trying to "fix" the market we need to be providing additional resources to help those impacted by it. Failure to do so could prove costly in the long run, not because it is our fault they committed suicide, but because I honestly believe we lost something because they did.
I have an extended family member who committed suicide many years ago over financial issues. I wouldn't wish it on any family.
Showing posts with label foreclosure. Show all posts
Showing posts with label foreclosure. Show all posts
Wednesday, April 22, 2009
Friday, March 6, 2009
The Financial Stability Plan: Take Two
More details have emerged regarding this particular piece of the stimulus package. I felt that some of the details were worth a correction on my part.
The affordable refinance program is only available to borrowers who have loans that are owned/securitized by Fannie and Freddie. This reduces the number available to utilize the program, in particular among minorities and low income households. Studies have found that minorities were much more likely to receive a sub prime loan, even if their credit qualified them for a prime one, than other groups. If the loan was such that is cannot be conforming, then it will not be purchased by Fannie or Freddie. As such a higher proportion of low income and minority borrowers will be excluded from the program. Indirectly the program states it will not work with any nonconforming loan, (since they are not purchased by Fannie and Freddie).
The loan modification program comes right out and says that nonconforming loans do not qualify....well...it says it in the Q&A for housing counselors (how many regular joes are going to dig that deep?). This means once again that a higher percentage of minority and low income borrowers will be excluded from utilizing the program due to higher incidents of nonconforming loans. This is a real shame, since the loan modification program targets loans before they go bad, a proactive move I approve of.
Not all of the news is bad news. One of my criticisms of the program hinged on the high dollar figure, Roughly three quarters of a million, that qualifying homes could have. By requiring qualified loans to be conforming this automatically adjusts by area, since conforming loans have a maximum limit set by FHA that varies from area to area. So, someone in Cache Valley with a $700,000 or even $400,000 home will not qualify. Their loan is above the limits, and is considered a "jumbo loan", therefore nonconforming and ineligible for either of the programs listed above. To see what the limits are for where you live look here.
So what do you think? Does the conforming limitation unfairly impact minorities and low income families who should have qualified for a prime loan but were sold a different product by their lender?
The affordable refinance program is only available to borrowers who have loans that are owned/securitized by Fannie and Freddie. This reduces the number available to utilize the program, in particular among minorities and low income households. Studies have found that minorities were much more likely to receive a sub prime loan, even if their credit qualified them for a prime one, than other groups. If the loan was such that is cannot be conforming, then it will not be purchased by Fannie or Freddie. As such a higher proportion of low income and minority borrowers will be excluded from the program. Indirectly the program states it will not work with any nonconforming loan, (since they are not purchased by Fannie and Freddie).
The loan modification program comes right out and says that nonconforming loans do not qualify....well...it says it in the Q&A for housing counselors (how many regular joes are going to dig that deep?). This means once again that a higher percentage of minority and low income borrowers will be excluded from utilizing the program due to higher incidents of nonconforming loans. This is a real shame, since the loan modification program targets loans before they go bad, a proactive move I approve of.
Not all of the news is bad news. One of my criticisms of the program hinged on the high dollar figure, Roughly three quarters of a million, that qualifying homes could have. By requiring qualified loans to be conforming this automatically adjusts by area, since conforming loans have a maximum limit set by FHA that varies from area to area. So, someone in Cache Valley with a $700,000 or even $400,000 home will not qualify. Their loan is above the limits, and is considered a "jumbo loan", therefore nonconforming and ineligible for either of the programs listed above. To see what the limits are for where you live look here.
So what do you think? Does the conforming limitation unfairly impact minorities and low income families who should have qualified for a prime loan but were sold a different product by their lender?
Saturday, February 21, 2009
Housing Tax Credit: Take Two
Second verse, same as the first, a little bit louder, a little bit....better?
The word is out on the new housing "tax credit" compliments of the Obama administration. The bill looked too good to be true coming in, and endured a good trimming before an end result was reached. The lighter bill will certainly be cheaper for the government (and us, our money after all).
First things first. The amount was cut from $15,000 to $8,000, bringing it closer in line to the false "tax credit" we currently have. The reduction in cost means they could in theory serve more people and will keep the whining down from those who purchased last year and only qualified for the $7,500 interest free loan version.
This brings me to my second point. This one is a genuine credit. It is fully refundable, meaning even if you have no tax liability you can get paid the full $8,000. Since it is a credit and not a tax deduction we are talking dollar for dollar benefits.
While the reduction from $15,000 to $8,000 may seem like a big deal, it isn't the most important change made in the bill. That honor goes elsewhere. The senate version allowed the credit to be claimed by any home buyer who purchased during the time frame. The house bill, the one ultimately adopted, limits this to first time home buyers who purchase from 1/1/2009 to 11/30/09. This cuts the majority of those who might have claimed the credit out of the picture. Think of it this way. Bob the first time home buyer purchases a home from Ted...who is buying a house somewhere else from Jerry, who is buying a home in the city where his new job is etc... Under the senate plan all of these individuals would claim the credit. Under the new bill only Bob gets the credit. The limitation may keep some homeowners, who would have viewed this as an ideal time to purchase somewhere else, sitting on the fence while waiting for the market to stabilize.
Now, what do I think of the above? Well, it certainly is cheaper! I am guessing the cost of the new bill will be 1/5 or less of what he old one would have cost us. This would be good news if I didn't believe that the money will simply be spent elsewhere rather than "saved". If if is for rum exports to Puerto Rico, as some of the stimulus package is, well, I can't help but think it would have been better spent in the housing tax credit.
What will it do? Some are estimating as many as 300,000 first time home buyers will take advantage of the incentive and take the plunge. Sadly, this is only a drop in the bucket compared to the number of foreclosures we are seeing. Heck, households lost more jobs in the last couple of months than that paltry number! It will benefit a few...it won't do much to stimulate the economy (a familiar refrain the more I look at the "stimulus" bill).
Other problems remain as well. The credit does nothing to address the issue of down payments. Our savings rate has been ridiculously low over the last few years...how many of those first time buyers have actually saved anything at all? Are they purchasing homes with no money down....at with 100% LTV ratios....haven't we been down this road before? There is a reason private mortgage insurance exists (the insurance the borrower pays if they have less than 20% down payment, this insurance protects the lender). It exists because studies show that those who make smaller down payments are more likely to walk away from their home and/or let payments lapse.
Proverbs say that "Where there is no vision, the people perish". Until we catch the vision of personal responsibility and SACRIFICE, understanding that a home is something to be worked for and not a right, I think we will continue to see home owners perish.
I am going to pretend it is my bill now. The credit is only available in the form of a match, 2:1, for what the family is bringing to the table. They want $8,000, they better bring $4,000 for down payment. What about those who don't have it? They could set up a plan with a bank to save X number of dollars a month to reach their goal, and those who enrolled during the time frame of 1/1/09 to 11/30/19 and stick to their plan would still qualify for credit. For example: Bob wants to buy that house, but hasn't saved a dime. He decides to he can save $150 a month. He sets up a savings account with Wiser Bank and commits to saving $150 a month for the next 27 months. At the end of 27 months he has his downpayment, and his $8,000 match. This won't do much to stimulate the economy now (if anything saving money will hurt it a bit) but in the long run I think it is a smarter move than throwing good money after bad and allow potential homeowners who can't buy now a chance to work towards it in the future. I suspect those who worked and sacrificed to get the credit are more likely to make their payments than those who got $8,000 back from Uncle Sam with no effort and used it to pay for their new living room furniture.
The second thing I would require is education. Home buyer education can help them actually understand the documents they are signing, avoid being taken advantage of by sellers, ensure they have a budget (in theory, they still have to choose to follow it), and help them understand what to do if they fall behind on payments (or even think they will). If they don't want to get education....they can find their own $8,000.
In the meantime we won't see this make much of an impact. Some might buy homes who wouldn't have. Some of them might spend the $8,000 they get from Uncle Sam, and thereby stimulate the economy that much more. Maybe a third verse is in order....Third verse, where is the harm, give it one more shot, third times a charm.
Friday, February 13, 2009
Foreclosure: What families really pay
We all know what the F word means...it means someone is losing their home. A family that has a foreclosure loses what is usually their largest financial asset, but what happens after that? I want to take a minute to explore the real impact of foreclosures on families.
1: First things first. Any equity in the home is lost. Depending on how long they have been in the home this may or may not be that big of a deal. For some, like the family from the Washington Post article a couple of blogs back, it was to the tune of $300,000 . It is hard enough for me to imaging having that kind of money, let alone losing it ;).
2: Deficiency. Whether the home is sold in a short sale, returned via a deed in lieu, or foreclosed upon a lender can seek a deficiency judgment against the borrower for losses. If you owed $200,000 on the mortgage and the lender can only sell it for $150,000 they can come after the original borrower for the difference by taking them to court. The lender will add those pesky court fees to this amount (as they should)as well. Once a deficiency judgment is in place the borrower may find their future wages garnished, liens placed against other property, and may even have financial assets seized. Sometimes the lender won't come after you to pay the money, that sounds good, right? Well, except for the fact they will tell the IRS the money was forgiven.....which means the family has to claim it on their taxes as income! With deficiencies in the hundreds of thousands of dollars in some areas you can imagine what that could do to a tax return......Maybe you could cover it with you $7,500 tax "credit" :) A family who cant pay may turn to....
3. Bankruptcy. Bankruptcy and foreclosure often go hand in hand. The loss of the home may have been precipitated by the loss of a job or major medical problem that will take time to resolve. Just because the home goes away doesn't mean these other problem do as well. Often families in trouble are missing payments on credit cars, cars, student loans, and other obligations as well. Throw a deficiency judgment or increased taxes on top and the elaborate mess is complete. While this may be good news to some, it certainly isn't for the families.
4. Finding a new "home". If you don't have the money to pay your mortgage, how much are you going to have to pay the deposit on your new apartment? Will a change in where you live affect basic expenses, such as travel to work, school, and to purchase goods? Will your children need to change schools? Will the time taken to secure housing impact work schedules while they try to move? How will family and friends be impacted if they crash with them until they get back on their feet or procure new housing? What kind of choices for housing will they have when they now have bad.....
5. Credit. Potential landlords can, and do, check your credit history. When they see a family just lost their home what kind of message does that send to the landlord about their capacity to make payments? For many families that mean they may not be able to obtain reputable housing, accepting landlords who are less scrupulous because they cannot find a place anywhere else. They are unlikely to report bad landlords if they feel that is their only housing option.
Our credit problems don't stop with housing though. Families with poor credit pay more for everything, from credit cards to vehicle loans and even insurance rates. With the family already down on their luck the last thing they want to see is higher insurance rates for their car and credit card rates jump to 29%, yet that is exactly what happens. If they have problems with an overdraft account or auto loan they may find difficulty using that bank again in the future. A family may not even be able to secure a checking account, requiring them to use check cashing services that come with a price.
6. Hard to measure impacts. Money is the easy problem to track. What about lost time? How can depression and stress from financial situations impact parents at work or children at school? Foreclosures are linked to higher levels of deviant behavior including domestic abuse, drinking, suicide, and risk taking behaviors like gambling. While we are busy bailing out banks who will foot the bill, or even more importantly provide the counseling/supports for families after they lose their homes? (Not every one lost it because they overextended their credit or obtained a stupid loan). High density foreclosure areas often have higher levels of crime and unoccupied buildings can serve as safe havens for illegal activities and contribute to neighborhood/price decline. Yet with our economy struggling social service agencies and police departments who need extra help to cope are finding their budgets cut instead.
The real irony here is this does not even look at the impact it has on banks, investors, and neighborhoods as a whole. The cost is truly staggering.
The foreclosure is a hard pill to swallow, but its the after taste that has me worried.
So where do we go from here? Like it or not, keeping families in their home is usually the best option. That means we need loan servicers, and more importantly the investors they represent, to be willing to work with borrowers who can reasonably afford to pay for their homes. This may require some kind of loan modification to ensure the solution is a long term one.
Perhaps its time we supported building smaller homes? If the homes were smaller, and more affordable in the first place, would we still have this problem?
We need to look for supports to families who need assistance procuring safe affordable housing and dealing with stresses on the family stemming from the foreclosures. We need more money headed towards social services, not tax breaks for race track owners and rum exports from Puerto Rico. Perhaps the main thing that needs to be cut from government spending is the paychecks and benefits of lawmakers who waste our time and money.
1: First things first. Any equity in the home is lost. Depending on how long they have been in the home this may or may not be that big of a deal. For some, like the family from the Washington Post article a couple of blogs back, it was to the tune of $300,000 . It is hard enough for me to imaging having that kind of money, let alone losing it ;).
2: Deficiency. Whether the home is sold in a short sale, returned via a deed in lieu, or foreclosed upon a lender can seek a deficiency judgment against the borrower for losses. If you owed $200,000 on the mortgage and the lender can only sell it for $150,000 they can come after the original borrower for the difference by taking them to court. The lender will add those pesky court fees to this amount (as they should)as well. Once a deficiency judgment is in place the borrower may find their future wages garnished, liens placed against other property, and may even have financial assets seized. Sometimes the lender won't come after you to pay the money, that sounds good, right? Well, except for the fact they will tell the IRS the money was forgiven.....which means the family has to claim it on their taxes as income! With deficiencies in the hundreds of thousands of dollars in some areas you can imagine what that could do to a tax return......Maybe you could cover it with you $7,500 tax "credit" :) A family who cant pay may turn to....
3. Bankruptcy. Bankruptcy and foreclosure often go hand in hand. The loss of the home may have been precipitated by the loss of a job or major medical problem that will take time to resolve. Just because the home goes away doesn't mean these other problem do as well. Often families in trouble are missing payments on credit cars, cars, student loans, and other obligations as well. Throw a deficiency judgment or increased taxes on top and the elaborate mess is complete. While this may be good news to some, it certainly isn't for the families.
4. Finding a new "home". If you don't have the money to pay your mortgage, how much are you going to have to pay the deposit on your new apartment? Will a change in where you live affect basic expenses, such as travel to work, school, and to purchase goods? Will your children need to change schools? Will the time taken to secure housing impact work schedules while they try to move? How will family and friends be impacted if they crash with them until they get back on their feet or procure new housing? What kind of choices for housing will they have when they now have bad.....
5. Credit. Potential landlords can, and do, check your credit history. When they see a family just lost their home what kind of message does that send to the landlord about their capacity to make payments? For many families that mean they may not be able to obtain reputable housing, accepting landlords who are less scrupulous because they cannot find a place anywhere else. They are unlikely to report bad landlords if they feel that is their only housing option. Our credit problems don't stop with housing though. Families with poor credit pay more for everything, from credit cards to vehicle loans and even insurance rates. With the family already down on their luck the last thing they want to see is higher insurance rates for their car and credit card rates jump to 29%, yet that is exactly what happens. If they have problems with an overdraft account or auto loan they may find difficulty using that bank again in the future. A family may not even be able to secure a checking account, requiring them to use check cashing services that come with a price.
6. Hard to measure impacts. Money is the easy problem to track. What about lost time? How can depression and stress from financial situations impact parents at work or children at school? Foreclosures are linked to higher levels of deviant behavior including domestic abuse, drinking, suicide, and risk taking behaviors like gambling. While we are busy bailing out banks who will foot the bill, or even more importantly provide the counseling/supports for families after they lose their homes? (Not every one lost it because they overextended their credit or obtained a stupid loan). High density foreclosure areas often have higher levels of crime and unoccupied buildings can serve as safe havens for illegal activities and contribute to neighborhood/price decline. Yet with our economy struggling social service agencies and police departments who need extra help to cope are finding their budgets cut instead.The real irony here is this does not even look at the impact it has on banks, investors, and neighborhoods as a whole. The cost is truly staggering.
The foreclosure is a hard pill to swallow, but its the after taste that has me worried.
So where do we go from here? Like it or not, keeping families in their home is usually the best option. That means we need loan servicers, and more importantly the investors they represent, to be willing to work with borrowers who can reasonably afford to pay for their homes. This may require some kind of loan modification to ensure the solution is a long term one.
Perhaps its time we supported building smaller homes? If the homes were smaller, and more affordable in the first place, would we still have this problem?
We need to look for supports to families who need assistance procuring safe affordable housing and dealing with stresses on the family stemming from the foreclosures. We need more money headed towards social services, not tax breaks for race track owners and rum exports from Puerto Rico. Perhaps the main thing that needs to be cut from government spending is the paychecks and benefits of lawmakers who waste our time and money.
Saturday, January 31, 2009
Riding the waves till they break
As mentioned in my last post the Washington Post presented an excellent article highlighting some of the difficulties faced by families in the current market.
The article shares the story of Robin Bohnen, who purchased a 1.16 million dollar home in Riverside County, CA. The home came with a $6,400 monthly payment (thats right, she was paying $76,800 annually!), and Robin's income came primarily from her furniture store which rode the boom selling to new homeowners. With climbing equity in her home and great sales what could go wrong?
Now her sales have dried up and her family can no longer afford to make payments on the home. She can't sell it either though, since falling prices mean the mortgage loan is higher than the value of the home. When the wave broke on the housing market Robin and her family found themselves first swamped, and now thoroughly under water.
The article noted that one family in five is now upside down on their loan. Considering that our home ownership rate is in the high 60's percentage wise, that is a great many families who may have to find other accommodations.
It is important to point out that she was not a subprime borrower, but she certainly should never have obtained the loan she did. Robin and her husband opted for an interest only loan for the first five years and used a Stated Income (meaning they did not have to prove what they actually made) loan (known as as Alt A mortgage). While they had a hefty down payment (more than 200K, money pulled from their first home that never sold and is now also in foreclosure) with the loss of Robins furniture income and fewer sales commissions from her husbands job the payment became unaffordable. Now that the property has lost value as well, they cant sell it without taking 200K in losses.
In the meantime they have maxed out their credit cards trying to make ends meet and in Robin's county unemployment has soared to 10%, hampering her ability to obtain employment that will save her home.
The article pointed out that beginning in last October more prime loans were in default then subprime.
This doesn't mean that the prime loans were good, many families acquired regular loans that were unsustainable, but many of the loans we will see in default over the next year and a half will be Alt A, Interest only, and prime ARMs. The Washington Post was quick to point out that many of the loans issued were only appropriate for high asset high credit borrowers and were instead issued to mediocre credit asset poor borrowers in an effort to keep sales high. Robin and her husband acquired an
The article gave a couple more great examples of other families who got in over their heads and indicated that some opt for keeping their car over their home, thinking they can take a ding on their credit and buy again a few years later.
What do we do about it? Is if fair to force mortgage companies to refinance existing loans for the current value of the home (forcing them to take a huge loss)? Forget about fair, do we really think the banks can afford to do that?
Is it the governments responsibility to tell families what they can and cannot afford?
Take a look at the last couple of paragraphs in the article that share an exchange of views between Robin and Shane (her husband). What kind of impact are we seeing on the family? Should the government be looking into an increase in funding to family counseling agencies/providers or do you think these problems will go away when the hard times are over?
How do we help those who may have lost their home, maxed all of their lines of credit, lost their job (or have truncated employment), and now can't even afford a deposit on an apartment?
The article shares the story of Robin Bohnen, who purchased a 1.16 million dollar home in Riverside County, CA. The home came with a $6,400 monthly payment (thats right, she was paying $76,800 annually!), and Robin's income came primarily from her furniture store which rode the boom selling to new homeowners. With climbing equity in her home and great sales what could go wrong?
Now her sales have dried up and her family can no longer afford to make payments on the home. She can't sell it either though, since falling prices mean the mortgage loan is higher than the value of the home. When the wave broke on the housing market Robin and her family found themselves first swamped, and now thoroughly under water.
The article noted that one family in five is now upside down on their loan. Considering that our home ownership rate is in the high 60's percentage wise, that is a great many families who may have to find other accommodations.
It is important to point out that she was not a subprime borrower, but she certainly should never have obtained the loan she did. Robin and her husband opted for an interest only loan for the first five years and used a Stated Income (meaning they did not have to prove what they actually made) loan (known as as Alt A mortgage). While they had a hefty down payment (more than 200K, money pulled from their first home that never sold and is now also in foreclosure) with the loss of Robins furniture income and fewer sales commissions from her husbands job the payment became unaffordable. Now that the property has lost value as well, they cant sell it without taking 200K in losses.
In the meantime they have maxed out their credit cards trying to make ends meet and in Robin's county unemployment has soared to 10%, hampering her ability to obtain employment that will save her home.
The article pointed out that beginning in last October more prime loans were in default then subprime.
This doesn't mean that the prime loans were good, many families acquired regular loans that were unsustainable, but many of the loans we will see in default over the next year and a half will be Alt A, Interest only, and prime ARMs. The Washington Post was quick to point out that many of the loans issued were only appropriate for high asset high credit borrowers and were instead issued to mediocre credit asset poor borrowers in an effort to keep sales high. Robin and her husband acquired an
The article gave a couple more great examples of other families who got in over their heads and indicated that some opt for keeping their car over their home, thinking they can take a ding on their credit and buy again a few years later.
What do we do about it? Is if fair to force mortgage companies to refinance existing loans for the current value of the home (forcing them to take a huge loss)? Forget about fair, do we really think the banks can afford to do that?
Is it the governments responsibility to tell families what they can and cannot afford?
Take a look at the last couple of paragraphs in the article that share an exchange of views between Robin and Shane (her husband). What kind of impact are we seeing on the family? Should the government be looking into an increase in funding to family counseling agencies/providers or do you think these problems will go away when the hard times are over?
How do we help those who may have lost their home, maxed all of their lines of credit, lost their job (or have truncated employment), and now can't even afford a deposit on an apartment?
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