Most people tend to think of the media as a means to inform the public. Not the D&C. They see themselves as a vehicle for delivering messages they believe we need to hear for our own good. Whether or not that is the truth is irrelevant.
Take the opinions plummed from the local pool of “experts,” that the Bear Stearns deal isn’t going to have any effect on Rochester at all. Oh, heavens, no! We’re all going to be fine, because we all live in the Monroe County Smug Bubble, unlike all those poor bastards that live elsewhere.
Keep in mind that only 2% of the total national mortgage market is in foreclosure. What does 2% of the Rochester/Monroe County market look like? Well, not much at all. Yet 2% of the nation-wide market is enough to cause a recession (“or at least near, a recession,” in the words of the D&C), so what does that same 2% do to our economy here?
Well, that kind of question is just not acceptable to the D&C. I keep trying to answer that question, lacking as I do the resources of the D&C, but they patently refuse to cover the story at all. Rather, they’d prefer to hear from people who speak of “The Market” as though it was some sort of god, rather than the collective actions of fallible men:
Experts: Area has no bubble to burst | democratandchronicle.com | Democrat and Chronicle
“This is the market’s way of letting other (investment) firms know they should avoid the excesses of Bear Stearns,” Conboy said. “They shouldn’t play the way Bear Stearns played.”
As the news of Subprime foreclosures increases its dominance in the media and as more and more dire news comes out about our economy, it begins to manifest itself here in Rochester, even though most of the problems associated with the ARM market are well away from our modestly-priced homes. The RBJ reports that local sales of homes decreased a breath-taking 27% from January to February. This despite the fact that home values in Rochester have actually seen an 11% jump since this time last year, unlike elsewhere. Also, the stock of available homes in Rochester is decreasing slightly, which will also serve to keep our home prices steadily rising.
Irondequoit just increased the assesments of their homes and that made the news, but an 11 jump across the board is definitely worth noting. . .
Elsewhere, a source close to me who has been dealing with a subprime mortgage in foreclosure just told me that the bank called them and unilaterally renegotiated the price and mortgage on the home. One minute, they were demanding $3000 or the mortgage was going bye-bye; the next minute, they told the borrowers what the new mortgage price would be and that there would be no escrow for taxes and insurance. No questions, no explanations, that’s it.
This may or may not indicate a tipping point, wherein banks have finally decided that taking a loss on one property that’s still generating revenue is better than taking a loss on a property that is sitting empty and generating squat. That makes some sense, given the level of foreclosure across the country, and there’s no wisdom in shaking what is an otherwise stable realty market in Rochester. Time will tell.
I’m curious to see if other borrowers have experienced this same curious turning? If you’ve had similar dealings or know someone who has, please contact me and let me know. We can keep your information confidential!
Whenever you hear about financial institutions being bailed out using “Depression-era procedure,” that’s something that should probably raise the red flag:
Talking Points Memo | Fed pledges to supply cash
The Federal Reserve invoked a rarely used Depression-era procedure Friday to bolster troubled Bear Stearns Cos. and said it will provide even more help to combat a serious credit crisis.
A study conducted by an umbrella of organizations including the Neighborhood Economic Development Advocacy Project in New York concludes that there were additional pressures on black and Latino borrowers to take the high-risk subprime mortgages that have now become such a huge problem:
Report: Minority US neighborhoods have disproportionate burden of subprime loans – News Wires – CNBC.com
The survey focused on lending to minority urban markets in New York, Los Angeles, Chicago, Boston, Cleveland, Charlotte, North Carolina, and Rochester, New York. In six of these seven urban areas, high-risk lenders’ market share in minority neighborhoods was at least three times the share in white neighborhoods. . .Advocacy groups have said poor and minority borrowers who qualified for traditional loans were nevertheless steered into risky adjustable mortgages.
I don’t know the methodology of the study and I don’t discount the possibility that race may have played a factor in lending schemes for some companies, but I do note that there is no indication in this report that income levels were factored into the equation. Certainly in the City of Rochester, poorer neighborhoods have been more blighted by subprimes and foreclosures than, say, those neighborhoods bordering Brighton. And in many cases, those neighborhoods have a higher concentration of minorities. Since lower-income people were largely targeted for subprimes, once might draw the wrong conclusion unless income was taken into account.
In fact, the article seems to suggest that this study was based on communities rather than borrowers, which if true, is way off the mark scientifically speaking. To say that communities were targeted is different than saying race was targeted: that poor communities and minority communities tend to coexist in this country is another sin altogether.
And once again, we find that this report perpetuates the wrong-headed thinking that has predominated coverage of the ARM crisis:
Report: Minority US neighborhoods have disproportionate burden of subprime loans – News Wires – CNBC.com
This concentration means these minority communities will shoulder most of the negative impacts of the subprime crisis _ foreclosures, sinking property values, lower tax bases, abandoned homes and higher crime.
To re-re-reiterate the point, sinking property values are the reason that the current crisis is upon us, not the effect of said crisis. And lower tax bases are the inevitable result of lowering property values. Also, since the crisis is moving up the economic ladder, it’s probably premature to think that only those neighborhoods cited in the report will face increased foreclosure. There’s plenty of fancy homes sitting with for-sale signs out front, believe it.
Dean Baker at the American Prospect weighs in on the prospect of a bailout of the fools who got us into this current economic crisis. Rich yacht owners do not need to be bailed out, they need to be allowed to suffer their own consequences.
Put it another way: all these rich Republican types and financial bankers have spent a lot of money on lobbyists to keep the government “off their backs.” They’ve done a whole lot of work to keep the government regulations to a minimum. They wanted to be free of the government. Well, boys, bon appetito!
This and other remarkably sunny, Pollyanna observations of no consequence for you in the latest offering (or should I say “offal”?) from Rochester’s own Steven Landsburg in Slate Magazine online. His theory? Don’t worry about all those foreclosed upon homes, because someone else will move in. Don’t worry, all you suckers that got played by the banks of America: you’re helping to write the great triumphant story of some douche you’ve never heard of, and that should be it’s own reward.
Better yet, rather than trying to fix problems while our economy falls down around our ears, let’s all take a moment to realize how terribly trivial it all really is:
The case for foreclosures. – By Steven E. Landsburg – Slate Magazine
Losing your house is painful. Never having anything to lose is even more painful. How do the feds justify spending money—and, rest assured, any program to stop foreclosures will cost money—to help struggling homeowners instead of, say, the struggling homeless? Or, for that matter, a child starving in Africa? There is room for a lot of legitimate debate about how much we should be taxed to help the less fortunate. But whatever level of assistance we agree on, I’d like to see it targeted to those who genuinely are less fortunate.
O.I.C. How positively Zen. Ohhhmm. . . . . . . . .
So then, tell me how the ARM mortgage crisis helps us feed the poor in Africa or house the homeless? How did the issue of starving Ethiopians suddenly intersect with the foreclosure wave? There is, indeed, a legitimate debate to be had on how much we should pay to help the less fortunate, as logically there must also be a legitimate debate as to just how much “less unfortunate” is “less unfortunate” enough to help. So then, just as a baseline, how much has Mr. Steven E. Landsburg paid out to house the homeless?
What, precisely, is the plan for dealing with these two issues? I assume Mr. Landsburg must have a plan, and I’ll betcha its a doozie. Or perhaps not. Perhaps this is just another excuse to look the other way as people suffer; to do nothing because, golly!, there’s no much else we also haven’t done.
To paraphrase another author whose identity I can’t recall (I heard it on the Al Franken Show), it’s like your lost in the desert, dying of thirst and you happen upon Steven Landsburg. You beg him for water, and he says, “well, wouldn’t you rather have lemonade? It’s very refreshing!” So, you say yes of course, and he hands you a packet of lemonade mix.
“There you go,” he says, “just add water!”
Felix Salmon reports on an idea to have the government step in to solve the ARM mortgage crisis by financing 20% of troubled home buyer’s homes. The idea is that the home buyer now gets to pay much smaller payments and the other 20% of the house’s value just disappears down the never-never land hole of government financing.
Felix points out a number of problems, and he’s spot on with what he says. But to me, the very real problem is that the suggestion is that a government already in a shit-storm of financial problems go ahead and take on financing equity that isn’t even there in the first place. On purpose, that is.
Think about it. If the value of a $100,000 home, mortgaged in a troubled ARM mortgage, has dropped by 7%, then it’s current value is $93,000. If the government steps in and finances 20% of the original mortgage of $100,000, they’re taking on $20,000 of debt for that home. But because the home has lost value, they’re actually paying interest on a $20,000 loan for only $13,000 worth of equitable asset.
Granted, the home owner would presumably still own 100% of his house. But as an investment, a superfund worth only70% of its liquid assets is an albatross I’d rather not hang on our government.
Banks got us into this mess, banks need to get us out of it. They need to accept the losses they took on properties they over-valued in the first place. In fact, come to think of it, they’re not really losing any money anyway: they over-estimated the value of the houses, now they would simply be living with a rational price and a rational profit. They need to refinance mortgages at the new, devalued price.
Bloomberg reports on the continuing spiral of the ARM (Adjustable Rate Mortgages) market, as the much-maligned Subprime market reaches it’s apex of disaster and the problem begins to roll further up the line to prime borrowers who’ve also gotten ARM mortgages:
U.S. Mortgage Foreclosures Rise as Owners `Give Up’ || Bloomberg.com: Worldwide
Twenty percent of adjustable-rate subprime loans had late payments in the fourth quarter, a number that excludes the one of every eight mortgages already in foreclosure, the bankers group said in their report.The share of late payments for adjustable prime loans was 5.51 percent, from 3.39 percent a year earlier, and the foreclosure inventory rose to 2.59 percent, almost tripling from a year earlier.
What this all means is that there are more and more people getting behind on their mortgages in the prime market, indicating that in addition to all the current foreclosures, more may be on the way. It is curious, then, that Bloomberg insists on throwing this factually questionable line out there:
Bloomberg.com: Worldwide
Forty-two percent of new foreclosures in the fourth quarter were people with adjustable-rate subprime mortgages, given to borrowers with limited or tainted credit records, according to the report. Those types of loans accounted for about 7 percent of all mortgages, the report said.
It would be more correct to say that ARM mortgages are available to everyone, but that riskier ventures (such as people with poor credit buying homes or people buying homes above their normal credit limit) have often recently been pushed into the ARM market. The above statement does not make it at all clear whether they mean 42% of foreclosures were specifically subprime borrowers, or whether 4% of all mortgages are ARM mortgages. Those are not two of a kind. They can’t both be true, because clearly, we can see that it is not only subprime borrowers that have taken advantage of the ARM market.
As is typical of the type of reporting we’ve seen from the new sources of “the investor class,” there is an air about this article which says that the problem is greedy borrowers. I know I bang on this drum a lot, but it bears mentioning that most of these mortgages went to lower and middle class, working class folks. They went to people making, at most, $100,000 combined income, which really isn’t a lot, and they went to homes under $150,000, which is about $50,000 off the national average home price. These people weren’t buying Monticello.
For folks in this income range, small increases in personal wealth have immediate impact on the welfare of their families. In an era where our Republican president has been pushing the “Ownership Society” canard about as far as it will go; in a country where interest rates have been remarkably low for years; in an economy where the housing market is the only one growing, I think its fair to say that these people can be forgiven a bit for having tried to live up to the opportunity they were told they had. I think they are owed a bit of respect.
But instead, George Bush, the Republicans, the “Investor Class,” the banks and the media all wipe their hands of the situation and say, “well, you lived outside your means.” Huh! I thought that in the vaunted Ownership Society, you were supposed to invest to increase your means?
As a sign of just how bad things are for banks right now, Fed chairman Ben Bernanke is now recommending that they write down the debt of delinquent mortgagers in order to stem the tide of foreclosures.
What does this mean? It means that housing values have dropped like a stone across the country, to the point that people hold mortgages on homes that are now much larger than the value of their homes. For example, a home buyer might have gotten a mortgage to buy a property at $100,000, but with the decline of home values, that same home may only be worth $80,000. This trend is exactly the opposite of what’s supposed to happen with real estate investments.
So, they’ve got cheap homes, what’s the problem? Well, the problem is that they’re also getting squeezed by increased mortgage interest rates on their ARM mortgages, which is increasing their payments beyond affordable limits. Ordinarily, you’d recommend that person just go ahead and refinance. But since the property is worth less than what they owe on the mortgage principle (as opposed to the interest), our hypothetical home owner would only be able to finance $80,000. That would leave them with a balance of just under $20,000 unpaid.
Well, that’s interesting. The Wall Street Journal’s blogging community took a look at where 201k (the median price for a home in the U.S.) would be best-invested. Guess what? They picked none other than our own Rochester, NY:
In the places we searched, our dollar went the furthest in Rochester, N.Y., where we found a brand-new three-bedroom house with two and one-half baths and 2,109 square feet on more than one-half acre listed for $201,400.
In January, the number of homes sales in the city showed little change from the year before, while the median price fell 4.5% to $105,000, per Rochester’s Democrat & Chronicle.
So there are advantages to living in a city slowly losing it’s manufacturing base: our home prices haven’t been overvalued in the last decade and hence haven’t been dropping like elsewhere. The bad news? Even if it’s a good deal, no one wants to move here.
