Monday, June 23, 2008

Cities Take Desperate Measures To Help Residents Avoid Foreclosure

Praying handsTo help stop the surging tide of foreclosures some cities have decided to take matters into their own hands, or in the case of Trenton N.J., place it in God’s hands. These cities have put their creative energy to work and are seemingly willing to do whatever it takes to keep residents in their homes. A recent Associated Press article talked about several creative measures being taken by cities:

In Philadelphia, the court decided to make it mandatory for lenders and homeowners to get together to try to work a deal out before they would proceed with a Sheriff sale. In addition, the court assigned homeowners volunteer attorneys and housing counselors.

In Cleveland, the city decided to sue lenders for hundreds of millions of dollars in damages stemming from loans they deemed to be predatory. Minneapolis and Buffalo are undertaking similar lawsuits. The lenders, of course, say that these lawsuits have zero merit and that they are simply an act of desperation on behalf of the cities.

In Jacksonville, Fla., residents in distress can apply for interest free loans of $5,000 which will be forgiven if they remain in their homes for at least five years. Louisville, Ky., has a similar program but they require residents to remain in their homes for 10 years.

Los Angeles is staffing foreclosure counselors in neighborhood centers for jobs and city services in addition to working with neighborhood councils.

Perhaps the most creative and useful--or most desperate, depending on one’s beliefs--comes from Trenton, N.J. Trenton’s mayor, Douglas H. Palmer, has requested all preachers in the city to preach at least one sermon on foreclosure in June. In addition, he has asked churches to distribute to their congregations materials meant to help people facing foreclosure. Many people from the churches are even wearing T-shirts that say “Save Trenton Homes!” with numbers for a help hotline on the back.

The number of foreclosures continue to rise, and it doesn’t appear that it is about to stop any time soon. As time goes on I would expect to see continued acts such as these from desperate people. I certainly don’t blame the cities for trying--at the very least, it shows their residents that they care about them and are willing to put up a fight. However, in the end, most of these desperate measures will fail to help. Trying to keep someone in a home they can’t afford is futile. We will have to accept that the market needs to correct itself, and next time around we as homeowners need to ensure that we don’t get ourselves into homes and mortgages that are more than we can handle. This housing crisis is one big learning experience for Americans: Don’t spend money you don’t have, or in the case of lenders, don't lend money to people who can’t pay it back. I just hope the federal government doesn’t pass the big bail out deal that changes the lesson around to don’t be afraid to spend more money than you have, or be careless with your lending, because the government will bail you out if it comes to it.

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8 comments:

June 23, 2008 at 11:01 PM Anonymous said...

"I certainly don’t blame the cities for trying--at the very least, it shows their residents that they care about them and are willing to put up a fight."

Not really. It shows they only care about certain residents - probably because keeping owners in their unaffordable homes keeps prices from dropping, which keeps more tax income flowing. But what does it do to renters still waiting to buy their first home? It keeps them priced out. When a person "loses" a home that he never really could afford, and therefore never really "owned" in the first place, that home can come back on the market and be purchased by a more deserving person at a more reasonable price. Time to stop masking greed as benevolence. High home prices help noone except the government.

June 24, 2008 at 7:32 AM Eric Ames said...

Good point...although higher home prices are positive for homeowners in general, at least psychologically. Just tell someone that their home is now worth $50,000 less than is was last year and see what they say (especially if they have a large mortgage on the property). Take that with the fact that a majority of the U.S. population owns a home, and you can see why the local and federal governments are trying to at least show action. approximately 67% of the voters out there are homeowners and thus have a vested interest in seeing homes continue to increase in price...seems like that is a pretty strong reason for politicians to get involved. In addition there is of course the property tax thing that you mentioned, which is certainly a big deal for local governments, just look at Vallejo, CA.

On a separate note, I totally agree that many of these people should never have bought these homes in the first place, that the market is inflated and that renters are getting screwed in this whole thing. But don't forget about the psychological factors as well as the financial factors involved with homeowners, who again make up a majority of the U.S. population.

June 24, 2008 at 9:22 AM Nicholas Lucente said...

"SAVE TRENTON HOMES"? this seems to be the popular rant by politicians and industry insiders who stand to gain if a family remains in a home they can't afford. That way, the investors in the securities backed by those mortgages continue to have cash flows. The only way to "spin" it is to act like "people will be thrown out onto the street", the inplication being that they're going to be homeless if the bank forecloses. "They", people who are upside down on their mortgage, people who put NO MONEY DOWN, people not current on their payments (IE living rent free), "they" are better off foreclosing, moving across the street in a similar home, paying 1250 in rent instead of 3000 in mortgage, save the remainder and prosper.

June 24, 2008 at 2:38 PM Anonymous said...

What's with the praying hands image? These investors (yes "INVESTORS") made a bad bet. More importantly THE BANKS made bad bets on those investors.

There's nothing wrong with walking away from their houses. After all, they don't OWN the houses, the banks do. Let the banks collapse?

This is a free market is it not?

Why is this blog suggesting that banks need a handout from responsible citizens?

Stop making it seem like this is some kind of humanitarian crisis. Lose the lame image, and show a picture of fat cat bankers looking scared for once. Then you'll be telling the truth.

June 24, 2008 at 3:10 PM Anonymous said...

This is only the beginning. I live in california and bought a house. however the new house has lost about 100k in value. I am not upset because i have lost twice that amount in the stock market crash of 2001. One of my colleagues was lucky, she bought a house in 1990s when the local home builder went bankrupt. she got a house for 120k and 10years later that went for double the price. Then she got bolder, she bought 2 houses, one in ca and another in lasvegas. The california house she paid about 220k and by 2007 the value appraised to about 480k. She took out the equity and spent it. Now the house value has come down to 240k. she is threatening the bank that she will leave the house and refusing to pay the mortgage. The bank is willing to negotiate with this scamster because the alternative is worse , the banks cannot just sell the properties. the buyers have just disappeared.
No body even knows who owns the mortgage anymore, If the banks have sold it to fannie/freddie or unsuspecting pensionfunds, then the banks really dont care who pays or who doesnt.
The whole thing reeks of Ponzi scheme. Each trying to outfox the other. Now I understand why the scriptures say MOney is the root cause of all evil.

June 24, 2008 at 3:18 PM Eric Ames said...

In response to the anonymous commenter who posed this question: Why is this blog suggesting that banks need a handout from responsible citizens?

I think you missed the point of this blog post. And in direct response to the question above simply read the last sentence of the blog post: "I just hope the federal government doesn’t pass the big bail out deal that changes the lesson around to don’t be afraid to spend more money than you have, or be careless with your lending, because the government will bail you out if it comes to it."

I'm adamantly opposed to any sort of bailout, and the praying image was simply used to signify the desperation of these cities. They are in the case of Trenton N.J. seeking, in essence, the help of God to get them out of the mess.

June 25, 2008 at 3:15 PM Anonymous said...

"Good point...although higher home prices are positive for homeowners in general, at least psychologically."

But Eric, that's the whole problem: We went through this whole phase of having a giant Ponzi scheme where people thought abstract equity on paper was equivalent to free money. Yes, they psychologically thought that equity is tantamount to self-worth, but what should have been important was simply whether you are able to make your payment or not. If your future financial solvency is based on believing in a never-ending increase in free equity, then you are a gambler, nothing less. There is nothing positive about such a mindset.

"approximately 67% of the voters out there are homeowners and thus have a vested interest in seeing homes continue to increase in price...seems like that is a pretty strong reason for politicians to get involved. In addition there is of course the property tax thing that you mentioned, which is certainly a big deal for local governments, just look at Vallejo, CA."

Obviously. Which is why, while I agree with the sentiment of your article, I disagree with the idea that this is any kind of action of benevolence on behalf of the government. It is simply politicians doing what they believe to be politically fortuitous for themselves, even though it is bad both for the economy and for consumers in the long run. Helping greedy bankers profit from their mistakes and making foolish homebuyers feel good about themselves, at the expense of honest, hardworking taxpayers, still waiting for their chance to own a home, is not a good thing.

June 25, 2008 at 4:04 PM Eric Ames said...

It appears I may not have done a very good job expressing my personal opinions in this post. In some places I'm intending to be sarcastic and in others I am serious, so I think the true intent might have gotten lost somewhere in there.

For the record I do NOT support any sort of bailout of lenders, homeowners, or otherwise. I am firm of the belief that people must learn from their mistakes, otherwise they are doomed to repeat them.

In addition I do 100% think that politicians are pressing for action because A) They think it will help their image with the voters out there (again remembering that a majority of voters are homeowners); and B) Higher house values will help the economy and the cities pocket books (in the short term). Higher property values = higher taxes, and study after study has shown that homeowners who "believe" they have equity in their homes spend more than those who do not. Whether or not it is appropriate for people to in essence "spend their equity" or to perceive their equity as a security blanket is beyond the point, people do. Going back to the lesson piece I talked about earlier though, that is why it is so important to let this correction play out, these people need to be taught a lesson.

Hopefully that clears up any questions about my personal beliefs and the intent of the post.

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