Mortgage bailouts begin

[MattTheSkywalker]

Governments are bailing out homeowners....oops I mean banks. But it's to protect homeowners, not to help banks or anything.

This is for the people, not the bankers, dammit.


Foreclosures Spur Ohio-Led States to Rescue Homes From Default

By Brian Louis

May 17 (Bloomberg) -- Willis Blackshear combs through Ohio mortgage filings looking for time bombs to defuse.

The Montgomery County recorder, who oversees real estate filings in Dayton, is searching for loans with balloon payments, or interest rates that may soon rise to unaffordable levels. He has found more than 3,100 in Montgomery where 540,000 residents possessed the state's second-highest foreclosure rate last year.

``It's crazy,'' said the 46-year-old Blackshear. ``I knew it was bad, but I didn't know it was this bad.''

The worst housing slump since the Great Depression is driving Ohio and 20 other states to propose consumer protection laws and bond sales that would help homeowners stem the escalating defaults. Ohio, with the third-highest foreclosure total in the U.S. last month, is raising $100 million to help homeowners refinance risky mortgages. New York, New Jersey and Pennsylvania are planning similar sales.

``We don't have much time to lose,'' said Ohio Governor Ted Strickland, in an interview. The foreclosure rate has ``escalated rather dramatically.''

Strickland, the former Democratic congressman from Lisbon, Ohio, who became governor in January, created a task force of public and private officials to keep borrowers solvent.

Foreclosures Rise

Mortgages in foreclosure across the country rose 62 percent to 147,708 in April from a year earlier, according to a May 15 report by Irvine, California-based RealtyTrac Inc., which sells information on defaults. The median U.S. home price fell 1.8 percent in the first quarter, according to the Chicago-based National Association of Realtors.

As many as 2.2 million Americans are at risk of losing their homes, the Center for Responsible Lending in Durham, North Carolina, said in a December study.

The foreclosures have ``the possibility of making economic conditions worse, because they will shrink consumer spending,'' said Weihong Song, professor of finance at the University of Cincinnati.

The 2007 median price for an existing home likely will drop 1 percent to $219,800 from 2006, the realtors association said in a May 8 report. The last time the national median declined probably was during the Great Depression in the 1930s, Lawrence Yun, the group's senior economist, said.

Housing accounts for about 23 percent of the U.S. economy, when taking into account purchases of furniture, appliances and items for new homes, according to the Joint Center for Housing Studies at Harvard University in Cambridge, Massachusetts. The U.S. economy grew at a 1.3 percent annual pace in the first quarter, the slowest in four years.

Subprime Crisis

At least 50 subprime mortgage lenders have halted operations, gone out of business or sought buyers in the past year, making it more difficult for consumers with limited or poor credit records to get loans.

Ohio home sales fell 5.8 percent in the first quarter and the average price declined 1.5 percent to $143,383 from a year earlier, according to the Ohio Association of Realtors in Columbus. Ohio had 11,431 default notices, auction sale notifications and repossessions by banks in April, 39 percent more than in March and 135 percent more than a year ago, according to the data from RealtyTrac. Only California and Florida had more.

As residents struggle to make payments, states are seeking policy solutions.

The State of New York Mortgage Agency may offer mortgages that would let borrowers replace risky home loans with a fixed rate through participating lenders, said spokeswoman Tiffany Berns.

State Legislation

New Jersey state Senator Ronald Rice, a Newark Democrat, introduced legislation this week to allow the state Housing and Mortgage Finance Agency to borrow up to $500 million and offer 40-year fixed-rate loans to owners in troublesome mortgages. Pennsylvania's Housing Finance Agency may sell up to $50 million in bonds to help subprime borrowers.

In Texas, state Representative Eddie Lucio Jr. introduced a bill to require people taking out mortgages of less than $125,000 to first get mortgage counseling. Indiana Republican Governor Mitch Daniels signed a bill to provide consulting for people who defaulted or are in danger of losing their homes. In Colorado, some legislators want to require mortgage brokers to make a ``reasonable inquiry'' about a borrower's income before providing a loan.

Federal Action

``The states that are vulnerable should be looking to intervene to slow, if not reverse, this spiral,'' said Susan Wachter, a real estate professor at the Wharton School at the University of Pennsylvania in Philadelphia.

The U.S. House Financial Services Committee is working on legislation to assist subprime borrowers if mortgage lenders don't, said Chairman Carolyn Maloney, a Democratic Representative from New York. U.S. Senator Hillary Clinton of New York, a Democratic candidate for president, has called for subprime borrowers to be given new loans at lower rates.

Blackshear of Montgomery County isn't waiting for federal action. The county plans to send letters to residents alerting them of potential risks in their mortgages. He has identified 3,178 mortgages by eight subprime lenders that may have rising payments or rates that will reset. The mortgages were taken out from 2004 until March this year.

`Saving' People

``It's unbelievable,'' Blackshear said. ``If we catch it early, we have the best chance of saving and helping people. If we help 100 people save their homes, to me we've done a good deed.''

Foreclosure filings rose 24 percent to 79,072 last year from 2005, according to Policy Matters Ohio, a nonprofit research group with offices in Cleveland and Columbus. In Cuyahoga County, which includes Cleveland, filings soared 96 percent from 2001 to 2006.

The culprits are slow growth in the economy, manufacturing job losses and ``aggressive lending practices that were barely policed,'' said State Treasurer Richard Cordray in an interview.

In 1995, the two largest private employers in Ohio were Detroit-based General Motors Corp. and Dearborn, Michigan-based Ford Motor Co., with 87,200 workers, according to the Ohio Department of Development. By 2006, the number plunged 62 percent to 33,000. Wal-Mart Stores Inc., the world's largest retailer, is now the biggest private employer in Ohio with 50,000, followed by the Cleveland Clinic Health System, with 34,800.

The faltering U.S. automakers have hurt the state's economy. Ford said on May 7 it will close a casting plant with 1,200 employees in Brook Park, Ohio, near Cleveland, in 2009.

Ohio Bond Sale

Ohio's unemployment rate has averaged 5.6 percent in the past two years through March, compared with 4.78 percent nationally.

The independent Ohio Housing Finance Agency devised a plan to sell $100 million in taxable bonds in the next month for a mortgage refinancing program. The proceeds will allow homeowners to get fixed-rate mortgages at a forecast rate of 6.75 percent, compared with the current U.S. average 30-year fixed mortgage rate of 6.13 percent. The bonds are backed by the mortgages and taxpayer money is not at risk.

Borrowers' household incomes must not exceed 125 percent of the median gross income of the county they live in to qualify for the loans. In Montgomery County, they can't earn more than $74,750. The owner must occupy the property and there is no limit on the loan amount. The loans will be packaged into Fannie Mae mortgage backed securities, the agency said.

The bond sales are too little to help the number of homeowners who need assistance nationwide. First American CoreLogic, a unit of Santa Ana, California-based insurer First American Corp., estimated in a March report that $326 billion of adjustable-rate mortgages originated between 2004 and 2006 will end in 1.1 million foreclosures over the next six to seven years.

Slavic Village

``This particular refinancing product does not in and of itself address the issue in this state, but it is hopefully part of a more comprehensive solution,'' said Doug Garver, the Ohio agency's executive director.

The number of foreclosure filings in Cuyahoga County jumped 24.5 percent in 2006 to 13,610 from the previous year, according to Policy Matters Ohio.

Cleveland's Slavic Village, a former enclave of Eastern Europeans, is among the city's hardest hit. The area is home to one- and two-story cottages built in the late 19th and early 20th centuries. The median price for a house sold in the first quarter in the Cleveland area fell 2.1 percent to $122,900, according to the National Association of Realtors.

Many of the narrow streets in the neighborhood are dotted with boarded-up houses. Ripped-out carpets lie in front of abandoned homes. Plastic cups, empty soda bottles, sandals and other refuse litter empty properties.

Rising Payments

Lorenzo and Alicia Cook are among the residents there at risk of losing their home.

Almost four years ago, the couple refinanced the mortgage on their two-story house, built in 1890. They got a 30-year adjustable rate mortgage that now resets every six months.

The payments have risen by more than a third since then and are now $729 a month at 11.75 percent. The couple owes $71,300, Alicia Cook said.

A slightly bigger house down the street is valued at $54,500, according to Cuyahoga County records. The Cooks want to refinance but can't because they've been late making payments over the past year. The couple also has a fixed-rate second mortgage with a payment of $277 a month.

While the Cook's are now up-to-date, their financial troubles have mounted. They owe about $5,700 in gas bills and their two cars have broken down.

Good Lord

Alicia, 53, lost her job as a machine operator in Cleveland and hasn't found steady work since 2003 because of an injured hand. Lorenzo, 54, works as an asphalt raker for seven to eight months out of the year at $24.63 an hour.

``I'll be all right until the end of the year,'' Lorenzo said. ``I take it day by day and just pray to the good Lord.''

Struggling homeowners are familiar to Ron Nabakowski, the Lorain County Clerk of Court of Common Pleas. One in every 134 residents had a foreclosure last year in this county west of Cleveland, according to Policy Matters Ohio.

``Foreclosures are really overwhelming our office,'' said Nabakowski. ``I'm sure we'll set a new record this year.''

The foreclosure trend is ``horrible,'' he said. ``It's something that used to be rare.''

[Dr T Non-Fan]

Foreclosures will be locally heavy in some areas. Easy pickings for lazy newscasters.
I'm not surprised about Dayton.
I can only assume that the bottom of the "best cities" list will get hit first.

[PK]

Originally Posted by MattTheSkywalker

Governments are bailing out homeowners....oops I mean banks. But it's to protect homeowners, not to help banks or anything.

This is for the people, not the bankers, dammit.

I assume you have contacted these folks and offered to loan them the $71,300 at 7.5%. They should be thrilled that their monthly payment is down to $500 and you probably can't get 7.5% from your bank, so it's a win-win.

[The Diabolical Biz Markie]

Bernanke said it wouldn't be a problem for the economy. Famous last words.

[notreallyme]

Originally Posted by PK

I assume you have contacted these folks and offered to loan them the $71,300 at 7.5%. They should be thrilled that their monthly payment is down to $500 and you probably can't get 7.5% from your bank, so it's a win-win.

I 'think' what he is saying is banks made bad loans and now the Gov't is bailing them out.

He is not saying they should be charging a lower rate. Which is what you seem to be implying.

MTS's posts are generally written quite well, I'm not sure why people have such a comprehension problem when it comes to them.

MTS, please let me know if I am the one with the reading comprehension problem here.

Besides this guy should be fine, he is praying after all.

[Dr T Non-Fan]

PK seems to be showing MTS a business opportunity. Nothing more or less.

[Snageye]

Originally Posted by Article

In Colorado, some legislators want to require mortgage brokers to make a "reasonable inquiry'' about a borrower's income before providing a loan.

They may be on to something there.

Originally Posted by notreallyme

Besides this guy should be fine, he is praying after all.

I was going to post that one as well.

[Mob Anderson]

Is this suppoesed to be news?

[Westley]

Originally Posted by Dr T Non-Fan

PK seems to be showing MTS a business opportunity. Nothing more or less.

Well, yes, but it's an astoundingly bad one, and one that he "assumes" MTS has already attempted.

[Westley]

Originally Posted by The Diabolical Biz Markie

Famous last words.

Also in that category:

Originally Posted by MattTheSkywalker's article

The independent Ohio Housing Finance Agency devised a plan to sell $100 million in taxable bonds in the next month for a mortgage refinancing program. The proceeds will allow homeowners to get fixed-rate mortgages at a forecast rate of 6.75 percent, compared with the current U.S. average 30-year fixed mortgage rate of 6.13 percent. The bonds are backed by the mortgages and taxpayer money is not at risk.

So, taxpayer money will not be at risk, but somehow the market isn't able to bundle these loans and sell them at the same rate as the government is..... hmmmmm.... what am I missing?