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Real estate Crisis- Home owners in dire situation

CArlos Benson|Wednesday, January 27, 2010

  During the presidency of Busch, one of the factors of social stability would be to have your own home by the largest part of American society. And while the building industry was driving the economy, almost 23-25%, instead of just 13-percent share preferred by economists. With political goals in mind, the Bush’s Administration was fueling the economies of the U.S. in this way wanted to cover up, and sometimes replace the export of the production outside the U.S. as consumer goods, as well as industrial ones.
 In nineties, and at the beginning of the twentieth century (until 2006), too many homes were   built, as well as they were at   disproportionately inflated prices.



The result: in the U.S. we have about 90,000,000 homes privately owned. Although this is not totally true, because the actual owner of the house is a financial institution, until you pay the entire loan. However, it is interesting, indeed unprecedented elsewhere in the world that those around 90 million homes, only 20% are fully paid. Currently, the situation is even more complicated: as much as 45% of these homes in U.S. are worth less than the mortgage loan owned to the financial institution.

 In other words, if the present users of these homes behaved according to rational thought, they would leave those 45% of all houses to their legal owners: financial institutions.
       When we add, that with both: the fully paid homes as well as a murdered ones, the value of these homes lately “evaporated" that the lost is currently about 14 trillion dollars .Such a situation should be defined as the tragic one. This is so unique on the real estate market that never in world history has taken place in any country.


  Of course, that does not mention the psychological satisfaction in a sense, of having "their own" home, as we are also accustomed to the comfort in our own home, for which we pay every high salty price every month.

 Lately , it appeared to be more insightful analysis of this subject made by the Research Center at the University of North Carolina USA The data collected there are not only more striking, but even more pointedly show the vastness and scope of the problem. According to this report, one of the 7-eight  borrowers are late ,or have trouble  with monthly payments.Hundreds of thousands of homeowners have  rhe loans so called : ARM  Their monthly payments increase after a short period of existence of the loan.
This is an other than ticking bomb that will increase the number of delays in paying installments, and consequently more foreclosures.


 Although there is  a special governmental institution studying  these  issues , (State Foreclosure Prevention Working Group). But in the reality   the reluctance of banks to provide data on the subject is obvious and widely spread. Banks are reluctant  to share the data,  from their publication is even worse, particularly  when it comes to ways to prevent banks initiating foreclosures..
 According to mentioned University Report , only 25% of borrowers who  are in trouble try  to find the solution. Unfortunately,  the modifications of the existing  loans as well as legal issues related to the taking of their homes by the banks often drag  so long in time, that  borrowers become not only discouraged but totally resigned. 


  From Bank's prospective Changes in the loan, usually apply only to reduce  monthly payments  , rather than the entire amount of the loan  to be reduced according to the actual value of the real estate. so the real problem persists ,is not solved , only to be extended in time.


 Increasingly prime loans, rather than secondary debt repayments are the cause of failure. I should add that taking away homes is not just the result of evil plan, loan, or wrong information about the payment capacity of borrowers, but it is a problem loan system as such.


 And what people are saying now about this dire crisis of epic proportion?
Widespread media and mass media, were writing lately that it perceived increases in sales of homes in 2009 compared to 2008, and even said that house prices are rising. Official media began to speak, that we are coming out of the recession, while unemployment is rising, though we have a better economic results demonstrating that a year before...


          At this juncture  it  should be mentioned, as  Glenn Grunewald (Common Dreams. Org 12 th January 2010) stated about a fundamental lack of integrity of American media in presenting the message in reference to the political situation as to the real estate market in particular. In support , we just can mention  about the sale process of these  homes in question  , as well as sales quantities or alleged prices increases The reality is :.
 Private house bought for $ 160.000.00. in 2005, sold in 2009 for $ 65000.00, appraised  house for 2.5 million in 2006, sold in 2009 for $ 1.350.000.00 sold  near Chicago.


Out of curiosity, let us answer the question about increased number of sold homes in 2009.
 What kind of house sales were in 2008 or 2009?


First these  homes were  confiscated by the banks (foreclosures), then other  houses already owned by the  banks which have previously been taken from the  owners in  previous years  or so-called short sales: houses left to the banks  by the owners , who can’t afford to pay monthly financial obligations.

Houses abandoned by their owners, or put into to the bank with a loss of deposit. Many homes, some builders “rushed" to market at below of the construction costs.  Presence of these homes on the market was not result of the availability, but due to the crash caused by the economic situation.


  The fact that more homes were sold in 2009 than 2008 is nothing like regular selling, but the result of   the above listed pool and conditioned by the crash, or bubble on the real estate market.

 
  Houses seized in 2008 by the banks were more than 650.000. In 2009 already banks had  in their books  918.000, so it was a lot more on  the market and sold more in 2009  precisely because of existence of  these  additionally taken  by the banks houses.

And the price? Banks sold homes, preferably only for mortgage debt. In the case we have plenty of examples well-known to me: in 2007, my neighbor   paid $ 220.000 for the house, but in 2009 the bank wanted to sell the house for $ 95.000.00, and got $ 99 000.00. This is not a price increase; it is only a ridiculously low price.  Bayer paid a little more, because the bank took some bets: it was the auction. The price paid for the mentioned home is not adequate to the valuation of that property, but only is the selling price at that moment, is says nothing about   the real value of this home.


 A few more statistics: in 2009, 2.8 million foreclosures notices were sent. And this year we will have approximately 4 million. So, soon at the end of 2010 we will have probably about 7 million homes owned banks. It is almost 7% of all U.S. homes.


These are frightening numbers, because during the "good" times, foreclosed houses by the banks were only about 0.4%.  

Banks selling houses as far as we know cannot lose, on the long run, because they have recovered from the government the money in these so called toxic assets arrangements.

  Fanny Mae or Freddy Mac were "saved" by the government and nationalized, when the Bush Administration purred into these companies hundreds of billions of tax payers’ dollars.


    At present, this tragic real estate debacle is most felt in states such as California, Florida, Arizona, and Illinois. In those four states 1.4 million homeowners have received foreclosure documents.  


     Due to the increasing number of foreclosures, a willingness to sell homes by owners, as an expression of the mobility of society, and very few new homes been built, house prices are still will be declining.  These statements are for only from the real estate brokers, but also from the experts of Yale University. The rest of us  do not need to go as far, as we see in our own eyes : millions houses taken by the   banks, large and rising unemployment,  also the consumer’s  fear of the future, creates  an explosive mixture of bringing  the  house prices lower, as they   floated   at  the  real estate market.
 When can I expect some improvement?


 Experts at the fields as Mr. Sarga, are expecting, that, 2013 would bring some improvements.  (Statement, Common Dreams.org, Jan 14 2010).


 Current Obama’s Administration, while trying to remedy this situation, created   programs that were developed are so complex (HAMP), and at the same time unrealistic because written by bankers, who already got their money. In this respect, is a curiosity of sorts: one of the plans, which were supposed to help hundreds of thousands of homeowners, only seven, of them benefited from this "scientifically" developed project in question?


Recently, in January 2010 (or November 2009), the Obama administration has taken a new Initiative to help homeowners modify loans and a debt and put in place a program: Drive Conversion Mortgage Modification. In the mind of Treasury Department charged to administer this program about 375000, home owners would be interested in and qualified for.

 In reality, only about 31.383 benefited from this initiative, and the next 46 thousand are expected to qualify for it.
  Another try to alleviate the burden of the home owner’s payments is Affordable Home Modification Program (HAMP), which aims to help in the theory about 900.000 owners who are in trouble with repaying loans. In fact, this program helps only about 12-16 percent of the planned number; it means about 15-thousand of prospective recipients of the loan modifications.


Unfortunately, the granting of loans and their modifications do not help homeowners, but rather have in mind well being of the financial institutions. As far as these   programs, the present administration does not pressure   enough financial institutions to implement it.


 Meanwhile, the financial giants such as borrowing Fannie Mae and Freddie Mac can expect the next 111 billions; not counting the 200 billion already got it in 2008.

First, it is said, to halt completely the procedure to take houses that borrowers who are in the course of a loan modification. Then Modification programs should be streamlined  in particular  in neighborhoods where the value of homes has fallen dramatically as California or Florida. Then, the banks should stop the sale of the product so called  ARM option. This type of loan programs caused  40% increase of default in the loans.
 Programs such as HAMP must be more transparent in this process should reduce many burdensome bureaucratic requirements, or some of them  to eliminate totally..


Individual States should provide mediation groups between banks and borrowers and   at least temporarily halt the procedure foreclosures. Both the U.S. Department of Treasury as well as banks should develop some choices, and options for those borrowers who are out of  work, or unemployed.


Lack of work, as well as loss of different  revenue, is the most common catalyst for the loss of  home .. above all, the banks should make efforts to reduce  foreclosures by implementing governmental guidelines  as well as  working  on modifications of the loans with struggling home owners.


Meanwhile, as you can see from this report, although it is ultimately in the public interest to reduce skyrocketed numbers of foreclosures  not only as a matter of sound public policy, but for long run as a matter of financial stability. Unfortunately,  banks are not interested, because  often get twice the money for this same property, once as a "toxic" asset, second time form the sale as foreclosed property. Not to say that these foreclosed homes often are subject of different type speculations and alleged criminal activity.



 Unfortunately, the situation of the average home owner is not at the best. And Obama administration rather only gives "Lip Service" to the homeowners.  

In the end, the home owner is left to himself. Received assistance is only to those who without it you do well. Instead of being punished, as the responsibility of causing the lion's share of such a situation, the financial institutions write million-dollar bonuses.  As Home owners in trouble we look forward to subsequent years, and hope it might be better.  Despite the thought through the purchase of the dream house, it is not always a blessed possession, sometimes we would like to say that home ownership has become our curse.

 Carlos Benson

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