Mark

We have all seen the news lately about the housing market taking a dive. More and more people are losing their homes to foreclosures and sadly there seems to be no end in sight. On my street alone, there are four houses that have been foreclosed (that I know of).

My former next door neighbor is one of them. He left nearly three months ago and since he has left, only one time has someone come out to cut the grass. The house is completely empty and nobody is taking care of the property. There is a sticker on his door with a number to his lender. So I called them on Monday to report the poor conditions at this house. I was told that someone would get back in touch with me within 48 hours. When Wednesday came and went, I still had heard nothing. So I contacted the city. Today I spoke with someone from the city and they are going to come out and cut the grass tomorrow. However, they will only do this once a month and the guy I talked to said it was the lenders job to take care of the property. I agree so I called the lender back today and they had nothing on file about my complaint on Monday. I gave all the same info again today and I was told again that someone would look into it. When talking with the guy from the city, he said it could take weeks for the lender to do anything. I think that is complete garbage. My kids play outside more and more and who knows what type of rodents might be living in the yard that has tall grass, debris from his tree that broke off during our recent storms, and just a complete mess of both the front and back yard.

While talking with the lender, I told them that my next step was to take this to the local news channels. I refuse to babysit them by calling every few weeks to find out when they will be out. I realize that everyone is hurting over the housing crisis but I should not have to live next to a house that is falling apart and is not being taken care of.

OK, I got that out. Anyone else dealing with a similar situation?

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Fallon

they do a fairly good job taking care of the forclosures out here but you can still pick them out when you drive down the street. Lucky for me I'm currently looking to by a house. I would be mad about the situation if I were you too. And one day if I see you on the news I'll tell people I knew all about this before the news did :-)

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SAH mommy to Debralyn 10-21-02 and Bubba (Logan) 3-19-07
Madeline 07-10-09

Kim

Maybe I'm just not smart when it comes to this stuff, but why are so many people getting foreclosed on? That doesn't make sense to me. The economy isn't good right now but its not like our house payment went up? So unless people are getting those stupid ARM loans, or buying more house than they can afford in the first place, then there shouldn't really be issues?

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Fallon

it's a huge issue in MI mainly because of the auto industry. To many people ended up with house payments they couldn't make anymore because of lay offs

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SAH mommy to Debralyn 10-21-02 and Bubba (Logan) 3-19-07
Madeline 07-10-09

Kim

Oh that makes sense - and then because the housing market is bad they couldn't sell their house.

I really hope the sale of AB doesn't go through or else I bet we'll see that start happening here in St. Louis too.

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Fallon

it's bad for the people trying to get out but great for people like me trying to get in. I can buy a house that 5 yrs ago would have went for well over $200,000 that now is going for $130,000 some as low as $112,000

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SAH mommy to Debralyn 10-21-02 and Bubba (Logan) 3-19-07
Madeline 07-10-09

Ari

I think it's a mix of causes.

Before all the badness started, the stage was set for the problems we see now IMO. The housing prices had been on the rise for decades without a downward blip, making people believe this would continue indefintely. At one point, interest rates rose a bit, and this made brokers and mortgage companies look to subprime lenders for business. Credit requirements were loosened. Laws were in place to allow for some relatively new practices involving the sale of mortgages to investors.

Changes in the law allowed for quasi-governmental agencies like Fannie Mae and Freddie Mac to get into the secondary market in which mortgages are bundled and sold as mortgage-backed securities. This gave mortgage lenders more capital to offer more mortgages. Global investors, looking at the white-hot US housing market, jumped into the secondary market, adding further fuel. Credit-rating agencies like Standard & Poor's and Moody's, which are heavily relied upon by big investors, gave the stamp of approval to these securities with the thought that the housing market would continue to rise.

Then there was the rise of the credit derivatives market, in which the secondary market's securities are further bundled together, often with other debts, and then sold in chunks. This made a huge gulf between the person who initially decided the homeowner was qualified to assume the mortgage and people who had a financial stake in having the mortgage payments get met.

Unfortunately, all of this can only work if housing prices continued to rise. A lot of the subprime mortgages were ARMS with teaser rates. The idea was that the mortgage holder would be able to refinance - thanks to easy credit - before the teaser rate ended and rates jumped. But the bubble burst, home values decreased, and credit became much tighter. This occurred as unemployment crept up, and the price of fuel hit a record high. People were unable to either refinance or pay the higher mortgage rates, thus forcing them into foreclosure.

This didn't just hurt homeowners. Hedge funds that invested heavily in the subprime mess failed. Bear Stearns, one of the biggest investment banks in the world, was essentially killed. Countrywide, which is the US's biggest mortgage lender, saw its stock drop like a rock and is now in the process of being sold. It also is being investigated for its questionable lending practices. Iceland (!) has seen the value of its currency drop: Its banks relied heavily on foreign investors for capital and this withered as credit tightened.

There was also a lack of regulatory oversight. I have a weird crush on Alan Greenspan, but when he was head of the Federal Reserve he was warned by another Fed governor that subrprime lenders were enticing borrowers with iffy mortgage deals. Greenspan did not have the Fed take action, despite the fact that the Fed is required by law to regulate all mortgage lending.

The lack of oversight resulted in loose practices, from shady dealing to outright fraud. This started at mortgage brokers and went up the chain. Congress is investigating the 3 big credit-rating agencies. The SEC has opened a bunch of investigations of whether offerers of collateralized debt obligations (resecuritized mortgage-backed securities) fully disclosed their worth to buyers and followed all the rules and whether insider trading of these high-level securities or short-selling, which is illegal in this context.

JMO.

And that's my short answer.

Neal

Great Topic Mark.

LOL....Ari

Did you catch This American Life a few weeks ago when they had a whole show on this same topic?

http://www.thislife.org/Radio_Episode.aspx?sched=1242

Mark, I think you will find this interesting as well.

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Mark

Excellent information everyone. Neal, I will definitely check out that episode.

I do want to mention another thing that is getting people in financial trouble. So many other products that we buy on a daily basis are costing more money now that the gas prices are so high. I hate to beat a dead horse but when the cost of groceries, utilities, insurance rates, etc. go up and our income stays the same or sometimes goes down, it is causing people major problems. Most people I know haven't had raises in years. Some have had to take a decrease in pay just to keep their jobs. While the workers are losing money just to stay employed, everything around them is costing more money. Our cable bill just went up recently. Same with our home loan because we were short in escrow so we have to make that money up over the next 12 months. Escrow is usually short for the first 5-10 years of a person having a mortgage. At least that's my experience anyway.

Oh' and by the way, my neighbor who lost his house... his lender is Countrywide. I have heard many negative things about them as well so it is no surprise that they would not be taking care of that property. The city did show up today and cut the grass. Now it is just a matter of time to see if Countrywide starts taking care of things.

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Ari

No, I missed that TAL episode. I"ll DL it later. Thanks for the info, Neal.