Letter of the day: A closer look at foreclosures
From reader M.L.:
Great column on foreclosures and quite accurate to boot. Thank God you and Thomas Sowell are getting the word out.
I’m a property attorney in Northwest Florida, the epicenter of the real estate “boom” and “bust” and from my ringside seat I can tell you predatory lending was not a factor. Buyers and Lenders were equally at fault for reasons you have already written about. But that’s not the why I am writing.
A large number of the foreclosures involve investment properties such as second home, beach condos, vacation cottages, raw land, residences for rent, etc. In the past year I have learned the details of some fifty or so foreclosures from prospective clients…Of these 50 or so foreclosures, only two involved a primary residence and one of those involves a genuine and unforseeable hardship…
From where I sit, most of the foreclosures are not the horrible tragedy portrayed in the press. People are not always losing their primary home. I admit that I live in the middle of a tourist
destination so my local perspective may not match that of the rest of the nation. But my point is that many of the foreclosure statistics are significantly inflated by the large number of foreclosures on investment properties. 48 of those 50 or so foreclosures I mentioned are investment properties and they are counted in the state and national foreclosure statistics bandied about in the press.I am only a small lawyer with a small practice. If this is what I see, imagine what is going on in the rest of Florida. Florida is a leading foreclosure state right now and many, if not most, of these foreclosures do not involve primary residences yet these foreclosures inflate the doom and gloom numbers used to justify a political solution to an artificial crisis.
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House flippers among those in foreclosure, no doubt. I have a neighbor who sunk her entire inheritance from her father’s estate into buying and trying to flip property. Now she’s on welfare. Heaven forbid she should take responsibility for being so irresponsible in the first place! Oh…so she’s got five houses in foreclosure, by the way.
Glad to see someone else finally bring this to the forefront … here in AZ our housing prices skyrocketed on the backs of massive numbers of investors that came in and bought up all kinds of houses with the intent of reselling them at a profit in a relatively short turnaround time … that removed so many homes from the market that the prices kept rising extremely quickly as more homes had to be built to meet the demand of both real buyers and more investor types … many of those investor homes are now either in foreclosure or else on the market without ever having been lived in for a single night …
Thanks for putting this out there Michelle …
GLOBAL WARMING
PREDATORY LENDERS
HEALTH CARE CRISIS
ect. ect….
step 1)Create a nonexistent problem.
step 2)Get the MSM to hype it up.
step 3)Tell the people only we can help.
step 4)Throw tax dollars at it.
step 5)Yell “See how great we are.”
Does’nt suprise me whole neighborhood’s have went up here and are half empty and not being purchased. What this tell’s me is that they are defininatly in the forclosure number’s. We should’nt be bailing out bad business decision’s as well as bad personal decision’s.
Show me my money!
SEND MY MONEY BACK TO ME. I LOVE THIS HYSTERICAL RUSH FOR VOTES IN THE BIPARTISAN SPIRIT OF FEAR AND LOATHING OF THE CITIZENS OF THIS GREAT NATION.
Every single cent that the thieves in Washington want to rebate me is OK with me.
Let the reprobates kiss my butt while it is kissable.
They sure as heck won’t be kissing it after the election.
Wonderful-now we can bail-out the carpetbaggers who drove up the prices of real estate,artificially,so they could make their quick fortunes.Rather reminisent of a certain family that wants the taxpayers to pay for their health care.Liberal economics,like liberal logic just doesn’t work.
Most properties are foreclosed on in a minimum of 6 months. —And that’s just a minimum. More typically, it takes 8-11 months because there’s a backlog of paperwork. And, that’s 8-11 months from when the papers are actually served on the family, not 8 months from the date of foreclosure.
And so, a family that has truly fallen on hard times might have almost a year, and sometimes even more…. to make other arrangements, —a year of living rent-free to boot !
As sad as it is, and I’m sure it is a major inconvenience…..it’s not quite as dire, in many cases, as it’s made out to be.
I watched for over years as people bought million dollar homes, did a bit of redecorating then flipped them for a profit. So many doubled their investment that I cannot feel sorry for the greedy folks who bet and lost.
When will the goBernment be refunding my monies spent on lottery tickets?
I have been wondering about investment properties and the forclosure rates. This is very interesting to me. Will this stat ever be widely reported by the MSM? More then likely not. It does not fit their failing economy stories.
It is a or has been a buyer beware market. As many , oh so many homes have been over priced and valued. I am stunned at people who pay such high prices for what is not worth even a thrid of the value here in Colorado and the Denver area.
Quality is poor, craftmanship is near void, but prices were extremely high. I definatlety would not waste my money on these prefab homes being passed off as family oriented.
My personal opinion is that to many people forgot rule number one in purchaseing a home. This is you have to be able to afford it in the first place.
madchef (#3), you left out:
IMMINENT RECESSION
With any luck they’ll fight it out in Congress and the additional spending on this one won’t take place. But I doubt it.
I have two brothers that are licensed general contractors in Minnesota and Florida. From what I’ve seen, the builders threw up spec homes everywhere, the Realtors hyped up property values to increase at ridiculous percentages and the mortgage brokers found willing lenders looking for big profits. The homes in Florida were vacation destinations that borrowers could not afford at fixed rates, but easily could make interest only payments at negative amortizations. They were told they could refinance at the same Low monthly payment indefinitely. The homes in Minnesota were built beyond anyone’s affordability. They were spec homes ranging from $400K-1MIL+. The banks gave construction loans without a second thought. Most builders had 750+ FICO scores and that was all the lenders looked at. The builders wanted huge profits that come with huge priced homes. MN ran out of people to buy these homes. And many overpriced homes were built in the most idiotic locations, because everything was being sold in the feeding frenzy. The market broke itself. Everyone knew what was going on.
LOL
Noooo… really?
I’ve commented on this before. Depending upon the market, generally 50% to 80% of foreclosures may be from investment properties (google it). Investors raced to the real estate market due to the rapid escalation in prices and the potential huge profits (20%+ home value increases per year in many areas). The number of investors actually artificially caused prices to escalate faster. The investors typically put down no or very small down payments with the intention of flipping the property in a short period for maximum profit. When real estate values began to decline, many investors realized that they would see little immediate profits so they just walked away from their real estate unless they were receiving substantial profits from rents. This ended up flooding the market in many areas, which further slowed the market and depressed prices.
The sub-prime loans fed this stampede. If these investors had been forced to put more money down, they wouldn’t have been so quick to walk away. Most of this crisis is due to greed.
What is more interesting is the news coverage. A few months ago, much of the coverage acknowledged the high share of foreclosures that were actually investment properties. Lately, this information seems to be absent from most articles. Lazy journalists or just bias (catering to the liberal push to “save” the poor foreclosure victimes)?
I just googled some more and found cities where only 3 out of 10 homes in foreclosure were owner-occupied and the “majority” in foreclosure had not made payments in over 12 months. (I assume the investors were either pocketing the rents or the properties were vacant that long.)
So, here was this market run up where fraudulent appraisals helped appraisers, real estate agents and mortgage brokers earn hefty fees while the banks are left holding the bag. Buyers submitted fraudulent income documentation or used straw buyers. Explain to me again why the banks are the bad guys and all the people (agents, brokers, appraisers, speculators) who lined their pockets are walking away rich? (And no, I don’t work for a bank.)
Nevada leads the way? Now tell me, what kind of smart investors would be investing all that money in buying up tracts of desert with stick homes on them? C’mon, it’s not like it is an international tourist destination or anything.
This crisis is only hitting those poor, uninformed
real Americanspolitical donors!Sarcasm? Who needs sarcasm?
I work with a woman who has her real estate license. She specializes in buy foreclosures. She told me that most of the foreclosures in our area, Tampa, FL., are from people who re-fi’ed their homes when the market was up, took the cash, and are now just walking away with the money, leaving the banks high and dry. They have the money and don’t really care about a ding in their credit rating. They take the money and buy cheaper out of state. Doesn’t sound like a personal hardship to me. Oh, ya, the banks are being clobbered. Perhaps this is the real bail out!
Thank You Home & Garden TV. Your romanticizing of house flipping is going to cause much pain over the next few years.
While I might concede the point in the main article, it was reported this week that there were 5,000 foreclosures in 2007, in the county I live in, Fairfax in Northern VA, up from 500 forecolsures the previous year. Now I admit, there may be more behind the forecolsures than what was reported, still……
I contracted with a firm that reviewed the subprime mortgages for sale to subprime servicing firms. I had always been involved in ‘A’ paper and felt that the market would eventually fall out when rates readjusted, the homeowners had any additional financial adjustment come up or their property stopped appreciating.
In the course of reviewing the loans (and developing a fraud program to protect us from liability), you could review 15 loans from the same broker and see the patterns that would eventually lead to foreclosure: no income-no doc-no asset programs, the use of false social security numbers - a red flag that was stated on the credit report, income overstated - a W2′d janitor making $150K per year - and other obvious statements that were completely false. No questions were asked.
I was advised that we didn’t want to raise red flags to the investors because reviewing these loans were what kept us in business. I walked out after 3 months and told them I didn’t fit in. They went out of business last June and deservedly so. The ‘B’ paper business is nasty and I hope it is done.
As an aside, the lending industry is clobbered from the feds with the disclosures we have to provide up front. Potential borrowers are provided several disclosures on how they could lose their homes. It isn’t our fault people can’t read or realize if they cannot make a $10 Visa payment, they probably can’t afford a mortgage payment.
I’m not speaking to the abusive practices, just your everyday loan.
As a real estate broker in Ft. Myers FL from what I see it is strictly investment properties and those where people re-fi’d at a higher price and took the money and ran as being the two biggest factors for foreclosures around here. The media is full of it as they typically are. So many people were trying to flip properties and many had no idea what they were doing and bought at the height of the market. I forgot who said it after the first stock market crash but he said (to paraphrase)he knew to get out when his shoeshine boy was buying stock. Same idea applied here.
It appears we had the same issue in Boise due to an influx of new folks (mostly from California, which drove up prices significantly) working for MICRON the biggest employer in the state for a few years until things starting going south in the tech sector again (main reason I’m working for the Air Force again as a civilian). I found the following on free republic in December on the vacancy rates of real estate in our area:
http://www.freerepublic.com/focus/f-news/1935679/posts
Ada County , Idaho 4,692 listings 2,575 vacant 54.9% of listings vacant
Meridian , Idaho 1,330 listings 804 vacant 60.4% listings vacant
Eagle, Idaho 466 listings 221 vacant 47.4% of listings vacant
Nampa , Idaho 1,485 homes listed 777 vacant 52.3% of listings vacant
We are so glad everyone in DC is trying to correct the poor business decisions of the housing industry and those that bought more house than they could afford on the backs of us that decided to live within our means.
I don’t know M.L. but it sounds like he’s pretty near my hometown of Ft. Walton Beach area. Suck it up people, honor your contracts.
Show me a foreclosure, and I’ll show you a bad financial decision at some point in the past. There is no such thing as a Victim. Every financial plan says “have a rainy day fund”. Further there is NOTHING anywhere that says you have to take a loan to buy a house. Some people save and then purchase with cash. It’s a new concept (according to some) but it works - and guess what - foreclosures are really rare when that is done. I know people will tell me that that is completely unrealistic - houses are out of reach if they have to wait and save. My response, it’s called priorities.
The hot topic in Baltimore currently is “reverse redlining”. It’s the targeting of certain areas for high-interest loans (the articles always seem to say “targeting minority areas”).
I don’t know. Apparently lenders in Baltimore force people to sign for mortgages at the end of a pistol.
Here’s one. When I came back from Europe the last time, I bought a house for my family. I qualified because my wife also was working. This being the first of the Reagan years, we were in the middle of the Carter induced recession of 1980-83. In addition, as noted in other situations above, the homebuilders had significantly overbuilt in this area and were dumping houses off to investors at deep discounts to market (a fact I didn’t learn until much later). I used a realtor well versed in the local market to protect me against “financial mistakes”, who had been recommended to me by my boss. In the fullness of time, my marriage ended and I got the house. I immediately put it on the market as I was nearing retirement and didn’t want the obligation. A year later I retired, got employment out of the city, and moved. At the time I had a contract with an investor to sell the house at a loss. After I moved, the investor backed out and I was again stuck with the house, this time remotely. I contacted VA, the lender, and anybody else I could think of. No help or recommendations except from VA, who recommended I let the house go to foreclosure. I did.
Lets see…
-Waited until I retired from the Navy to buy my first house.
-Put 12% down, have my mortgage payment and my utils covered by my pension.
-Read the contract, and had an attorney from base legal read it to ensure its ledgit.
-Credit rating said I could afford a $200K house and settled for one at $97K in a nice neighborhood.
Yeah I did everything right and people wonder why I am ticked off at the carpet baggers complaining about the rate of foreclosures.
GSP
errr… I meant to add that Baltimore is taking legal action on “reverse redlining” and they have a case.
I’m confident we’re in agreement that the country doesn’t need to bail out those who can’t make their mortgage payments. But your statement above is tautological. After all how many foreclosures result from good financial decisions?
Thank you, ML, for nailing it on the head.
That is EXACTLY my point. People don’t generally take into account what might not go right. What happens if things go bad? What happens if things go really bad? (And lest any of you think I’m playing “holier than thou”…I will be the first to admit I haven’t always done things where I fully abided by that principle.)
Bottom Line: More PERSONAL RESPONSIBILITY. If people invest in property at the peak of the market,that’s their problem and poor judgment. The same is true of people who bought homes much larger than they needed with little or no money down. Don’t ask the tax payer to bail them out. It’s time for people to come down to earth and make responsible financial decisions. The next shoe to drop is credit card debt. People continue to live beyond their means just like the federal government. People who can make responsible financial decisions should not own homes and should not have credit cards.
Last sentence above should read ; People who can NOT……….
Here in the tourist areas of New England we are seeing a lot of the same thing. The problem however, is that the markets react to numbers and are blind to who these people really are. The markets see only dollars and cents, profit and loss etc. The net effect is, sadly, the same whether it is primary homes or investment properties. I’m no economist or anything even near that, but I tend to think that the government has little choice if it wants to head off economic disaster. I just wish they’d say that instead of using it as a political football. Or perhaps, an ounce of prevention would have been nice?
A story in the news here in AZ today adds another dimension to this that I do find disconcerting and I think the rest of you will as well …
People who are renting homes are also being evicted at an increasing rate …
Many of them are being blindsided because the owner has gone into default and the occupants do not know …
They have not fallen behind on their rental payments to the owners and are unaware that the money they have been paying was being pocketed by the property owners …
They find out when the authorities show up to evict them …
Most of these people are then literally on the street because they have no where to go, they lose all of their deposits, and they do not have the money for new deposits and initial rent to get into another home …
step 6)build new massive government agency to oversee all the NEW (and now real) problems created by the ‘previously nonexistent’ problem.
steps 7+) rinse- repeat
I am just curious why the MSM has not examined Hillary Clinton’s hypocricy in the whole subprime mess. On his last day in office, Bill Clinton was busy issuing full pardons for all kinds of S&L crooks. Two of the most prominent were his old buddies Fife Symington of Arizona and Charles Ravenal of South Carolina. Both men were convicted of bank fraud and other charges yet the Clintons set them free. How much taxpayer’s money was lost due to Symington and Ravenal’s shenangians? Look further at the list of Clinton pardons from his last day of office. You will see other names for men convicted of lying on bank loan applications and others guilty of inflating property values so that they could get higher loans. Yet the MSM treats Hillary as the savior of the middle class. Bill Clinton owns the MSM. CNN will never do any digging when it comes to the Clintons. Don’t expect Wolf Blitzer or David Gergen or Anderson Cooper to ever ask the Clintons about their pardons of so many S&L crooks. The Clintons always answer by saying “right wing conspiracy” and the MSM is frightened into complicity.
conservativesRus wrote:
Certainly there are unforeseen reasons that even responsible people can have for losing a house. It’s just that it’s not the government’s responsibility to cover for us. At least, I don’t believe it should be.
Hold on, et; blaming HGTV for this is nonsensical. Having a show about how to flip a house does not compel the viewer to unwittingly do so, any more than showing someone how to install rain gutters compels them to be careless climbing the ladder.
You’ll need to come up with something else to make your point.
A few things. There is scientific evidence and anecdotal evidence. Scientific evidence requires the logical pursuit of numerical data. Anecdotal evidence uses one or two stories and uses that as evidence. That is what you are doing here Michelle.
I don’t know the stats however, I doubt that investment properties are anywhere near the majority of foreclosures. This is coming from someone who has been in the business. There is no doubt that investment properties became way too easy to buy for a while. For a time, you could buy a four unit property, theoretically, for investment with no money down, not proving how much you made and how much you had in the bank.
That said, on some levels you aren’t any better than the media you are trashing. The media is creating this facade that it was all the fault of folks like me, the mortgage broker. You are creating this facade that it was all the fault of the borrowers.
Neither of you, in my opinion, care to know the truth. The truth is that it happened because of a complicated and sophisticated dynamic.
It started with Greenspan lowering the fed funds rate to an irresponsible level. Banks began to borrow because it was so cheap. With so much money, they had to park that money. That money began being parked in mortgages, and the process fed itself. It involves not only irresponsible borrowers, but banks, and of course Wall Street which created a market for these loans. Finally, the obscene amount of legislation created so much paperwork that it was easy to rip people off.
We the mortgage broker, were there to put irresponsible loans together with irresponsible borrowers. The whole thing worked in symbiosis.
You are upset that the borrowers aren’t getting any responsibility so you throw it on them. That is no less fair than the way the rest of the media portrays it.
You aren’t much better than the media you rail against. You aren’t telling the whole story anymore than the media is. You have plenty of real estate professionals that can tell you the whole story, but instead you find any story that re inforces your own preconceived notions. That isn’t any more responsible than the media.
Here is the real story from an insider.
vickisoup….
Now wait a minute, I tend to agree with ET on the HGTV issue. At one time there must have been 4 or 5 of these stupid “Flipping” shows on. I think there are a certain number of people out there who could easily be influenced to get in on the action….
After all, what are infomercials for???…HGTV just became one big infomercial for “Flipping”.
mike volpe
Here are some statistics on the current foreclosures. The “prime loans” and the “sub-prime” loans default percentages are shown for “non-owner occupied” properties.
Obviously these numbers will vary based on the area of the country, but if these are not owner occupied then they are investor owned.
The key word here is “RENTAL” … and the losers are the people that were renting because as I mentioned in an earlier post they are paying the owner their rent and the owner is pocketing the money …
Then, suddenly there is a knock on the door and the tenant is being evicted with no warning.
Some of these have become physically violent confrontations … and guess who ends up in jail … the tenant … not the unscrupulous owner …
This part of this problem needs to be addressed …
So, 16%, which as I pointed out is not nearly a majority, and of course, we have nothing to compare them to.
Investment properties have much higher rates because they are a lot likelier to face foreclosure, because borrowers are a lot more likely to stop paying them.
Renters have plenty of rights, and your illustration distorts reality. Most times, the renter isn’t bothered since a tenant occupied property is more valuable than one that is empty.
And again, JohnnyNJ, I say, “So What?!”
Don’t watch it, don’t buy it, don’t do it, be careful doing it, make sure you can afford it before you do it….the list of admonishments goes on and on.
Home improvement shows, or “infomercials”, as you say, don’t have a responsibility to offer *warnings* to the viewer.
Man up, will ya? Sheesh.
mike volpe
The point I was making is that the renter ends up with NO RIGHTS … the owner defaults and the RENTER gets evicted with no warning as to what is going on …
There is no one to give the renter any type of relief at that point in time because the law enforcement officers that show up to execute the eviction notice have no power to do anything except evict the tenant … they do not know that the tenant is not the owner until the tenant being evicted tells them but it is too late …
Think how you would feel if authorities came to your door and were there to evict you from the premises and you were completely blindsided by what was going on …
The RENTER is the one getting screwed over at that point and he has no recourse at that moment to stop any further action against him for the actions of the owner … and if he tries to resist he ends up in jail …
You may be able to sue someone after the fact … but where do you and your family live in the meantime … what do you do with all your belongings … better hope there is no bad weather because everything is coming out of that residence right then and will be stacked in the yard … the locks will be changed right then … you have no access back into the property … the Renter gets no consideration … period …
All you can do is hope you can recoup something from the owner at a later date … but the chances are pretty minimal that is going to happen … what with all the extended legal BS that would get drawn out forever …
Keep in mind that with the alternative doc loans that were utilized - many of the “investment” properties were taken out as owner occupied.
Again, desert, all of that is a distortion of reality.
First, most times renters aren’t kicked out because a tenant occupied property is more valuable than an empty one. Foreclosed properties, are more often than not, bought by investors. Investors usually have no reason to kick out a tenant. They buy the property to rent it out.
Second, the process of foreclosure takes months, and then after that months to remove the renter.
Third, renting carries with it risks that buying doesn’t. If you want to avoid those risks, then buy.
Here Mike …
Read this article in today’s Phoenix newspaper on this subject …
Owner Defaults Renters Evicted
Desert, I was not surprised by these excerpts from the story:
I can’t tell from this article what the ratio is of blindsided renters to derelict renters.
Renters who force their landlords to suffer the *very expensive* process of eviction are more than derelict; they’re mean. Good renters, particularly those who have been treated well, will get out before they let their own credit be ruined by an eviction. If they force an eviction, it’s their own fault they can’t find another place to rent.
This housing market is a fabulous way for renters to become first-time homebuyers, besides! Interest rates are puny, housing prices are way down…it’s a perfect time to enter the real estate market as a buyer.
We really need to be talking about the silver linings more than arguing about who’s responsible for the problem and who should pay to correct it, IMHO.
Vicki-
I agree, SO What! I am not saying they( the buyers) should be bailed out, I am just saying “There’s a sucker born every minute”. And HGTV played their role in the “realestate sucker flipping market”.
LOL, great and accurate synopsis, Madchef. I think the underpants gnomes plan to make profit made more sense than these libtard solutions.
I live in the #1 foreclosure city in the USA, Stockton CA.
Many (if not a majority) of the homes here are investment homes too, purchased by San Francisco bay area residents. They did this in great numbers, driving up prices beyond what local residents could afford. Now, because they can’t afford the mortgage payments, huge numbers are in foreclosure, driving local residents’ home prices through the floor (the majority of the houses on the market here now are foreclosures).
This is the fault of the buyers, who sought to jump on the bandwagon of investment home buying. Now, the local economy is suffering for it.
#48,
let’s go over anecdotal versus scientific evidence again. You just gave me a story from one city. That is called anecdotal evidence. Again, I didn’t say that renters don’t got the short end from bad landlords. I said it is a distortion to overstate their victimhood.
Putting a story the way you did is exploitative. Renters enjoy plenty of protection, and anyone that takes precautions will be protected. Using a story like the one you did is exploitative.
Fair enough, JohnnyNJ, but I still read you dissing a TV show, in a rather strained connection to the real estate condition.
Tell me: are you an, “HGTV Widower”?
Renters in California get a relocation allowance of about $7,000.00 - $10,000.00, depending on the amount of monthly rent, if a rental unit goes off the market for any reason.