Closer to home: evidence of the economy's downward spiral
Submitted by: cho on Thu, 02/28/2008 - 06:20
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These signs have been "springing" up in our little town. This was a family's home, not a trick by a speculator "flipping" a mortgage to make a quick buck. And down the street from this one, is another "foreclosed" house. It's empty now, the driveway not even plowed out from the last two snow storms.
Today's (2-28-08) Wall Street Journal reports on the Bush Administration's attitude:
In an interview yesterday, Treasury Secretary Henry Paulson branded many of the aid proposals circulating in Washington as "bailouts" for reckless lenders, investors and speculators, rather than measures that would provide meaningful relief to deserving, but cash-strapped, mortgage borrowers.
Mr. Paulson's comments came amid signs that the nation's housing market is getting worse, not better.
The cold numbers Bloomberg reports are that foreclosures rose 90% from a year ago:
Feb. 26 (Bloomberg) -- Bank seizures of U.S. homes almost doubled in January as property owners failed to make higher payments on adjustable-rate mortgages.
Repossessions rose 90 percent to 45,327 last month from the same period a year ago, according to RealtyTrac Inc., a seller of foreclosure statistics that has a database of more than 1 million properties. Total foreclosure filings, which include default and auction notices as well as bank seizures, increased 57 percent.
According to the Bloomberg article, the ten states winning the "foreclosure lottery" are California, Florida, Nevada -- with "Arizona, Colorado, Massachusetts, Georgia, Connecticut, Ohio and Michigan" rounding "out the top 10 states worst off in terms of missed payments and property seizures."
A friend who has often resorted to equity loans on his home to stay afloat on his monthly expenses (not a brilliant practice for sure) told me over the weekend that because of the plunge in the value of his home, he's resorted to credit cards -- which now have a higher interest rate and lower cap -- to cover his expenses. Hard to believe that he is an educated, intelligent guy.
Wednesday's Wall Street Journal leads off its front page with an article by Kelly Evans, Serena Ng and Ruth Simon titled Decline in Home Prices Accelerates. The article hints at Bernanke contemplating more rate cuts amid the spreading credit crisis, documenting the deterioration of most middle-class Americans' savings "cushion" -- the value of their homes.
The decline in U.S. home prices accelerated in the fourth quarter, according to two leading barometers, compounding two of the biggest threats facing the nation's economy: faltering consumer spending and tight credit markets.
The S&P/Case-Shiller national home-price index for the fourth quarter fell 8.9% from a year earlier, the largest drop in its 20 years of data. And the Office of Federal Housing Enterprise Oversight's index -- which tracks only homes purchased with mortgages guaranteed by home-loan giants Fannie Mae or Freddie Mac -- was down 0.3%, the first year-to-year decline in the measure's 16 years.
Home values: equity down. Loan possibilities drying up.
It hurts the least able among us first. Just today, I heard about a man, a senior, who is trying to make do on 500 a month. That's his entire income which must cover rent, food, heat, electricity, medical expenses. 500 dollars a month in the Northeast.
Gas was $3.39 a gallon for regular yesterday. There is no public transportation in our little village, of course. And the nearest grocery store is in the next town.
Up close and personal.
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Signs of the Times?
The squeeze is definitely on!
It's beginning to sound like the stories of my childhood--except that I was pretty sheltered from the reality of those times.
I was utterly shocked this morning to turn to Alternet and see that they have front paged a story about young middle class women finding Sugar Daddies. This appears to be part of a series they are running. Yesterday's lead was about a vibrator attached to a condom. Seems like they are having some serious money problems at that site.
I guess my point is that as things worsen and the social fabric weakens, badd things happen to people's psyches and their sense of values.
In the mid 80's Texas experienced a
large slump. We bought our current home 20 years ago as a bank foreclosure...a repo. Back then the developers worked with a bank and people had "contract for deed" mortgages. Lots of developers went out of business...as the oil boom died..people walked away from their homes and moved where the jobs were.
I read an article that people that have a home equity line of credit are seeing these scaled back or even canceled because of the uncertainty of payback as the property values degrade.
Bush is clueless or really just doesn't givea $hit!
Walking Away from Houses
I read somewhere recently that middle and upper middle class homeowners were walking away from houses because of the sharp increase in payments coupled with the sinking value of the houses. They apparently feel that they had made a bad investment so the hell with it. These are people who are ineligible for bankruptcy. What theyare not saying is that unless the lender agrees to a "short" sale (ie will accept a payback reflective of current valuation or some compromise value) the owner will still be liable for the difference between the auction value of the home and the price of the loan. In other words a house is collateral on a mortgage loan but the loan is the legal document.
The damned thing is that Bush's plan to extend upward the cap on conventional loans, is a way of lowering the interest rates people are paying for jumbo loans but it doesn't help the poor suckers who don't own houses at the upper end.
context + perspective
Out of sites, out of their minds, the coverage of the cascading failures in housing and finance have overtaken and subsumed coverage of every other topic. In the absence of information to the contrary, the most common saying today seems to be "where are we going, and why am I in this handbasket?".
In this particular instance I must side with the people who decry the coverage of *all* media forms for failure to elucidate. For instance: since the average cost of foreclosure is $50k, and the average ARM spike is 3 - 4%, why are lenders either refusing or slow to renegotiate the *80%* of subprime loans otherwise not at risk?
Who knows. Better for the public to focus on poor granny's house being ripped from her hands, than to publish a tax/benefit analysis of the lenders.
= = = = = =
For your neighbor if you haven't seen it: CT Financial/Credit Assistance (FannyMae).
Not in disagreement...
since some folks in California seem have assumed that a 125% mortgage of house value is a good deal.
But it is startling to live in a small town for 20 years and all of a sudden see these signs cropping up and know that families have had to pack up and move. Not one neighbor, nor even two, but several in a pretty small place.
Also, I am old enough and jaded enough to know that only when the moneyed and powerful see that the plight of the less fortunate somehow threatens their own well being will the incentive to help out become strong enough to overcome greed.
Here in Connecticut, in the mid-eighties, there was a group of disreputable mortgage lenders that secretly referred to themselves as "F**ked You Over**
Reich pointed out the change in ethics in "Supercapitalism."
Don't get me wrong. I am no fan of the '50, etc., but until the pressure of globalization hit--I guess beginning in the '80's--local businesses that typically would play a role in sustaining and contributing to communities, were no longer in the picture. Remember the slogan: What's good for General Motors is good for the United States. People who worked in the plants felt like they had a stake in the business. All that has now pretty much unravelled.
By the way, I recently heard a spot on NPR about the bankrupcy of the Levitt coporation who built all those Levitt-towns. Well in the segment they discussed how Florida law allowed builders to dip into their escrow accounts, which were then insured. Sooooo long story short, people who put paid sizable downpayments up front (which the builders demand) now have to sue to try to get their money back. Depending on the builders' insurance it is an iffy situation. Moreover you know how all extras on a new home are paid up front--like the gourmet kitchen or the bump out of the finished basement. Turns out those payments are not refundable.
Interesting story in the WAPO about suits against Mortgage Cos.
(hat tip to Fiore over on Buzzflash)
Door Could Open To Class Actions by David Cho (no relation)
Testimony by Nouriel Roubini
MUST. READ.
Testimony (PDF) to the House of Representatives’ Financial Services Committee: The Current U.S. Recession and the Risks of a Systemic Financial Crisis by Nouriel Roubini, Professor of Economics at at the Stern School of Business, NY University
Ugly doesn't begin to cover it.
Right.
And we are in danger of the "imminent collapse of the bond insurers":
As with every single pronouncement made by the "expert analysts" over the past three years, readers are advised to insert the words: "IF NOTHING IS DONE".
Excellent advice, rba
and, as we all know, especially in this community, bringing information to the light of day often has impact and can alter the course of events... because even the reporting of the story is something done. And that first something can lead to even more somethings until the trajectory itself is changed, mutated, varied, or even stopped.
Economic Wargame
When have the capitalists been saying that accounting and personal finance should be mandatory in the schools?
Instead the entire economics profession has been not talking about what we lose on depreciation of automobiles every year.
Is it easier for grammar school kids to memorize
ANTIDISESTABLISHMENTARIANISM
or
NET WORTH = Assets - Liabilities
???
And don't forget about the depreciation of the sol called ASSETS. This is the 100th anniversary of the introduction of the Ford Model-T. Redesigning crap year after year has made absolutely no sense. And the economists won't even talk about the depreciation of DURABLE CONSUMER GOODS. And we payed taxes for all of those nuclear weapons to defend economists that can't do algebra. That is really funny!!!
http://www.bnvillage.co.uk/news-politics-village/73910-marxism-vs-techno...
umbra
Kids and economics
Now that, umbrarchist, is an excellent point. Even just the basics as you mention: Worth = Assets - Liabilities...
Kids and money.
Not to point fingers at
Not to point fingers at lenders, brokers, agents, or the buyers but if anyone saw this coming as a home buyer you'd think they'd start doing anything they could to make their payments get rid of the satellite TV go to basic cable or no cable lower you cell plan and try and move your credit card payments to a no fee balance transfers company with low interest. I'm sure there was excess income going out the window from the time they realized they couldn't afford their home at that point they should have tried to make the payments no matter what and not get thrown out.
true...
And I have read many articles -- not just umbrarchist here -- about how folks don't even make up budgets or try to live as it were, within their means. On the other hand, I get about 3 offers a day in the mail for new credit cards and now the phone rings with live salespersons trying to pitch me equity loans.