michigan crises

[alocispepraluger102]

Mortgage crisis hits million-dollar homes

Thu Mar 29, 2007 2:52 PM ET

By Walden Siew

NEW YORK (Reuters) - Sheriff Leo McGuire presides over foreclosure auctions in Bergen County, New Jersey, where the bidding for a home reached $1.2 million last June -- a record for one of the wealthiest counties in the nation.

Homes sold on the auction block for as much as $852,000 this month -- more than quadruple the median home price in the United States. County officials believe they are close to setting another record soon.

In Troy, Michigan, Dorothy Guzek, a credit counselor since 1988, has also seen the changing face of foreclosure.

Her clients, while predominantly poor and minorities, increasingly are neither. Nowadays, homeowners holding professional careers with six-figure salaries regularly drop by her office. More and more they come from upscale Michigan communities such as Independence and Clarkston -- once the summer retreat for Henry Ford, founder of Ford Motor Co.

"Because of the financing that was possible, so many people bought the bigger house, the million-dollar house with the bowling alley or the tennis court outside," says Guzek, who works for GreenPath Debt Solutions, a nonprofit service based in Farmington Hills, Michigan. "People across all income brackets are having financial hardship."

For those on the frontlines of the growing U.S. mortgage crisis, these are the early signs that the explosion of subprime loans made to mostly poorer borrowers is reaching higher ground. The damage is hitting homes financed through jumbo loans for more than $400,000 and so-called Alt-A loans that are a notch above subprime and a step below prime.

Americans already are facing foreclosure at a record pace, according to the Mortgage Bankers Association. Lenders started foreclosure actions against more than one in every 200 U.S. mortgage borrowers in the last quarter of 2006.

About 2.2 million foreclosures due to bad mortgage loans may cost U.S. homeowners $164 billion, mostly from lost home equity, according to the Center for Responsible Lending, a Durham, North Carolina-based research group.

In the last three months, the percentage of foreclosures for U.S. homes valued at more than $750,000 has climbed to 2.5 percent, the highest since early 2005, when RealtyTrac, a online marketplace for foreclosed properties, began tracking data. The overall rate of foreclosures also is on pace to increase by a third this year.

"Everyone's looking at subprime. The rock they aren't looking under are the adjustable rate mortgages and teaser rates and low money-down loans," said Mark Kiesel, a portfolio manager for Pacific Investment Management Co., the world's biggest bond manager. "It's going to affect prime as well."

Kiesel said he sold his Newport Beach, California, home for more than $1 million in May last year after the property appreciated more than 20 percent in two years. He believes delinquencies and defaults will rise, weighing down most of the housing market.

California, with 3,384 foreclosures of higher-scale homes since December, is leading the nation, followed by Florida and New York, according to RealtyTrac. The MBA doesn't track foreclosure data by home value.

ICEBERG

Josh Rosner, managing director at investment research firm Graham Fisher & Co., says the growing numbers of foreclosures outside the subprime market is just the start.

"To define the problem as a subprime problem is short-sighted," Rosner said. "It's really seeing the tip of the iceberg as the iceberg."

Compounding the risk is the nature of homebuyers of higher-end homes, says Rosner. About 40 percent of homes bought last year were second homes or investment properties. Speculative buyers may be more at risk, he said.

Standard & Poor's said on a conference call on Thursday that foreclosure rates are likely to surpass levels last seen during the 2001 recession.

"That giant ATM you've been living in has just shut down," said David Wyss, chief economist at S&P in New York. "Consumers are in debt and we've been living beyond our means for some time."

CDOs

The latest foreclosure data also may spell trouble for Wall Street, where pools of bonds may be susceptible to nonperforming

loans that underpin debt vehicles known as collateralized debt obligations.

CDOs group debt based on credit quality and are similar to mutual funds in packaging securities to help diversify risk. In CDOs, the strongest debt is at the top of the capital structure, helping to smooth out any drag on performance from weaker debt, such as subprime loans.

Just as more expensive homes are beginning to fall through the cracks, the fear is higher-rated bonds within CDO structures may be vulnerable.

The declining performance of subprime loans have resulted in CDOs losing about $20 billion in market value, according to investment bank Lehman Brothers.

UBS Securities said in a report last month that rising delinquencies may cause losses within some subprime mortgage bonds rated as high as the "A" category.

FRAUD-FUELED

At the Justice Center in Hackensack, New Jersey, on Friday, the wood-paneled room is filled with about 40 people and the auction is routine. The first property on the sales sheet lists a Korean homeowner with $509,000 of outstanding debt. There are no bidders. Deutsche Bank, holder of the busted loan, buys the property with a quick $100 bid.

Sheriff McGuire calls the process "one of the most distasteful parts of my position." He places most of the blame on bankers who allowed questionable lending practices.

"This might not have happened if not for these new type of loans," McGuire said, minutes before the auction. The loans also have helped millions of Americans purchase new homes, he concedes.

"The banks took a chance on the future, and the homeowners took a chance so there's enough blame to go around," McGuire said. Still, "the banks and lenders have largely set them up for this downfall."

Adding to the grief, mortgage scams and con artists trying to take advantage of distressed homeowners abound, boosting foreclosure rates, county workers said.

"It's not the American Dream anymore," said Fran Napolitano, a county clerk in Hackensack. "It's 'who can I stab next.'"

In Detroit's suburbs, hit hard by the U.S. auto industry downturn and financial troubles at General Motors Corp. and Ford Motor Co., the story strikes home each day for GreenPath's Guzek.

"It's sad. It's just an awful feeling," she said. "You hope that you can come up with a financial plan to help people remain in their homes, but sometimes it's not the best thing for them."

These days, her calendar of eight counseling sessions a day, 40 a week, remains full. Increasingly, she offers different advice than devising financial plans to save her clients' homes.

"If they can't afford it, sometimes the best thing for them is to walk away," Guzek said.

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Edited March 29, 2007 by alocispepraluger102

[Chuck Nessa]

I thought Michigan Connection meant something else.

Excuse the intrusion.

Just want to point out the topic title has changed.

Edited March 30, 2007 by Chuck Nessa

[JSngry]

This is a situation that has been bubbling up for a few years now. I work for a "major mortgage company" in the payment processing department, and the number of distressed loans (ever seen the terms of a "workout" program? If you can get your shit together by the time it expires, you're in good shape, but if not, you're worse off than you were before...)/foreclosures (sometimes people will just send us the keys to their house in an envelope. No explanation offered, none needed) we've seen has been increasing steadily (and dramatically) for at least the last two years. It's cut across regions and (apparent) income levels too.

I've seen the promotional literature for some of these ARMs, and they're all predicated on taking out loans with a built-in/guaranteed "bite in the butt" at some future point and avoiding that bite by either reselling the property at an appreciated value in a few years, or else having personal income that undergoes a healthy rise over time. In other words, "the bubble is going to last forever, so dive in!" Well, guess what?

Like most things "financial", the strong(est) will survive, like they always do. For the rest of us, the name of the game is to get in at the right time and then get out at the right time. Otherwise, you end up giving it all back, and often what you give back is more than you took out in the first place. Not nearly as many people are as financially "strong" as they're led to believe by those who really are strong. It's not loan sharking by any stretch of the imagination, but the net effect is somewhat similar - you take out and take out, and then, BAM, you find yourself unable to pay back and it all goes back, and then some.

I'm sure that there are any number of financial "experts" who will insist that none of this is a ripple-effect from the Outsourcing/Wal-Mart-ization of America, but I remain to be convinced otherwise.

Tip of the iceberg indeed...

Edited March 30, 2007 by JSngry

[alocispepraluger102]

This is a situation that has been bubbling up for a few years now. I work for a "major mortgage company" in the payment processing department, and the number of distressed loans (ever seen the terms of a "workout" program? If you can get your shit together by the time it expires, you're in good shape, but if not, you're worse off than you were before...)/foreclosures (sometimes people will just send us the keys to their house in an envelope. No explanation offered, none needed) we've seen has been increasing steadily (and dramatically) for at least the last two years. It's cut across regions and (apparent) income levels too.

I've seen the promotional literature for some of these ARMs, and they're all predicated on taking out loans with a built-in/guaranteed "bite in the butt" at some future point and avoiding that bite by either reselling the property at an appreciated value in a few years, or else having personal income that undergoes a healthy rise over time. In other words, "the bubble is going to last forever, so dive in!" Well, guess what?

Like most things "financial", the strong(est) will survive, like they always do. For the rest of us, the name of the game is to get in at the right time and then get out at the right time. Otherwise, you end up giving it all back, and often what you give back is more than you took out in the first place. Not nearly as many people are as financially "strong" as they're led to believe by those who really are strong. It's not loan sharking by any stretch of the imagination, but the net effect is somewhat a similar - you take out and take out, and then, BAM, you find yourself unable to pay back and it all goes back, and then some.

I'm sure that there are any number of financial "experts" who will insist that none of this is a ripple-effect from the Outsourcing/Wal-Mart-ization of America, but I remain to be convinced otherwise.

Tip of the iceberg indeed...

real estate agents a couple years ago were telling me all the ways houses were being sold.

interest only loans, balloon payments, adjustable rates, second mortgages at purchase, and i cant remember what else, and it was a big surprise, and disappointment.

my personal rule has been 'dont buy a house worth more than 2.5 times your annual income.'

most people have made out much better than i using a different set of rules and i wish them well.

[Claude]

my personal rule has been 'dont buy a house worth more than 2.5 times your annual income.'

Depending on where you live, you are forced to spend much more.

The two room appartment (not a house!) I bought is worth 8 times my annual income, and I did not take excessive financial risks. A parking space in the common garage would already have cost almost one annual income at that time.

The housing and personal debt situation is actually much worse in Spain, where young people are forced to take 50 year loans, in order to cope with the monthly paybacks.

Edited March 30, 2007 by Claude

[alocispepraluger102]

my personal rule has been 'dont buy a house worth more than 2.5 times your annual income.'

Depending on where you live, you are forced to spend much more.

The two room appartment (not a house!) I bought is worth 8 times my annual income, and I did not take excessive financial risks. A parking space in the common garage would already have cost almost one annual income at that time.

The housing and personal debt situation is actually much worse in Spain, where young people are forced to take 50 year loans, in order to cope with the monthly paybacks.

i have read that in japan home loans are passed from generation to generation.

[porcy62]

In Italy we faced a radical change in term of loan and saving habits in the last 50 years.

After the WWII, Italy was a poor country, our fathers basically lost everything. A generation of hard working people and immigrants build up the richess of the country with hard working and saving. My father's rule was 'don't buy what you can't afford', plain and simple. And they were saving money, remembering the war's bad times, they thought that you should always have a reserve for bad time. At the end of the seventies, common people slowly moved towards loans for everything: houses, cars, ecc.

Today people get loans even for holydays or for a new LCD tv. Basically more then two third of italian family have a debt.

Personally I think that this system is rotten and senseless.

In order to rise the economy common people have to buy tons of useless things, replace car, replace tv, fridge, otherwise industries break down and people could loose their jobs. At the same time people is pushed to get loans because they couldn't afford things. That is totally insane, unless you are a CEO or a stockholder of a bank.

[The Magnificent Goldberg]

my personal rule has been 'dont buy a house worth more than 2.5 times your annual income.'

Well, that really depends on how much of it you need to mortgage. My house is worth about twelve times my pension, but I don't have a mortgage.

most people have made out much better than i using a different set of rules and i wish them well.

Indeed, you can - but it depends crucially on when you buy and when you sell. And if you know that, you possibly should be in a different business - as Louis Jordan said, "If you're so smart, how come you ain't rich?"

MG

[The Magnificent Goldberg]

I'm sure that there are any number of financial "experts" who will insist that none of this is a ripple-effect from the Outsourcing/Wal-Mart-ization of America, but I remain to be convinced otherwise.

Tip of the iceberg indeed...

This is a typical bubble. Caused by easy money, like the boom preceding the Depression. Bubbles work so long as everybody believes the good times will never come to an end. When something happens to alter that belief - zapppp!

A contributory cause of peoples' belief failing may well arise from the failure of their earnings to rise as expected. Outsourcing/Walmartisation might contribute to that. But, from what I've read, the new ideas for easy mortgage money all contain a built-in zap of one kind or another, which automatically kicks in after a while. Thus, the bubble is like the "Mission Impossible" messages - on automatic self-destruct.

MG

[The Magnificent Goldberg]

The housing and personal debt situation is actually much worse in Spain, where young people are forced to take 50 year loans, in order to cope with the monthly paybacks.

i have read that in japan home loans are passed from generation to generation.

I wonder to what extent Spanish house prices have been affected by British people buying holiday homes in Spain. We had a similar problem in Wales, with English people buying rural cottages for weekend retreats, particularly in Welsh-speaking areas. Prices were pretty soon put out of the reach of the local people. A short programme of terrorism - a few months' of burning down such cottages - sorted the problem out. People became aware that their insurance policies didn't cover them for acts of terrorism.

Japanese homes are hugely expensive; even tiny ones. When I visited Japan a few years ago, I was astonished at how little of the land is actually usable for housing and how much of what's usable is needed for agriculture. With a very large population, the prices of houses isn't surprising.

MG

[porcy62]

I wonder to what extent Spanish house prices have been affected by British people buying holiday homes in Spain. We had a similar problem in Wales, with English people buying rural cottages for weekend retreats, particularly in Welsh-speaking areas. Prices were pretty soon put out of the reach of the local people. A short programme of terrorism - a few months' of burning down such cottages - sorted the problem out. People became aware that their insurance policies didn't cover them for acts of terrorism.

Don't talk to me about Britons buying holyday homes over here...we never thought about terrorism for solving the problem in Tuscany..

[The Magnificent Goldberg]

In Italy we faced a radical change in term of loan and saving habits in the last 50 years.

After the WWII, Italy was a poor country, our fathers basically lost everything. A generation of hard working people and immigrants build up the richess of the country with hard working and saving. My father's rule was 'don't buy what you can't afford', plain and simple. And they were saving money, remembering the war's bad times, they thought that you should always have a reserve for bad time. At the end of the seventies, common people slowly moved towards loans for everything: houses, cars, ecc.

Today people get loans even for holydays or for a new LCD tv. Basically more then two third of italian family have a debt.

Personally I think that this system is rotten and senseless.

In order to rise the economy common people have to buy tons of useless things, replace car, replace tv, fridge, otherwise industries break down and people could loose their jobs. At the same time people is pushed to get loans because they couldn't afford things. That is totally insane, unless you are a CEO or a stockholder of a bank.

All of this is absolutely right.

Britain was in a similar state after the war - huge housing crisis as so much housing had been destroyed by bombing. During the war, the Government had an enforced loan system in place - Post War Credits. You had to pay them with your taxes. After the war, the PWCs were repaid in instalments (with interest), the first of which was in the late forties and it produced the first property boom of the post war years. Average house prices rose to three times average earnings. Every time that's happened here (and it's the case now), it's been followed by a 30% fall in prices.

My Dutch uncle (who was really Dutch) bought his house in the fifties with cash - real cash - pound notes! I greatly admired him, not just for this but for that general attitude, though we didn't quite manage a mortgage-free house - but we had managed to save and limit the mortgage to what could be paid off a decade or so before I retired. Apart from that, I think the only loans we took out were for two of our cars.

My daughter and her old man are terrible for debt. I don't know how they sleep at night.

MG

[The Magnificent Goldberg]

I wonder to what extent Spanish house prices have been affected by British people buying holiday homes in Spain. We had a similar problem in Wales, with English people buying rural cottages for weekend retreats, particularly in Welsh-speaking areas. Prices were pretty soon put out of the reach of the local people. A short programme of terrorism - a few months' of burning down such cottages - sorted the problem out. People became aware that their insurance policies didn't cover them for acts of terrorism.

Don't talk to me about Britons buying holyday homes over here...we never thought about terrorism for solving the problem in Tuscany..

Terrorism is essential behaviour when there's no one there to listen to protests.

MG

[porcy62]

I wonder to what extent Spanish house prices have been affected by British people buying holiday homes in Spain. We had a similar problem in Wales, with English people buying rural cottages for weekend retreats, particularly in Welsh-speaking areas. Prices were pretty soon put out of the reach of the local people. A short programme of terrorism - a few months' of burning down such cottages - sorted the problem out. People became aware that their insurance policies didn't cover them for acts of terrorism.

Don't talk to me about Britons buying holyday homes over here...we never thought about terrorism for solving the problem in Tuscany..

Terrorism is essential behaviour when there's no one there to listen to protests.

MG

About Tuscany at the University I had a friend whose father and grandfather were farmers in Tuscany. Their attitude, as usually with farmer, was investing in land (and old farms that were in the land). When the Chiatishire's rave exploded from mid-eighties, my friend became rich, and I mean very rich, because of that old attitude of saving of his anchestors. He moved from medic degree to business administration because of that. And he was the first of the family that went to college.

[Jim Alfredson]

I remember when my wife and I were buying our house and the mortgage guy kept telling us we should do the ARM thing. I was concerned about it going up and by how much. "Oh, it's not going to go up my much. The way the market is now, it will be very low."

I'm glad we didn't listen to him and got a fixed rate instead. I will say that I hate mortgage companies. Ours has been transfered (or rather sold) to three different companies in the three years that we've owned this house. The most recent one, Wells Fargo (who we haven't had for even a full payment cycle yet) has already pissed us off.

[The Magnificent Goldberg]

I remember when my wife and I were buying our house and the mortgage guy kept telling us we should do the ARM thing. I was concerned about it going up and by how much. "Oh, it's not going to go up my much. The way the market is now, it will be very low."

I'm glad we didn't listen to him and got a fixed rate instead. I will say that I hate mortgage companies. Ours has been transfered (or rather sold) to three different companies in the three years that we've owned this house. The most recent one, Wells Fargo (who we haven't had for even a full payment cycle yet) has already pissed us off.

YOU hate mortgage companies! Hah!

When we finished paying the morgtage on our old flat, we got a letter from the building society saying that it had all been paid off and that they'd set fire to our effin' deeds!

OK - they'd had a fire in the supposedly secure store just a few weeks before. But they wanted to charge me 75 quid for authorised copies and so on. An irate letter changed their mind, I'm glad to say.

MG

[Rooster_Ties]

my personal rule has been 'dont buy a house worth more than 2.5 times your annual income.'

After we put 20% down on our house, our total mortgage was about equal to what our annual income was at the time (about 5 years ago).

Which turned out to be a DAMN good thing -- cuz about two years after we bought our house, I lost my job -- didn't work hardly at all for about 18 months (just some contract work, here and there) -- and I finally moved into doing something completely different in the not-for-profit sector, making only about 40% of what I used to make as an IT business analyst (so a 60% cut in pay).

The key is that we have ALWAYS bought way, WAY less than we could afford. Until last year (when we bought a new Prius), my wife and I were both driving 12 and 13 year old cars -- one of which I still drive today (and probably will for another 5 years).

We're certainly not rich, but we're also not a 'house-of-cards' just waiting to fall either. If my wife lost her job, and had to take something else for only around 50% of what she makes now -- I think we could still make it (though it would be very tight). And remember, that's after I've already taken over a 50% reduction in pay a couple years ago.

[alocispepraluger102]

my personal rule has been 'dont buy a house worth more than 2.5 times your annual income.'

After we put 20% down on our house, our total mortgage was about equal to what our annual income was at the time (about 5 years ago).

Which turned out to be a DAMN good thing -- cuz about two years after we bought our house, I lost my job -- didn't work hardly at all for about 18 months (just some contract work, here and there) -- and I finally moved into doing something completely different in the not-for-profit sector, making only about 40% of what I used to make as an IT business analyst (so a 60% cut in pay).

The key is that we have ALWAYS bought way, WAY less than we could afford. Until last year (when we bought a new Prius), my wife and I were both driving 12 and 13 year old cars -- one of which I still drive today (and probably will for another 5 years).

We're certainly not rich, but we're also not a 'house-of-cards' just waiting to fall either. If my wife lost her job, and had to take something else for only around 50% of what she makes now -- I think we could still make it (though it would be very tight). And remember, that's after I've already taken over a 50% reduction in pay a couple years ago.

.....betting you sleep well, too.

[alocispepraluger102]

I remember when my wife and I were buying our house and the mortgage guy kept telling us we should do the ARM thing. I was concerned about it going up and by how much. "Oh, it's not going to go up my much. The way the market is now, it will be very low."

I'm glad we didn't listen to him and got a fixed rate instead. I will say that I hate mortgage companies. Ours has been transfered (or rather sold) to three different companies in the three years that we've owned this house. The most recent one, Wells Fargo (who we haven't had for even a full payment cycle yet) has already pissed us off.

that means payments have had to be sent to 3 or 4 different, so far, places?

[JSngry]

The most recent one, Wells Fargo (who we haven't had for even a full payment cycle yet) has already pissed us off.

You know, don't you, that mortgage companies don't just buy/sell/trade loan porfolios, but also servicing rights to each others' loans? In other words, Wells Fargo might be the name and address on your payment coupon, but in reality it might be another company altogether that's handling the payments, and perhaps even the customer service, totally unbeknownst to you. It's called "private branding", and it is not uncommon.

[alocispepraluger102]

many people are 'forced' into paying more than they can afford because of wanting their children in better schools.

[Jim Alfredson]

All I know is that we sent our last payment in via certified mail (like we always do) on the 2nd. By the 13th, it still hadn't been cashed, although we got a note from the post office saying it had been delivered. The mortgage is due on the 1st of the month, but you have until the 15th before it is actually considered late.

So on the 14th my wife calls to figure out what is going on. "We never got the check," they say. Yes you did, we have delivery confirmation from the post office that you did. "Well, the minute we get it, it is processed, so if it hasn't been processed, we didn't get it." Yes you did, because we have delivery confirmation.

Round and round we go. Okay, so they won't budge... they claim we didn't get it. What now? Well, you can pay over the phone but there is a $20 fee. What about the check? Well, if it ever pops up they'll just cash it. Can't they put a note on the account that says DO NOT CASH CHECK # ----? Nope. The service center and the processing center are on opposite ends of the country. So we have to pay $20 to make the payment over the phone, plus $20 to stop the check at our bank because the mortgage company lost the check. Keep in mind that $40 to us right now is a LOT of money because I am simply not working. $40 means no gas for my van this week. That's just where we are right now.

Sure enough, just this week, they tried to cash the check. Imagine that. So now we're trying to get them to pay for the cost of doing the transaction over the phone, since obviously THEY HAD THE CHECK, which is what we were telling them all along.

The whole idea of a mortgage pisses me off... whoever came up with the idea of compound interest is a rich, rich man.

[alocispepraluger102]

All I know is that we sent our last payment in via certified mail (like we always do) on the 2nd. By the 13th, it still hadn't been cashed, although we got a note from the post office saying it had been delivered. The mortgage is due on the 1st of the month, but you have until the 15th before it is actually considered late.

So on the 14th my wife calls to figure out what is going on. "We never got the check," they say. Yes you did, we have delivery confirmation from the post office that you did. "Well, the minute we get it, it is processed, so if it hasn't been processed, we didn't get it." Yes you did, because we have delivery confirmation.

Round and round we go. Okay, so they won't budge... they claim we didn't get it. What now? Well, you can pay over the phone but there is a $20 fee. What about the check? Well, if it ever pops up they'll just cash it. Can't they put a note on the account that says DO NOT CASH CHECK # ----? Nope. The service center and the processing center are on opposite ends of the country. So we have to pay $20 to make the payment over the phone, plus $20 to stop the check at our bank because the mortgage company lost the check. Keep in mind that $40 to us right now is a LOT of money because I am simply not working. $40 means no gas for my van this week. That's just where we are right now.

Sure enough, just this week, they tried to cash the check. Imagine that. So now we're trying to get them to pay for the cost of doing the transaction over the phone, since obviously THEY HAD THE CHECK, which is what we were telling them all along.

The whole idea of a mortgage pisses me off... whoever came up with the idea of compound interest is a rich, rich man.

all that, and you still backbone this magnificent forum. several hundred of us owe you bigtime.

can you get automatic withdrawals set up?

Edited March 30, 2007 by alocispepraluger102

[Jim Alfredson]

Yes, and automatic payments don't cost anything, but they will pull the money out of our account on the 1st of the month and sometimes we really really need that 15 day grace period.

We asked if we could do internet payments on our own, but there's a $20 fee for that, too. Which makes no sense. This is the only bill we have that we cannot pay online without a fee. It's ridiculous.

[alocispepraluger102]

Yes, and automatic payments don't cost anything, but they will pull the money out of our account on the 1st of the month and sometimes we really really need that 15 day grace period.

We asked if we could do internet payments on our own, but there's a $20 fee for that, too. Which makes no sense. This is the only bill we have that we cannot pay online without a fee. It's ridiculous.

i went through similar about 20 years ago and things settled down, after i switched to a local mortgage company. i am confident they will for you, too.