Date: 4/10/2009
KATRINA A. GOGGINS
Associated Press Writer
Just over half of a new $4 billion federal housing program approved late last year will go to purchase and fix up foreclosed homes nationwide, a study released this week showed.
The program aims to raise home values by helping state and local governments buy bank-owned properties, repair or demolish them, and help working families make the leap to homeownership. And Congress added another $2 billion to the Neighborhood Stabilization Program this year when it passed the economic stimulus package.
The first round of grants were allocated to states and cities as part of a housing rescue plan that was regarded at the time as the most significant housing legislation in a generation. The Department of Housing and Urban Development signed off on more than 300 proposals from all 50 states.
Around 56 percent of the grants approved last year will be used to buy and rehabilitate properties that have been abandoned or foreclosed, according to the report from Enterprise Community Parnters.
Twenty-one percent will be used to help low- to moderate-income families purchase the homes, while just 6 percent will be used to demolish vacant properties.
“These are pretty flexible funds that allows you to serve extremely low-income families all the way up to working families and that’s unique,” said Alazne Solis of the Enterprise Community Partners, a nonprofit financier for affordable housing.
The group’s report provides the first look at how states and local governments nationwide plan to use the money.
While Solis praised the program, critics say the grant proposals are too vague and the program lacks oversight and accountability. The plan has also drawn fire from some neighborhood groups that want a say in how the money is spent.
In foreclosure-ravaged Ohio, for example, where grantees will get about $258 million, the Livingston Avenue Area Commission in Columbus continues to press city officials to include the group in meetings about the funding.
“We are the neighborhood,” gripes Bryan Boatright, vice president of the group. “I wake up every morning and look out my window and see it. The folks in the administrative offices wake up every morning and have to drive 10 miles to it. It’s more important than ever residents have a say in what’s happening in their backyards.”
Enterprise did recommend lawmakers monitor the outcomes of the program.
Copyright 2009 The Associated Press.
Foreclosures force renting families onto street
Date: 3/18/2009
LOS ANGELES (AP) — Clutching pajamas for her three youngest kids, Janice Johnson straggled into a Skid Row homeless shelter on a recent night, frustrated and weary from another fruitless apartment hunt.
The Midnight Mission was her last resort after being evicted when a bank took over the South Los Angeles building where she’d rented an apartment for years.
“I don’t want to be on the street,” said Johnson, a single mother who lives on welfare. “I’m just trying to keep the kids going to school. With this homeless thing, I’m getting calls that my 8-year-old is sleeping in class.”
The foreclosure crisis is hitting inner-cities hard as landlords default on mortgages in record numbers and foreclosures force tenants into the street. Boarded up apartment buildings have become common on impoverished city blocks while emergency shelters are swelling with mothers with children.
“The doors are busting down with people with this problem,” said Mercedes Marquez, city housing general manager. “And the wave is still coming.”
The problem has grown to such proportions that the City Council recently halted evictions and the city decided to buy empty buildings and designate them as affordable apartments.
Government mortgage company Freddie Mac recently said it would allow homeowners facing foreclosure-related eviction to remain in their homes as renters, while Fannie Mae also has taken similar steps to prevent renters and owners from being thrown out.
Cities across the nation are grappling with the dilemma which is affecting some of their neediest residents.
In Chicago, Cook County Sheriff Thomas J. Dart now requires banks to give tenants four months notice of an eviction. Last year, he blocked foreclosure evictions after seeing renters being summarily tossed out, said spokesman Steve Patterson. Chicago’s number of foreclosure evictions has tripled over the past two years, to more than 4,500 last year.
Boston started sending postcards to tenants advising them of their rights and now requires owners to put a sign on the property advising who the landlord is and a local contact, said Pat Canavan, housing adviser to Mayor Thomas Menino. If tenants don’t have heat, city inspectors are allowed to order heating oil and bill the owner. Meanwhile, the city is exploring purchasing foreclosed buildings.
“The (debt) servicers want these buildings unoccupied but we want them occupied,” Canavan said. “There’s all kinds of fallout from this.”
Housing advocates say they’re seeing the same situation with renting families in cities large and small, urban and suburban, being forced into shelters.
Some evictees are even employed but don’t have the savings for a new apartment or simply can’t find an affordable one.
“We’re now seeing working families in shelters — people are going to work from the shelter and getting kids to school from the shelter,” said Ellen Bassuk, president of the National Center for Family Homelessness.
Evictions are likely to keep rising as job losses sock renters, said Delores Conway, multifamily market expert at the University of Southern California’s Lusk Center for Real Estate.
“The pressure is going to continue because of rising unemployment,” Conway said.
While the nation’s default rate on apartment buildings is still relatively low, it is rising quickly. Fannie Mae, for example, said its delinquency rate was 0.30 percent at the end of last year, double what it was at the end of September, and almost four times the rate at the end of 2007.
In Los Angeles, neighborhoods in the city’s low-income south and central areas are being walloped.
In 2007, buildings containing a total of 1,690 apartments were foreclosed on. In 2008, owners lost buildings containing 4,789 apartments, according to the city housing department.
Marquez said complaints have flooded in to the city from evicted tenants. Tenants rights group Inquilinos Unidos (Spanish for Tenants United) has never seen as many cases of tenant foreclosure evictions as in the past six months, said organizer Silvia Sandoval.
Most evictions stem from banks that don’t want to be landlords after foreclosing on properties, even if they have to forgo rental income. Occupied properties entails hiring a property manager, which is something banks are generally reluctant to do, even in a normal real estate market, said Dustin Hobbs, spokesman for the California Mortgage Bankers Association
“It’s not the business they’re in,” he said. “They want to resell the property free and clear.”
But in many cases, it means tenants who have paid the rent are getting thrown out because the landlord hasn’t paid the mortgage.
On top of that, many tenants complain that landlords are resorting to intimidation to get them out cheaply and quickly. Tenants in rent-controlled apartments must get a 60-day notice to vacate and relocation fees that can total thousands of dollars, Marquez said.
The council is now set to consider an ordinance that would require banks to notify the city of foreclosures so it can contact tenants to advise them of their rights.
Social service agencies are feeling the pressure. Evictions are a chief cause for a spike in families seeking emergency beds this winter, a change from the traditional population of single men.
“The housing crisis is giving us a newer demographic of people experiencing homelessness,” said Orlando Ward, public affairs director of the Midnight Mission, where about 14 families seek cots every night, about 10 more than six months ago.
Accommodations are Spartan. Families, mostly women with a couple children, sleep in a room separate from the men’s area on cots furnished with a thin mattress, sheets and a small pillow. A neighboring room serves as a children’s play area. Doors open at 6:30 p.m., lights are out at 10 p.m. Patrons must be out in the morning by 7 after a light breakfast.
It’s often the only option for working-class renters who have little financial cushion to absorb a setback such as losing an apartment, and whose relatives and friends have limited resources.
Parents with numerous children or teenagers are often forced to split up their families among various places. Most shelters don’t accept adolescent boys, for instance, out of fear of aggressive behavior.
Janice Johnson’s teenage son found a couch at a friend’s house. Other friends and relatives took in her two teenage girls, one with a baby. Johnson then bounced with her three youngest children between a motel room paid for by a social services agency and sleeping in her van until she swallowed her pride and shuffled into the Midnight Mission.
The magnitude of the situation spurred the City Council in December to suspend foreclosure evictions for year.
The source of the apartment-building foreclosures is the same as single-family homes. Many owners of small buildings, which comprise much of the rental housing in low-income neighborhoods, refinanced during the subprime lending boom, often replacing fixed-rate loans with adjustable-rate ones, Marquez said.
When interest rates skyrocketed, landlords found rental income no longer covered the mortgage. More than 95 percent of foreclosed buildings are rent-controlled.
With so many apartments at stake, city officials are exploring a plan to use federal and city money to buy buildings and designate them as housing for low- and moderate-income families.
For couples like Gabriela and Mario Hernandez, who have two kids, the stress is overwhelming. They received a 90-day eviction notice, but they can’t afford the deposit on a new place while they’re still paying $875 in monthly rent.
The owner, they said, hasn’t paid the mortgage since August. If he had been upfront about being in default, they could have saved the rent for a new apartment.
“We just don’t have the resources,” said Gabriela. “Where are we going to go — the street?”
Copyright 2009 The Associated Press.
LOS ANGELES (AP) — Clutching pajamas for her three youngest kids, Janice Johnson straggled into a Skid Row homeless shelter on a recent night, frustrated and weary from another fruitless apartment hunt.
The Midnight Mission was her last resort after being evicted when a bank took over the South Los Angeles building where she’d rented an apartment for years.
“I don’t want to be on the street,” said Johnson, a single mother who lives on welfare. “I’m just trying to keep the kids going to school. With this homeless thing, I’m getting calls that my 8-year-old is sleeping in class.”
The foreclosure crisis is hitting inner-cities hard as landlords default on mortgages in record numbers and foreclosures force tenants into the street. Boarded up apartment buildings have become common on impoverished city blocks while emergency shelters are swelling with mothers with children.
“The doors are busting down with people with this problem,” said Mercedes Marquez, city housing general manager. “And the wave is still coming.”
The problem has grown to such proportions that the City Council recently halted evictions and the city decided to buy empty buildings and designate them as affordable apartments.
Government mortgage company Freddie Mac recently said it would allow homeowners facing foreclosure-related eviction to remain in their homes as renters, while Fannie Mae also has taken similar steps to prevent renters and owners from being thrown out.
Cities across the nation are grappling with the dilemma which is affecting some of their neediest residents.
In Chicago, Cook County Sheriff Thomas J. Dart now requires banks to give tenants four months notice of an eviction. Last year, he blocked foreclosure evictions after seeing renters being summarily tossed out, said spokesman Steve Patterson. Chicago’s number of foreclosure evictions has tripled over the past two years, to more than 4,500 last year.
Boston started sending postcards to tenants advising them of their rights and now requires owners to put a sign on the property advising who the landlord is and a local contact, said Pat Canavan, housing adviser to Mayor Thomas Menino. If tenants don’t have heat, city inspectors are allowed to order heating oil and bill the owner. Meanwhile, the city is exploring purchasing foreclosed buildings.
“The (debt) servicers want these buildings unoccupied but we want them occupied,” Canavan said. “There’s all kinds of fallout from this.”
Housing advocates say they’re seeing the same situation with renting families in cities large and small, urban and suburban, being forced into shelters.
Some evictees are even employed but don’t have the savings for a new apartment or simply can’t find an affordable one.
“We’re now seeing working families in shelters — people are going to work from the shelter and getting kids to school from the shelter,” said Ellen Bassuk, president of the National Center for Family Homelessness.
Evictions are likely to keep rising as job losses sock renters, said Delores Conway, multifamily market expert at the University of Southern California’s Lusk Center for Real Estate.
“The pressure is going to continue because of rising unemployment,” Conway said.
While the nation’s default rate on apartment buildings is still relatively low, it is rising quickly. Fannie Mae, for example, said its delinquency rate was 0.30 percent at the end of last year, double what it was at the end of September, and almost four times the rate at the end of 2007.
In Los Angeles, neighborhoods in the city’s low-income south and central areas are being walloped.
In 2007, buildings containing a total of 1,690 apartments were foreclosed on. In 2008, owners lost buildings containing 4,789 apartments, according to the city housing department.
Marquez said complaints have flooded in to the city from evicted tenants. Tenants rights group Inquilinos Unidos (Spanish for Tenants United) has never seen as many cases of tenant foreclosure evictions as in the past six months, said organizer Silvia Sandoval.
Most evictions stem from banks that don’t want to be landlords after foreclosing on properties, even if they have to forgo rental income. Occupied properties entails hiring a property manager, which is something banks are generally reluctant to do, even in a normal real estate market, said Dustin Hobbs, spokesman for the California Mortgage Bankers Association
“It’s not the business they’re in,” he said. “They want to resell the property free and clear.”
But in many cases, it means tenants who have paid the rent are getting thrown out because the landlord hasn’t paid the mortgage.
On top of that, many tenants complain that landlords are resorting to intimidation to get them out cheaply and quickly. Tenants in rent-controlled apartments must get a 60-day notice to vacate and relocation fees that can total thousands of dollars, Marquez said.
The council is now set to consider an ordinance that would require banks to notify the city of foreclosures so it can contact tenants to advise them of their rights.
Social service agencies are feeling the pressure. Evictions are a chief cause for a spike in families seeking emergency beds this winter, a change from the traditional population of single men.
“The housing crisis is giving us a newer demographic of people experiencing homelessness,” said Orlando Ward, public affairs director of the Midnight Mission, where about 14 families seek cots every night, about 10 more than six months ago.
Accommodations are Spartan. Families, mostly women with a couple children, sleep in a room separate from the men’s area on cots furnished with a thin mattress, sheets and a small pillow. A neighboring room serves as a children’s play area. Doors open at 6:30 p.m., lights are out at 10 p.m. Patrons must be out in the morning by 7 after a light breakfast.
It’s often the only option for working-class renters who have little financial cushion to absorb a setback such as losing an apartment, and whose relatives and friends have limited resources.
Parents with numerous children or teenagers are often forced to split up their families among various places. Most shelters don’t accept adolescent boys, for instance, out of fear of aggressive behavior.
Janice Johnson’s teenage son found a couch at a friend’s house. Other friends and relatives took in her two teenage girls, one with a baby. Johnson then bounced with her three youngest children between a motel room paid for by a social services agency and sleeping in her van until she swallowed her pride and shuffled into the Midnight Mission.
The magnitude of the situation spurred the City Council in December to suspend foreclosure evictions for year.
The source of the apartment-building foreclosures is the same as single-family homes. Many owners of small buildings, which comprise much of the rental housing in low-income neighborhoods, refinanced during the subprime lending boom, often replacing fixed-rate loans with adjustable-rate ones, Marquez said.
When interest rates skyrocketed, landlords found rental income no longer covered the mortgage. More than 95 percent of foreclosed buildings are rent-controlled.
With so many apartments at stake, city officials are exploring a plan to use federal and city money to buy buildings and designate them as housing for low- and moderate-income families.
For couples like Gabriela and Mario Hernandez, who have two kids, the stress is overwhelming. They received a 90-day eviction notice, but they can’t afford the deposit on a new place while they’re still paying $875 in monthly rent.
The owner, they said, hasn’t paid the mortgage since August. If he had been upfront about being in default, they could have saved the rent for a new apartment.
“We just don’t have the resources,” said Gabriela. “Where are we going to go — the street?”
Copyright 2009 The Associated Press.
Financial burden of homeownership spread unequally
Date: 1/19/2009
By ALAN ZIBEL
AP Real Estate Writer
WASHINGTON (AP) — When it comes to homeownership, Hispanics in New Jersey, single parents in California and senior citizens in Rhode Island all have something in common: More than a third have an unaffordable mortgage.
Inequality in America has traditionally followed familiar patterns of race, age and education. Those long-standing gaps have been magnified by the real estate boom and now the historic bust, according to an Associated Press analysis of 2007 Census Bureau data.
While minorities have made significant gains in wealth and home ownership since 1990, “things are going into reverse gear,” and now the homeownership rate for blacks and Hispanics is falling, said Edward Wolff, a New York University economist who studies income and wealth distribution.
Nearly 9.5 million households, or nearly one out of every five of the nearly 52 million homeowners with a mortgage, spend 38 percent or more of their pretax income on their mortgage payment, property taxes and insurance, the AP’s analysis found. That’s the new threshold to qualify for the loan assistance program launched last month by Fannie Mae and Freddie Mac, the mortgage finance companies now under government control.
Not surprisingly, the most financially burdened are in California, Florida, Nevada and the Northeast, areas hardest hit by soaring home prices and now foreclosures.
Yet in every state, there are many pockets of homeowners who are just one unexpected medical bill or car repair from falling behind on their mortgages and setting the foreclosure clock ticking.
The AP’s analysis reveals the enormous scope of the U.S. housing market bust and how unevenly the burdens are spread, both geographically and demographically. And the situation is worsening — a record 10 percent of U.S. homeowners with a mortgage are at least one payment behind or were in foreclosure as of last fall, compared with 7.5 percent a year earlier and just under 6 percent in 2006.
The burden is clearly more arduous among minority households, the AP analysis found.
Just under a third of Hispanic homeowners spend at least 38 percent of their income on housing expenses, compared with about a quarter of Asian and black households and nearly 16 percent of white households.
In much of the country, the trend is more pronounced. For example, included among those who spent at least 38 percent of their income on housing are:
About 40 percent of black borrowers in California, Nevada, Oregon and Massachusetts.
More than 30 percent of of Asian borrowers in California and Florida.
Nearly half of Hispanic homeowners in Rhode Island and at least 40 percent in Alaska, California, Florida, Hawaii, Maryland, New Jersey and New York.
Many Latino families wound up with expensive subprime mortgages because they often have cash income and no bank account, said Janis Bowdler, associate director for wealth building at National Council of La Raza in Washington.
It is common for Latino families to have stable incomes, but limited credit histories — and hence lower credit scores, which lenders use to gauge risk. Many have multiple sources of income, some of it in cash.
During the housing boom, consumer advocates say it was both faster and more profitable for mortgage brokers and loan officers to put Hispanic families in loans that didn’t require proof of income, but charged higher interest rates.
“They had them out the door in a fraction of the time,” Bowdler said. “They were definitely getting more expensive loans.”
Now, Hispanic households like the Cazares family of Visalia, Calif are caught up in the mortgage crisis. Out of work for more than a year after contracting a rare disease caused by an airborne fungus, Joel, 36, brings in $550 a week in disability payments. His wife Maria, 34, makes about that much money weekly by working as a hair stylist.
They haven’t made their $2,500 home loan payment in four months. The couple, who have three kids, have been waiting since October for a loan modification from IndyMac Bank, which was seized by the federal government last July. They hope it will bring their payment down to a more manageable level of around of $1,500.
In the meantime, they buy supersized bags of generic cereal to make ends meet. They’ve canceled their Internet service and are only using one of their two cars, a pickup truck, because it gets better gas mileage.
Our money’s like a piece of gum,” Joel Cazares said. “We’re making it stretch as far and as long as we can.”
The AP’s analysis also found that education level is highly correlated with income and mortgage expenses. Nearly one in three of those without a high school or college diploma spend at least 38 percent of their income on housing, compared with only 12 percent of those with advanced degrees, the AP analysis found.
In addition, seniors spent a far higher share of their income on housing than any other age group.
While about half of seniors own their homes outright, the other half often face financial challenges and diminished earning potential.
Among seniors with a mortgage, nearly three in 10 spend at least 38 percent of their income on housing, according to the AP analysis. The stress is most severe in nine states: California, Washington D.C., Florida, Massachusetts, Nevada, New Jersey, New York, Rhode Island and Vermont.
As the pain from the mortgage crisis spreads, Washington is abuzz with talk of new efforts to stabilize the housing market and stop the freefall in home prices. President-elect Barack Obama has pledged to direct up to $100 billion in financial bailout money toward a sweeping effort to prevent foreclosures.
Frustrated housing counselors around the country say that if the Bush administration had grasped the severity of the foreclosure crisis earlier and enacted more ambitious programs long ago, the pain for American families and the economy might not be so severe.
“So far, we haven’t seen the mortgage products or resources that we really need to help people who are at risk of losing their homes,” said Brenda Clement, executive director of the Housing Action Coalition of Rhode Island.
To be sure, housing counselors acknowledge that some borrowers only have themselves to blame. They clearly got in over their heads and many knowingly took out risky loans. But they also say that mortgage brokers and lenders took advantage of the elderly, immigrants and the unsophisticated.
For decades, the government and most lenders considered homeowners who spent 30 percent or more of their income on housing to be financially strapped.
But that rule of thumb got thrown out the window during the housing boom. When prices were soaring, many Americans could only afford to buy a home by taking out ever-riskier home loans. Lenders were happy to cooperate, because if the homeowner defaulted, the property could still be sold for enough money to cover the loan.
House-rich and giddy, American attitudes about debt and the risks that go with it changed dramatically.
“The average American is in hock up to his eyeballs,” said David Wyss, chief economist at Standard & Poor’s in New York.
That’s especially true now that prices are falling and around 13 million households, or about one in four with a mortgage, owes more to the bank than their properties are worth, according to Mark Zandi, chief economist at economic forecasting firm Moody’s Economy.com
One of those “underwater” borrowers is Heather Noble, 36, who lives outside Detroit and can see five foreclosures from her front porch. A single mother, she struggled to make her mortgage payment since being laid off from her job in October 2007.
Late last summer, she started a $17-an-hour job handling billing for a doctor’s office, b ut making her home loan payment of around $1,000 a month was a stretch because her take-home pay is at most $1,600 a month, depending on the amount of time she works.
Starting last spring, she spent hour after hour on the phone talking to what she describes as “every human being and division possible” at JPMorgan Chase & Co., before obtaining approval for a loan modification.
Noble’s modification had been held up until the fall, and she was actually blocked from making her monthly payment until the Associated Press made an inquiry into her case. “In the large volumes that we’re handling, we occasionally will miss something,” spokesman Tom Kelly said.
Her two home loans have now been modified. Effective Feb 1., her new monthly payment will be a much more affordable $683 a month.
“That I can pay,” she said. “Now I can pay my bills and stay current and not worry about losing my house.”
Among single parents like Noble, more than a quarter in Michigan and about 27 percent nationwide spend at least 38 percent of their income on housing. And in California the strain is far worse: About four in 10 single parents meet that threshold.
And what worries Avis Holmes, director of Detroit Non-Profit Housing Corp. in Detroit, is that much of the government’s financial aid isn’t targeted at those who are in the greatest danger of losing their homes.
So far, Holmes said, “there are no rescue funds for the homeowners.”
__
AP Data Specialist Allen Chen contributed to this report.
Copyright 2009 The Associated Press.
By ALAN ZIBEL
AP Real Estate Writer
WASHINGTON (AP) — When it comes to homeownership, Hispanics in New Jersey, single parents in California and senior citizens in Rhode Island all have something in common: More than a third have an unaffordable mortgage.
Inequality in America has traditionally followed familiar patterns of race, age and education. Those long-standing gaps have been magnified by the real estate boom and now the historic bust, according to an Associated Press analysis of 2007 Census Bureau data.
While minorities have made significant gains in wealth and home ownership since 1990, “things are going into reverse gear,” and now the homeownership rate for blacks and Hispanics is falling, said Edward Wolff, a New York University economist who studies income and wealth distribution.
Nearly 9.5 million households, or nearly one out of every five of the nearly 52 million homeowners with a mortgage, spend 38 percent or more of their pretax income on their mortgage payment, property taxes and insurance, the AP’s analysis found. That’s the new threshold to qualify for the loan assistance program launched last month by Fannie Mae and Freddie Mac, the mortgage finance companies now under government control.
Not surprisingly, the most financially burdened are in California, Florida, Nevada and the Northeast, areas hardest hit by soaring home prices and now foreclosures.
Yet in every state, there are many pockets of homeowners who are just one unexpected medical bill or car repair from falling behind on their mortgages and setting the foreclosure clock ticking.
The AP’s analysis reveals the enormous scope of the U.S. housing market bust and how unevenly the burdens are spread, both geographically and demographically. And the situation is worsening — a record 10 percent of U.S. homeowners with a mortgage are at least one payment behind or were in foreclosure as of last fall, compared with 7.5 percent a year earlier and just under 6 percent in 2006.
The burden is clearly more arduous among minority households, the AP analysis found.
Just under a third of Hispanic homeowners spend at least 38 percent of their income on housing expenses, compared with about a quarter of Asian and black households and nearly 16 percent of white households.
In much of the country, the trend is more pronounced. For example, included among those who spent at least 38 percent of their income on housing are:
About 40 percent of black borrowers in California, Nevada, Oregon and Massachusetts.
More than 30 percent of of Asian borrowers in California and Florida.
Nearly half of Hispanic homeowners in Rhode Island and at least 40 percent in Alaska, California, Florida, Hawaii, Maryland, New Jersey and New York.
Many Latino families wound up with expensive subprime mortgages because they often have cash income and no bank account, said Janis Bowdler, associate director for wealth building at National Council of La Raza in Washington.
It is common for Latino families to have stable incomes, but limited credit histories — and hence lower credit scores, which lenders use to gauge risk. Many have multiple sources of income, some of it in cash.
During the housing boom, consumer advocates say it was both faster and more profitable for mortgage brokers and loan officers to put Hispanic families in loans that didn’t require proof of income, but charged higher interest rates.
“They had them out the door in a fraction of the time,” Bowdler said. “They were definitely getting more expensive loans.”
Now, Hispanic households like the Cazares family of Visalia, Calif are caught up in the mortgage crisis. Out of work for more than a year after contracting a rare disease caused by an airborne fungus, Joel, 36, brings in $550 a week in disability payments. His wife Maria, 34, makes about that much money weekly by working as a hair stylist.
They haven’t made their $2,500 home loan payment in four months. The couple, who have three kids, have been waiting since October for a loan modification from IndyMac Bank, which was seized by the federal government last July. They hope it will bring their payment down to a more manageable level of around of $1,500.
In the meantime, they buy supersized bags of generic cereal to make ends meet. They’ve canceled their Internet service and are only using one of their two cars, a pickup truck, because it gets better gas mileage.
Our money’s like a piece of gum,” Joel Cazares said. “We’re making it stretch as far and as long as we can.”
The AP’s analysis also found that education level is highly correlated with income and mortgage expenses. Nearly one in three of those without a high school or college diploma spend at least 38 percent of their income on housing, compared with only 12 percent of those with advanced degrees, the AP analysis found.
In addition, seniors spent a far higher share of their income on housing than any other age group.
While about half of seniors own their homes outright, the other half often face financial challenges and diminished earning potential.
Among seniors with a mortgage, nearly three in 10 spend at least 38 percent of their income on housing, according to the AP analysis. The stress is most severe in nine states: California, Washington D.C., Florida, Massachusetts, Nevada, New Jersey, New York, Rhode Island and Vermont.
As the pain from the mortgage crisis spreads, Washington is abuzz with talk of new efforts to stabilize the housing market and stop the freefall in home prices. President-elect Barack Obama has pledged to direct up to $100 billion in financial bailout money toward a sweeping effort to prevent foreclosures.
Frustrated housing counselors around the country say that if the Bush administration had grasped the severity of the foreclosure crisis earlier and enacted more ambitious programs long ago, the pain for American families and the economy might not be so severe.
“So far, we haven’t seen the mortgage products or resources that we really need to help people who are at risk of losing their homes,” said Brenda Clement, executive director of the Housing Action Coalition of Rhode Island.
To be sure, housing counselors acknowledge that some borrowers only have themselves to blame. They clearly got in over their heads and many knowingly took out risky loans. But they also say that mortgage brokers and lenders took advantage of the elderly, immigrants and the unsophisticated.
For decades, the government and most lenders considered homeowners who spent 30 percent or more of their income on housing to be financially strapped.
But that rule of thumb got thrown out the window during the housing boom. When prices were soaring, many Americans could only afford to buy a home by taking out ever-riskier home loans. Lenders were happy to cooperate, because if the homeowner defaulted, the property could still be sold for enough money to cover the loan.
House-rich and giddy, American attitudes about debt and the risks that go with it changed dramatically.
“The average American is in hock up to his eyeballs,” said David Wyss, chief economist at Standard & Poor’s in New York.
That’s especially true now that prices are falling and around 13 million households, or about one in four with a mortgage, owes more to the bank than their properties are worth, according to Mark Zandi, chief economist at economic forecasting firm Moody’s Economy.com
One of those “underwater” borrowers is Heather Noble, 36, who lives outside Detroit and can see five foreclosures from her front porch. A single mother, she struggled to make her mortgage payment since being laid off from her job in October 2007.
Late last summer, she started a $17-an-hour job handling billing for a doctor’s office, b ut making her home loan payment of around $1,000 a month was a stretch because her take-home pay is at most $1,600 a month, depending on the amount of time she works.
Starting last spring, she spent hour after hour on the phone talking to what she describes as “every human being and division possible” at JPMorgan Chase & Co., before obtaining approval for a loan modification.
Noble’s modification had been held up until the fall, and she was actually blocked from making her monthly payment until the Associated Press made an inquiry into her case. “In the large volumes that we’re handling, we occasionally will miss something,” spokesman Tom Kelly said.
Her two home loans have now been modified. Effective Feb 1., her new monthly payment will be a much more affordable $683 a month.
“That I can pay,” she said. “Now I can pay my bills and stay current and not worry about losing my house.”
Among single parents like Noble, more than a quarter in Michigan and about 27 percent nationwide spend at least 38 percent of their income on housing. And in California the strain is far worse: About four in 10 single parents meet that threshold.
And what worries Avis Holmes, director of Detroit Non-Profit Housing Corp. in Detroit, is that much of the government’s financial aid isn’t targeted at those who are in the greatest danger of losing their homes.
So far, Holmes said, “there are no rescue funds for the homeowners.”
__
AP Data Specialist Allen Chen contributed to this report.
Copyright 2009 The Associated Press.
Foreclosure crisis vexes government
Date: 10/26/2008 12:18 PM
By ALAN ZIBEL
AP Business Writer
WASHINGTON (AP) _ Each day from July through September, more than 2,700 Americans lost their homes in foreclosure.
That number, up from 1,200 a day a year ago, is a sign that the mortgage industry and government programs have done little to help troubled homeowners.
The mortgage market’s troubles have proved to be far more serious and intractable than most in government or the private sector had predicted a year ago.
“We are behind the curve. We are falling behind,” Sheila Bair, head of the Federal Deposit Insurance Corp. told a Senate hearing Thursday. “There has been some progress, but it’s not been enough, and we need to act. And we need to act quickly, and we need to act dramatically to have more wide-scale, systematic (loan) modifications….”
More than 4 million homeowners with a mortgage were at least one month behind on their payments at the end of June, according to the latest data from the Mortgage Bankers Association, and a record 500,000 had entered the foreclosure process.
So why is the foreclosure crisis so hard to fix?
There are five main reasons:
— Crashing home prices:
A massive speculative bubble in housing prices caused millions of Americans to think of their homes as an investment, rather than a place to live.
Now prices are plummeting, especially in once-sizzling markets like California, Florida and Nevada. And the bleeding might not stop until the end of next year.
The median home price in the U.S. dropped 9 percent in September from a year ago to $191,600, and is down 17 percent from the peak in July 2006, the National Association of Realtors said Friday.
Already, 23 percent of homeowners with a mortgage owe more on their loans than their homes are worth, and that figure is expected to rise to 28 percent by this time next year, according to Moody’s Economy.com.
While the majority of homeowners will continue to make their payments and wait for values to recover, some will mail their keys to their lender and walk away, leaving the lender with no choice but to foreclose.
Sophie Lapointe, a mortgage broker and owner of Five Star Mortgage in Las Vegas, has found there’s little that can be done to help people who owe more than their homes are worth. “The biggest problem is negative equity,” she said.
When homeowners in that position ask her about refinancing, Lapointe tells them to contact their current lender and ask about a loan modification because she already knows no new lender will give them a loan.
Loan modifications vary depending on many conditions, but can include deferring payments, allowing partial payments, lowering the interest rate and lowering the principal balance.
— Investor speculation:
Plunging prices have had even more impact on investors than on homeowners because investors have less emotional attachment to a house. They’re even more likely to walk away, especially if they’ve put little money into a property.
Investors purchased one of every five homes last year, and almost one of every three when the market peaked in 2005, according to the Realtors trade group.
They flocked to hot markets like California, Florida, Nevada and Arizona, as television shows such as A&E;’s popular reality series “Flip This House” touted the easy money that could be made buying and selling homes.
They took advantage of risky loan products that didn’t require down payments or proof of income. Other loans allowed the borrower to pay only the interest on the loan, or even less, and none of the principal for a certain time.
Now, more than 30 percent of properties in the foreclosure process are owned by someone with a different address, indicating the home is likely owned by an investor, according to foreclosure listing service RealtyTrac Inc.
Government programs to help homeowners are specifically designed not to help such investors, though in reality it may be hard to weed them out.
— Complex investments:
Traditionally, lenders evaluated borrowers carefully because they held onto the mortgages for the life of the loan. That process started to change in the late 1980s, as Wall Street found new ways to package the loans into securities to sell to investors.
Investors were attracted to these new mortgage-backed securities because they paid better returns than government bonds.
At the beginning of this decade, the Federal Reserve started cutting interest rates to historic lows. So investors poured money into the U.S. mortgage market, particularly into securities made up of high-interest mortgages made to borrowers with poor credit records.
The high-interest, risky mortgages, called “subprime,” boomed, from $160 billion in new loans in 2001 to more than $600 billion in both 2005 and 2006, according to Inside Mortgage Finance, a trade publication.
Lenders stopped worrying about the creditworthiness of borrowers and offered them ever-riskier mortgages. Most of those loans were made by commission-driven mortgage brokers, who had nothing to lose if the mortgage went bad because it had been resold.
“By the time it defaults, it’s somebody else’s headache,” said Barry Ritholtz, CEO of research firm FusionIQ.
When mortgages are packaged into securities, borrowers’ monthly payments are divided up and sent to thousands of investors around the world. With so many owners, helping troubled borrowers is tougher. Many of these investors have been reluctant to agree to drastic loan modifications, such as reducing the principal balance, because they don’t want to take a big loss.
“We and others have gone to these investors, and they’re just not having it,” said Evan Wagner, spokesman for Pasadena, Calif.-based IndyMac Federal Bank, which has been run by the FDIC since July. “They don’t want to take more losses than they have to.” Without such modifications, many homeowners can’t avoid foreclosure.
Democrats on Capitol Hill are frustrated.
On Friday, six House Democrats, including Rep. Barney Frank, D-Mass., accused hedge fund investors in a letter of blocking loan modifications and called them to a hearing on the issue next month.
“For the hedge fund industry, which has flourished for much of the past decade, to take steps so actively in opposition to what is currently in the national economic interest is deeply troubling,” they wrote.
— Job losses:
The No. 1 reason people fall behind on their mortgage is loss of a job, or some source of income, perhaps from a divorce or death of a spouse. If a borrower is unemployed, lenders don’t have many options but foreclosure.
Two years ago, about 36 percent of mortgage delinquencies were caused by loss of income or unemployment, according to research by mortgage finance company Freddie Mac. But that number has risen to 45 percent this year as the unemployment rate has ticked up to a five-year high of 6.1 percent.
Jon Falen, 33, put his four-bedroom house in Olathe, Kan., with high-end appliances, granite kitchen countertops and a landscaped lot, on the market more than two years ago after health problems forced him to leave his job as an air traffic controller.
Falen and his wife, now delinquent on their two home loans, are finally scheduled to sell their house next month.
But there’s a big catch: The buyer has agreed to pay only $490,000, which is $70,000 less than what the couple paid for it in 2002.
Making matters worse, Falen and his wife owe $675,000 to two lenders because they used their home equity — which soared during the housing boom — to pay off student loans and remodeling expenses.
Though Falen and his family seem to have avoided becoming another foreclosure statistic by cashing out on retirement plans and dipping deeply into savings, he is chastened by the drawn-out experience.
“Any debt right now scares me to death,” he sai d.
— Falling behind again:
It’s hard to fix something that keeps breaking. Roughly one-third of all subprime loans modified in the third quarter of last year were delinquent again within 10 months, according to a Credit Suisse report released this month.
Maria Martinez, 57, an administrative worker at the county jail in Stockton, Calif., is typical of homeowners who have gotten help, but not enough. She is three months behind on her mortgage, even after receiving a loan modification earlier this year.
Though Martinez bought the house more than a decade ago for only $76,000, she now owes about $230,000 because she refinanced her home loan several times.
“I was trying to borrow some money to pay some bills,” said Martinez, who is on leave from her job this month after being diagnosed with cancer. “I didn’t really think…that I would get into a bind like this.”
Until the summer, she was paying an interest rate of about 8.5 percent on her mortgage. The modification lowered that amount to 7.75 percent.
If she had been given a more generous loan modification, she might be in a better situation. But most efforts to help homeowners have been slow and weak.
— So what has and should be done?
The scale of the mortgage crisis became clear in July 2007 when Countrywide Financial, then the nation’s largest mortgage lender, reported an unexpected surge in defaults in high-quality mortgages.
Three months later, the Bush administration announced a new mortgage industry coalition — dubbed the Hope Now alliance. The coalition had an “aggressive plan to reach more homeowners and help them find a way to stay in their homes,” Treasury Secretary Henry Paulson said at the time.
The Hope Now group says the industry has modified 765,000 loans since last July, and put 1.5 million borrowers on temporary repayment plans. There are no data on how many of those homeowners have fallen behind again.
Faith Schwartz, the coalition’s executive director, said the effort was never meant to be the only solution to the foreclosure crisis. She says there “has been a tremendous effort” on the industry’s part, noting that 1.9 million households have received letters urging them to call a housing counselor.
Industry and government responses have also drawn fire from consumer advocates for being too slow and too narrow.
The Federal Housing Administration, a government agency that backs loans to borrowers with weak credit, says it has helped about 400,000 borrowers refinance over the past year, though only about 1 percent were behind on their loans.
This month, the FHA started the “Hope for Homeowners” program, included in legislation passed over the summer by Congress. It is designed to let another 400,000 troubled homeowners swap their mortgages for traditional 30-year fixed rate mortgages , but only if lenders agree to reduce the value of a loan and take a loss.
But there are still questions about how eager lenders will be to participate.
Faced with public outrage that they passed a $700 billion plan to rescue the financial industry, politicians in Washington are going to keep trying to find ways to fix the foreclosure crisis. One promising approach came this month when 11 states entered into a more than $8 billion settlement with Countrywide Financial and its new parent Bank of America Corp.
The settlement, which goes into effect Dec. 1. is projected to help an estimated 400,000 Countrywide borrowers by allowing them to replace risky loans with ones at substantially lower interest rates.
And in Washington, the FDIC’s Bair has proposed a plan in which the government would provide guarantees for mortgages that have been reworked by banks, lowering payments to more affordable levels.
All eyes now are on Bair, Paulson and other top officials to see if the government can craft a plan that gets at the heart of the global financial meltdown — the U.S. foreclosure crisis.
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AP Business Writer Daniel Wagner contributed to this report.
Copyright 2008 The Associated Press.