We Are Drowning in False Debt While Realtors Push “Recovery”

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Editor’s Comment:

The figures keep coming in while the words keep coming out the mouths of bankers and realtors. The figures don’t match the words. The net result is that the facts show that we are literally drowning in debt, and we see what happens as a result of such conditions with a mere glance at Europe. They are sinking like a stone, and while we look prettier to investors it is only when we are compared to other places — definitely not because we have a strong economy.

Iceland and other “players” crashed but stayed out of the EU and stayed away from the far flung central banking sleeping arrangements with Banks. Iceland knows that banks got us into this and that if there is any way out, it must be the banks that either lead their way out or get nationalized so their assets can take the hit of these losses. In Phoenix alone, we have $39 BILLION in negative equity. 

This negative equity was and remains illusory. Iceland cut the household debt in each home by 25% or more and is conitinuing to do so. The result? They are the only country with the only currency that is truly recovering and coming back to real values. What do we have? We have inflated property appraisals that STILL dominate the marketplace. 

The absence of any sense of reality is all around us in Arizona. I know of one case where Coldwell Banker, easily one of the most prestigious realtors, actually put lots up for sale asking $40,000 when the tax assessed value is barely one quarter of that amount and the area has now dried up — no natural water supply without drilling thousands of feet or hauling water in by truck. Residents in the area and realtors who are local say the property could fetch at most $10,000 and is unsalable until the water problem is solved. And here in Arizona we know the water problem is not only not going to get solved, it is going to get worse because of the “theory” of global climate change.

This “underwater” mess is political not financial. It wouldn’t exist but for the willingness of the government to stay in bed with banks. The appraisals they used to grant the loan were intentionally  falsified to “get rid of” as much money as possible in the shortest time possible, to complete deals and justify taking trillions of dollars from investors. The appraisals at closing were impossibly high by any normal industry accepted standard and appraisers admit it and even predicted it it in 2005. Banks coerced appraisers into inflating appraisers by giving them a choice — either come in with appraisals $20,000 over the contract price or they will never get work again.

The borrower relied upon this appaisal, believing that the property value was so hot that he or she couldn’t lose and that in fact, with values going so high, it would be foolish not to get in on the market before it went all the way out of reach. And of course there were the banks who like the cavalry came in and provided the apparently cheap money for people to buy or refinance their homes. The cavalry was in a movie somewhere, certainly not in the marketplace. It was more like the hordes of invaders in ancient Europe chopping off the heads of men, women and children and as they lie dying they were unaware of what had happened to them and that they were as good as dead.

So many people have chosen death. They see the writing on the wall that once was their own, and they cannot cope with the loss of home, lifestyle and dignity. They take their own lives and the lives of those around them. Citi contributes a few million to a suicide hotline as a PR stunt while they are causing the distress through foreclosure and collection procedures that are illegal, fraudlent, and based upon forged, robosigned documents with robo-notarized attestations  that the recording offices still won’t reject and the judges still accept.

There is no real real economic recovery without reality in housing. Values never went up — but prices did. Now the prices are returning back to the values left in the dust during the big bank push to “get rid of” money advanced by investors. It’s a game to the banks where the homeowner is the lowly deadbeat, the bottom of the ladder, a person who doesn’t deserve dignity or relief like the bank bailouts. When a person gets financial relief from the government it is a “handout.” When big banks and big business get relief and subsidies in industries that were already profitable, it is called economic policy. REALITY CHECK: They are both getting a “handout” and economic policy is driven by politics instead of common sense. French arisocrats found that out too late as their heads rolled off the guillotine platforms.  

But Iceland and other places in the world have taught us that in reality those regarded as deadbeats are atually people who were herded into middle class debt traps created by the banks and that if they follow the simple precept of restoring victims to their previous state, by giving restitution to these victims, the entire economy recovers, housing recovers and everything resumes normal activity that is dominated by normal market forces instead of the force of huge banks coercing society and government by myths like too big too fail. The Banks are doing just fine in Iceland, the financial system is intact and the government policy is based upon the good of the society as a whole rather the banks who might destroy us. Appeasement is not a policy it is a surrender to the banks.

Cities with the Most Homes Underwater

Michael B. Sauter

Mortgage debt continues to be a major issue in the United States, nearly six years after home prices peaked, according to a report released Thursday by online real estate site Zillow. Americans continue to owe more on their homes than they are worth. Nearly one in three mortgages are underwater, amounting to more than 15 million homes and a total negative equity of $1.19 trillion.

In some of America’s largest metropolitan regions, however, the housing crash dealt a far worse blow. In these areas — most of which are in California, Florida and the southwest — home values were cut in half, unemployment skyrocketed, and 50% to 70% of borrowers now find themselves with a home worth less than the value of their mortgage. 24/7 Wall St. reviewed the 100 largest housing markets and identified the 10 with the highest percentage of homes with underwater mortgages. Svenja Gudell, senior economist at Zillow, explained in an interview with 24/7 Wall St. that the markets with the highest rates of underwater borrowers are in trouble now because of the rampant growth seen in these cities prior to the recession. Once home prices peaked, which was primarily in late 2005 through 2006, all but one of these 10 housing markets lost at least 50% of their median home value.

Making matters worse for families with high negative equity in these markets is the increased unemployment. “If you have a whole lot of unemployment in an area, you’re more likely to see home values continue to decline in the area as well,” says Gudell. While in 2007 many of these markets had average or below average unemployment rates, the recession took a heavy toll on their economies. By 2011, eight of the 10 markets had unemployment rates above 10%, and three — all in California — had unemployment rates of above 16%, nearly double the national average.

24/7 Wall St. used Zillow’s first-quarter 2012 negative equity report to identify the 10 housing markets — out of the 100 largest metropolitan statistical areas in the country — with the highest percentage of underwater mortgages. Zillow also provided us with the decline in home values in these markets from prerecession peak values, the total negative equity value in these markets and the percentage of homes underwater that have been delinquent on payments for 90 days or more.

These are the cities with the most homes underwater.

10. Orlando, Fla.
> Pct. homes w/underwater mortgages: 53.9%
> Number of mortgages underwater: 205,369
> Median home value: 113,800
> Decline from prerecession peak: -55.9%
> Unemployment rate: 10.4% (25th highest)

In 2012, Orlando moved into the top 10 underwater housing markets, bumping Fresno, Calif., to number 11. From its prerecession peak in June 2006, home prices fell 55.9% to $113,800, a loss of roughly $90,000. In 2007, the unemployment rate in the region was just 3.7%, the 17th-lowest rate among the 100 largest metros. By 2011, that rate had increased to 10.4%, the 25th highest. As of the first quarter of this year, there were more than 205,000 underwater mortgages in the region, with total negative equity of $16.7 billion.

9. Atlanta, Ga.
> Pct. homes w/underwater mortgages: 55.5%
> Number of mortgages underwater: 581,831
> Median home value: $107,500
> Decline from prerecession peak: 38.8%
> Unemployment rate: 9.6% (37th highest)

Atlanta is the largest city on this list and the eighth-largest metropolitan area in the U.S. But of all the cities with the most underwater mortgages, it has the lowest median home value. In the area, 55.5% of homes have a negative equity value. With more than 500,000 homes with underwater mortgages, the city’s total negative home equity is in excess of $38 billion. Over 48,000 of these underwater homeowners, or nearly 10%, are delinquent by at least 90 days in their payments, which is also especially troubling. With home prices down 38.8% since June, 2007, the Atlanta area certainly qualifies as one of the cities hit hardest by the 2008 housing crisis.

8. Phoenix, Ariz.
> Pct. homes w/underwater mortgages: 55.5%
> Number of mortgages underwater: 430,527
> Median home value: $128,000
> Decline from prerecession peak: 54.2%
> Unemployment rate: 8.6% (44th lowest)

At 55.5%, Phoenix has the same percentage of borrowers with underwater mortgages as Atlanta. Though Phoenix’s median home value is $21,500 greater than Atlanta’s, it experienced a far-greater decline in home prices from their prerecession peak in June 2007 of 54.2%. This has led to a total negative equity value of almost $39 billion. The unemployment rate also has skyrocketed in the Phoenix area from 3.2% in 2007 to 8.6% in 2011.

7. Visalia, Calif.
> Pct. homes w/underwater mortgages: 57.7%
> Number of mortgages underwater: 33,220
> Median home value: $110,500
> Decline from prerecession peak: 51.7%
> Unemployment rate: 16.6% (3rd highest)

Visalia is far smaller than Atlanta or Phoenix and has less than a 10th the number of homes with underwater mortgages. Nonetheless, the city has been especially damaged by a poor housing market. Home values have fallen dramatically since before the recession, and the unemployment rate, at 16.6% in the first quarter of 2012, is third-highest among the 100 largest metropolitan statistical areas, behind only Stockton and Modesto. Presently, almost 58% of homes are underwater, with these homes carrying a total negative equity of $2.6 billion dollars.

6. Vallejo, Calif.
> Pct. homes w/underwater mortgages: 60.3%
> Number of mortgages underwater: 44,526
> Median home value: $186,200
> Decline from prerecession peak: 60.6%
> Unemployment rate: 11.4% (16th highest)

In the Vallejo metropolitan area, more than 60% of the region’s 73,800 homeowners are underwater. This is largely due to a 60.6% decline in home values in the region from prerecession highs. Through the first quarter of this year, homes in the region fell from a median value of more than $300,000 to just $186,200. Of those homes with underwater mortgages, more than 10% have been delinquent on mortgage payments for 90 days or more.

5. Stockton, Calif.
> Pct. homes w/underwater mortgages: 60.3%
> Number of mortgages underwater: 60,349
> Median home value: $146,500
> Decline from prerecession peak: 64.3%
> Unemployment rate: 16.8% (tied for highest)

With an unemployment rate of 16.8%, Stockton is tied for the highest rate among the 100 largest metropolitan areas. Few cities have been hit harder by the sinking of the housing market than Stockton, where 60.3% of home mortgages are underwater. Though there are only 100,014 houses with mortgages in Stockton, 60,348 of these are underwater and have a total negative home equity of slightly more than $6.9 billion. Meaning, on average, homeowners in Stockton owe at least $100,000 more than their homes are worth.

4. Modesto, Calif.
> Pct. homes w/underwater mortgages: 60.3%
> Number of mortgages underwater: 46,598
> Median home value: $130,600
> Decline from prerecession peak: 64.5%
> Unemployment rate: 16.8% (tied for highest)

Since peaking in December 2005, home prices in Modesto have plunged 64.5%. This is the largest collapse in prices of any large metro area examined. As a result, 46,598 of 77,222 home mortgages in Modesto are underwater. Meanwhile, the unemployment rate rose to 16.8% in 2011. This number was 7.9 percentage points above the national average of 8.9% and almost double Modesto’s 2007 unemployment rate of 8.7%.

3. Bakersfield, Calif.
> Pct. homes w/underwater mortgages: 60.5%
> Number of mortgages underwater: 70,947
> Median home value: $116,700
> Decline from prerecession peak: 57.0%
> Unemployment rate: 14.9% (5th highest)

From its peak in May 2006, the median home value in Bakersfield has plummeted from more than $200,000 to just $116,700, or a 57% loss of value. From 2007 through 2011, the unemployment rate increased from 8.2% to 14.9% — the fifth-highest rate in the country. To date, more than 70,000 homes in the region have underwater mortgages, with total negative equity of just over $6 billion.

2. Reno, Nev.
> Pct. homes w/underwater mortgages: 61.7%
> Number of mortgages underwater: 46,115
> Median home value: $150,600
> Decline from prerecession peak: 58.3%
> Unemployment rate: 13.1%

There are fewer than 75,000 households in Reno, Nevada. Yet 46,115 home mortgages in the city are underwater, accounting for 61.7% of mortgaged homes. From January 2006 through the first quarter of 2012, home prices were more than halved, and negative home equity reached $4.39 billion. Additionally, the unemployment rate almost tripled in rising from 4.5% in 2007 to 13.1% by 2011. In 2007, Reno had the 54th-worst unemployment rate among the 100 largest metros. By 2007, Reno had the eighth-worst unemployment rate.

1. Las Vegas, Nev.
> Pct. homes w/underwater mortgages: 71%
> Number of mortgages underwater: 236,817
> Median home value: $111,600
> Decline from prerecession peak: 63.2%
> Unemployment rate: 13.9%

At 71%, no city has a greater percentage of homes with underwater mortgages than Las Vegas. The area with the second-worst percentage of underwater mortgages, Reno, has less than 62% mortgages with negative. The corrosive effects the housing crisis had on Las Vegas are evident in the more than 200,000 home mortgages that are underwater, 14.3% of which are at least 90 days delinquent on payments. Additionally, home values have dropped 63.2% from their prerecession peak, the third-greatest decline among the nation’s 100 largest metropolitan areas. Largely because of the collapse of the area’s housing market, unemployment in the Las Vegas area has soared. In 2007, the unemployment rate was 4.7%, only marginally different from the nation’s 4.6% rate. Yet by 2011, the unemployment rate had increased to 13.9%, considerably higher than the nationwide 8.9% unemployment rat.e.


Mortgage Meltdown: Towns File Bankruptcy: Vallejo

Housing Crisis Bankrupts Vallejo

The crisis caused by dramatic changes in the home lending markets has claimed a new victim.  This time it is not a bank or mortgage lender, it is instead a working class suburb of San Francisco that has filed for bankruptcy protection.

A recent post by Adam Levitin on the Credit Slips blog site calls attention to the city of Vallejo, California, that on May 23, 2008, become the first city to have filed for Chapter 9 bankruptcy as a result of the plummeting home prices.  Although Vallejo stands out as a community particularly hard hit by the housing crisis – as one where the housing bubble was disproportionately bloated, and where city government used unrealistic revenue projections to live beyond its means – it is hardly unique.  The City of Vallejo website has a special set of pages containing the documents filed in the Chapter 9 case and a copy of the court docket for the pending case.

The experience in financial markets of the last year ought to teach us that one default, caused by what John Quigly, professor of Economics at University of California, Berkeley called in a Times interview “a low level of infection everywhere”, is a harbinger of many more as the problems work their way down the queue from the most egregious to the garden-variety.

I’m not an expert on macroeconomics, but it does not look to me as if HR 5818, The Neighborhood Stabilization  Act of 2008, is a viable solution to the problems facing Vallejo or any other community in a similar position.  A key provision of this bill, which just passed the House of Representatives, has the Federal Government extending loans, through states, to communities that would in turn loan the money to individuals to buy up and rehabilitate foreclosed properties.  Presumably a city that had already declared bankruptcy wouldn’t qualify.  For one a little less embroiled in a similar morass to borrow large sums of money, albeit under attractive terms, in order to allow individuals whose incomes may well drop in the next few years to incur debt for houses whose value, most probably, is still above a sustainable level, simply postpones the day of reckoning and ensures that the final bottom will be even more painful.

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