The recent devastating foreclosure crisis has raised the issue of ethical capitalism. Capitalism has slipped in morality. Since the eruption of the catastrophe the palliatives have concentrated on capital, restructure of the system and equity. These have to be addressed – there is no doubt about that. But it is much more important that the dearth in morality and humanity should be probed into as these are the basic faults that led to the crisis. Without remedying these defects the country is doomed to see a rerun of the same problems. Sound ethics has to be applied to economic behaviour.

In the last couple of years economics has ignored or forgotten that finance is the ruled and not the ruler The modern day morality on the other hand has allowed the market to rule; it is the market that is permitted to take the decisions. We have become one with the market and forgotten that its real reason for existence is to share the blessings of this earth with a wide community. The money makers created credit out of zero negating the role of the creator.

There is no doubt that capitalism is the best route to improvement of the living standards of the common man. It is exactly for this reason that it is the duty to create wealth. George Osborne, the shadow chancellor of Britain has stressed on the fact that business enterprises must be encouraged and supported so that the entire society benefits. But the condition is that individual business must be based on widely accepted human values.

This was very well understood by Adam Smith. Smith has erroneously been depicted as a rabid advocate of tooth and claw competition. He believed that no economy could function smoothly without being based on ethics. He did not think that people should go about their work completely disregarding each other’s welfare.

Why has this happened in business? How is it that ethics no longer holds any place in it? Basically the short term gains from globalization have blinded the policy makers and doers. One has lost sight of long-term benefits. It is the people that make up the market and the global market is not outside this rule.

Society in general is the omnipresent partner in all business ventures – including financial dealings. To ignore it is to insult to mankind. Yet this is exactly what has been allowed to happen. Capitalism must be yoked again to its moral moorings.

Florida is one of the worst foreclosure affected states. The general tendency has been to point the accusing the finger at the borrowers for contracting mortgages well beyond their means. But recent surveys are showing that a nexus between politicians, bureaucracy and financial entities caused the bubble and subsequently the burst. Ultimately the entire nation is paying for it in the form of the Great Recession.

Larry Pioli is in his early fifties and lives in New Tampa’s Grand Hampton development upscale region. He has been a developer for a long time and invested in properties. He own three houses – two of these have been foreclosed upon. Pioli points his accusing finger at others for his woes. He said, “I’m very disappointed in the mortgage companies, the banks, the government — everybody who let the market get out of control.”

The situation is not special to Hillsborough County. In Pasco County the speculators, heady with easy flowing credit merrily went on constructing and today these have turned into ghost towns. In Pinellas County the high prices have fallen to the dust having dropped by a third from 2006. In Hernando County the foreclosure numbers are close to that in the Tampa Bay region.

Professor Sean Smith of University of Central Florida said, “So many people thought they could make a lot of money flipping. They created their own demand for housing. Now we’re left with an excess supply. We’re in for a difficult time.”

It cannot be denied however that many of the homeowners in Hillsborough did get over ambitious during the years of boom. Some bought houses beyond their levels; others used their houses like piggy banks contracting second mortgages that caused them to be buried under a burden of debt.

Times analyzed 11,967 foreclosures and found a minimum of 44% did not have homestead-exemption – it being a tax-break given to those who use the house as their primary residence. These are the units that most probably have been bought by the flippers said Tim Wilmath of Hillsborough County Property Appraiser’s Office. These investors had a never ending greed for houses. This was satisfied at that time with interest rates being low and increasing property prices. The mortgages required practically no documentation and this pushed developers into a tizzy of house building in some regions off city limits where land was relatively cheaper. The whole show however entailed the tax payer putting in huge amounts to build the infrastructure – roads, water and sewer lines and police posts to name the few among the many requirements. This is what ultimately did happen.

Um dos estados mais afetados pela crise de foreclosures foi a Flórida. Muitas indagações são feitas a respeito da causa desse estouro, porém uma coisa é certa: toda a nação está pagando por ele sob a forma de a recessão grande.

The foreclosure climate has led to sprouting of many nefarious doings – one being the activities of unlicensed contractors. One such person has been caught by BSO agents disguised as owner of foreclosed home.

Posed as a father who is buying a house for his daughter, the two of them consulted a contractor discussing the repair of the gutted kitchen and other renovations. The contractor had been contacted online. The father jotted down the details of the jobs and the price when two officials in bullet proof vests stormed in shouting, “Broward Sheriff’s Office.” The contractor who was without a licence was placed in handcuffs and taken away.
BSO deputies (Professional Regulation staff) had disguised themselves as a father and daughter pair repairing a foreclosed house. They were asked to offer bids for the house in Cooper City.

The same types of operations are being carried on across the state recently – the concentration being in Palm Beach and Miami-Dade counties. The state agency organizes such crackdowns every quarter to nab unlicensed contractors. 19 professions are named on its regulatory list.

Detective Daniel Belvue of BSO said, “We try to stick to people doing work that could cause safety issues. If you improperly install exterior doors, they could blow in during a hurricane.”

In these two counties the residents had filed as many as 603 and 141 complaints about unlicensed construction and electrical contractors respectively in 2008. With the economy slumping further the regulators are expecting more such nefarious activities. Unemployment is pushing people over the edge. The unemployed are hunting or any kind of odd jobs and the home owners are likewise seeking cheap contract rates.
Belveu is himself a licensed contractor. He took on the role of the parent and had previously been wired to tape the conversation. The BSO got the necessary permission to set the stage in an empty foreclosed house. The main room was fitted with secret video cameras that were monitored by other officials hiding in the bathroom.

The arrested man was charged and ordered to stop taking on jobs until they got a licence. They were instructed about how to apply for the same.

The authorities had a dual purpose in operating these raids – to bring home the message to the professionals that they must register themselves or face trouble, as well as to warn the house owners of the dangers of employing unlicensed contractors.

Foreclosures have swallowed up as many as 6,000 houses including rented accommodation since 2008 January. There is hope that with the passage of a bill by Rhode Island General Assembly the pace will slow down.

It was a historical session of the assembly that witnessed the passage of a landmark bill. It mandates lenders to take two extra steps before initiating foreclosure proceedings. If the bill is given the green signal by Governor Carcieri then lenders will have to give the borrowers a notice of 45 days before kicking off the foreclosure process. The lenders would also be expected to inform the borrowers that they can seek counseling free of charge in this matter.

The housing advocates opine that by the bill the borrowers will get some time to organize themselves and renegotiate with the lenders. Brenda Clement of Housing Action Coalition of Rhode Island said, “It’s another tool in the tool belt, in the process to try to keep people in their homes. Anything that tries to get them alerted to ‘you’ve got a problem’ is a good thing.”

Although there were laurels for the bill from the advocates who had been waiting for over a year to see the legislators act on it, others were not happy and said that the bill is equally noted for what it is not doing. The bill does not state that the lenders have to face the borrowers across the table. It does not mandate that notices have to be given to tenants regarding impending foreclosures. The bill does not also specifically state that the foreclosure proceedings are guided by the laws of the state and not by local ordinances like those taken in Providence and Cranston.

Jim Hahn of Rhode Island Mortgage Bankers Association said that group of bankers and bodies fighting for tenants rights had wanted another type of bill that would have given more protection to the borrowers and clearly stated that the foreclosure cases must be dealt with by state laws. He remarked that he is surprised that such a bill was not passed. He said, “The real risk here is that if you end up with a crazy quilt of different ordinances in each municipality, you run the risk of lenders saying, you know what, it’s too complicated. The end result will be to increase the cost of borrowing in Rhode Island.”

]]> http://www.governmentrepohomes.com/blog/foreclosure/bill-passed-rhode-island-general-assembly-contain-foreclosures/feed/ 0 http://www.governmentrepohomes.com/blog/foreclosure/foreclosure-crisis-has-taken-new-turn/ http://www.governmentrepohomes.com/blog/foreclosure/foreclosure-crisis-has-taken-new-turn/#comments Mon, 16 Nov 2009 16:34:41 +0000 Chris Carroll http://www.governmentrepohomes.com/blog/?p=1693

State Attorney Generals, recently empowered by Supreme Court, are filing suits against the big mortgage lenders alleging fraudulent activities. Baulked by the banks adamancy and non-cooperation in taking steps to contain the flood of foreclosures they are now thinking of taking legal action for making these exotic loans and then selling them to gullible buyers. Having done this they are now doing practically nothing to modify the loans to realistic levels.

Till recently filing such cases would not have been possible but now the picture has changed with the federal regulators having oversight rights over national banks. A Supreme Court decision (5 to 4) of June permits the states to enforce their own regulation. This is now a powerful tool in their hands.

Terry Goddard the Attorney General of Arizona said, “We tried to use the tool to be persuasive with the banks. But their waterfall of excuses, the abysmal numbers of modifications, tells us persuasion is not working.” Consequently they are shifting “closer to litigation.”

Each state bans fraudulent consumer lending although specifics vary from one state to another The Attorney Generals are mulling over the probability that the lenders perpetrated a massive network of fraud, netting consumers by peddling risky loans that they knew from the very beginning would be impossible for the borrower to repay.

During the time of the housing boom the banks raked in huge fees for a short time of bonanza from making these loans. Then the banks sold them quickly to various investors including Fannie Mae and Freddie Mac – the two housing agencies backed by the federal government. Eventually the situation became so volatile that taxpayer’s dollars had to be used to bail out the very banks that had started this mayhem.

The Mortgage Bankers Association did not make any comments on the potentiality of filing of lawsuits by the states. John Mecham, speaking on behalf of the association said that if this happened it would be the consumers who would be at the receiving end and paying for the legal move. Mecham said, “Lawsuits add to the patchwork of regulations that increases compliance costs for lenders, which in turn increases the cost of credit for borrowers.”

The newly acquired power of the states to take legal action against banks began with the move made in 2005 by Eliot Sptizer who was at that time the Attorney General of New York. Efforts were made to find out if the several banks had infringed the fair lending laws of the state.

Right across the country many cities are launching programmes that are able to keep the abandoned foreclosed units in good condition. The code enforcement personnel of the cities armed with the programmes, said that these mandates are going far in keeping a check on crime and the properties in reasonably good order.

Lynda Carter is the code enforcement supervisor of Montebello. She said, “Many times when the previous owners will abandon a property, we’ve had teenagers partying in them, breaking in, transients trying to live in them. They are totally un-maintained and they are bringing down the whole neighborhood.”

Most of the legalities rule that the lenders are to inform the city authorities about the vacant units and take care of these. Few months previously Montebello implemented this law relating to abandoned houses and has already had 9 owners registering with the authorities. As per the programme the lenders are required to contribute $120 and register the vacant units.

Repeated calls to California Bankers Association’s spokesperson Beth Mills have remained unanswered.

The property that has been registered has to be maintained or the lender should be prepared to face fines touching $1,000 per day.

In Le Puente and Covina similar programmes have been launched with minor variations. In both cities the registration fee is $100. Bobbie Kemp speaking on behalf of Covina said, “This gives us a tool to utilize to get properties looking a bit better.” The programme in Covina started from 2008 September. Kemp added, “(The property) may not always look like the neighbors want them to look, but at least it’s not a health and safety hazard.”

Dan Holloway of Puent said that these laws were intended to make the owner take responsibility for the maintenance of the unit. It should not be allowed to run to seed for months attracting crime and disease. He said, “The concern was there were a lot of properties out there that had been foreclosed on, people had moved out, and nobody was really monitoring them.” The programme kicked off in La Puente from 2008 November. 51 properties have been registered so far said Louie Lujan the Mayor.

Till now the progress and success of the code enforcement programmes have been satisfactory. The banks are sitting up to its obligations.

Holloway said that apart from the blight there is concern about stagnant waters in pools and fountains that provide excellent breeding ground for the West Nile virus.

The US economy is going through a turbulent phase. Unemployment is at its peak and as people lose jobs, they are faltering on mortgage payments. Hence, foreclosures have become common. The Federal government has come up with a $75 billion scheme to help homeowners. As a part of this program, homeowners would get assistance that would help them to modify loans.

For quite sometime, the homeowners had complained that the program has been riddled with bureaucratic bungles. There is confusion as lenders became swamped with calls from innumerable homeowners. However, the Obama administration is now confident that the program has at last gathered steam. It has put pressure on companies to move quickly so that more homeowners are helped.
Now 500,000 homeowners have had their loans modified as part of the program. Loan payments have now been lowered faster. Roughly 40 per cent of the total 1.2 million homeowners have received help so far.

It is an important development that so many families are getting assistance. This is driving down their housing cost. However, economists are not very sure if the program would stabilize the housing sector in the future. Will it prevent many more people from losing their homes, they ask?

The chief economist of Moody’s Economy.com, Mark Zandi says that it may not put an end to the foreclosure crisis. Zandi reckons that by 2010 more than four million people will lose homes to foreclosure. Short sales would also be common as more and more homeowners sell their homes for less than what they owe to the banks.

The experts also observe that the loans of half a million people that have been modified are on trial. When these same loans undergo permanent modification, then there will be more bureaucratic bungling.

Experts are also not sure whether the loan modification is actually reducing the principal amount or merely prolonging the loan period by way of lower payments. If the principal balances are reduced then the homeowners are less likely to become delinquent. This is very important to save those whose homes have a negative equity meaning they owe more than what their homes are worth.

A lawyer with the National Consumer Law Center Diane Thompson says that people, whose homes are underwater, tend to default more. They have absolutely nothing to fall back on if they need to sell their house for some reason. Many homeowners are still not happy with the way the program is progressing.

Barbara Simonson is a nonagenarian. Even after taking six loans during six years she had to admit defeat to foreclosure. WaMu loans stripped her house worth millions dollars of a good slice of the equity.

For more than 50 years Simonson had resided on a high point with a magnificent view of Puget Sound in the Blue Ridge locality of Seattle. Her deceased husband was an architect of repute and had made the design for the house. Simonson loved to watch the sailing boats and was sure that it was here that she would spend her last days. But even at the age of 90 fate tricked her out of her wish.

Simonson was compelled to sell, after the mortgage loans of Washington Mutual taken through 6 years pecked away a good amount on her million dollar residence. The loans were sanctioned by the same loan officer in Northgate. The loans were too complicated for a nonagenarian widow and a survivor of a stroke to understand.

It was only when a reporter was perusing her loan documents with her that she woke up to the fact that it was an exotic loan with adjustable interest rate. She bemoaned bitterly that math was not one of her strong points in school.
For many years Simonson had banked with Washington Mutual – her trust was great. Her social security cheque amounting to $1,270 was directly deposited with the bank. Trouble started when she borrowed over $500,000 keeping her house as security. The money was meant for her son. He was a contractor but after going to Iraq stopped sending money.

Simonson started getting worried and visited the loan centre of WaMu in Northgate. She talked to Patricia Collins, a loan officer, for availing of a loan with lower interest rate. Collins widely inflated Simonson’s income but is not available for comment to explain this action.  In good faith unquestioningly the old lady inked her signature on all the related documents. But when Simonson’s repayment amount increased she contacted the same bank and taking their advice refinanced into another loan. She was given an ARM loan that started off with easy payments but piled up to deadly amounts. She was made to pay $11,000 as fees. Her monthly payment finally shot up to double her income.

Helen Howell formerly of Department of Financial Institutions of the state said, “What Mrs. Simonson experienced was unconscionable. She was victimized by the raw pursuit of profit without regard for the impact on her as a customer.”

With the number of foreclosed houses increasing Millstone officials have decided to wage war on this menace. The abandoned units are causing health problems and this has led to the city deciding to pass ordnances.

On 21st October the Township Committee passed the ordnance by a vote of 3:1. The dissenting voice was that of committee person Elias Abilheira . Another committee person Fiore Masci was not present. A public hearing was held on 4th November.

Nancy Grbleja the mayor of Millstone said that the ordnance was aimed at making the owners of the vacant houses take steps to maintain these. The ordnance deals with foreclosed houses as well as unkempt vacant plots taken over by vagrants and garbage.

In some instances the town authorities had to issue summons to the owners regarding the derelict condition of the properties. If the summons does not produce responses then the town authorities would dispatch employees of the public works department (DPW) to do the cleaning job. A lien would then be placed on the property so as to realize the expenses.

Grbelja explained that the recent ordinance would be applied to cases where the house after having undergone foreclosure is left abandoned and the summons have remained unanswered. She said, “There are some houses in foreclosure that look like a mess. It’s been years (since they were cared for) and the place looks like a trash pit.”

Originally the ordinance had detailed that either the owner, tenant or anybody occupying any house or plot of land in the town, excluding marked conservation areas, are bound to keep the place trimmed and weeded. Grass should not grow beyond 6” and there should be no dead trees, dry roots and offensive growth or garbage and solid waste lying around.

Abilheira wanted to change the language referring to brush and grass to be erased. He noted that within 10 acre zones he would not like the residents cut down grass and brush only for the purpose of having undulating lawns.

After lengthy discussions the committee decided to alter the language and make the ordinance read, “keep established lawn areas free of grass 10” or higher.”

The head of DPW, Kenn Gann said that his staff has cleared properties where the grass and the weed have exceeded 12” in height and where trash had piled up.  He said, “It’s taken three hours to cut lawns like that.”

Foreclosures are plaguing the country – with half sunk in it and half trying to make a killing out of it. The number of foreclosures is staggering. The story does not end there. A massive number of ARM loans are poised to reset. The end seems to be nowhere near. The situation is giving the opportunity to many to buy a house that had seemed impossible during the boom years.
But the novice and hasty buyer should be careful for there are many hidden traps and pitfalls. Investors are descending in droves to take the best advantage of properties going for peanuts.

However it is not realistic to think that in prime locations the price will be down by 50%. The realistic approach would be 20% below the local market value. For prospective buyers of foreclosed properties the starting point should be to look into the price and the condition of the unit. But there is more to making the best deal.

Sean O’Toole of ForeclosureRadar.com said, “This can happen two different ways. The under-priced properties get a ton of activity and go quickly, but you can really get a better deal on an overpriced property.” A property that is over-priced will not get much attention and would most likely hang around like a wallflower for over a year. Thus if someone makes an offer the bank will immediately bestir itself.

Broker Aaron Lewis of The Lewis Team, California said, “For the homebuyer who’s up for the challenge, it can mean getting a property at less than market value. If the home is listed at $170,000 and needs $10,000 worth of repairs, take a look at comparable properties in the area. If the house would be worth $200,000 with the repairs done, then you’re getting a $200,000 property for $180,000 and that’s a great deal.”

Chappy Adams of Illustrated Properties in Florida said, “Lenders are often making significant repairs, replacing major items or offering repair assistance.” If once the house is repaired it becomes automatically a future good investment.
The prudent buyer would do well to comb through the locality keeping a sharp eye for well maintained yards, easy accessibility to shopping zones, commuting facilities and educational institutions. Jim Mazziotti of EXIT Realty Bend warns, “If there are a lot of homes in one neighborhood that are in foreclosure, be wary. Adams adds, “Some lenders are favoring cash transactions over finance purchases and taking deeper discounts to sell the property.”