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Why, after 8 great years of a Democratic Clinton economy in the 90's, is the party still labeled anti-business? Are you "anti-business" unless your administration is actually run by corporate interests like the current one?

So what will happen to Jersey City real estate after wall st. slows down a bit??? With this likely to happen in the next 2 years (possibly after a new president takes office who will possibly be a democrat) what will happen then? Any thoughts?

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I would only be surprised if it wasn't. The article said they're attracted to areas with great price variation because it makes seeing fraud by comps harder.

It wouldn't surprise me if siht like this was happening here!
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Mortgage Fraud Is Up


By JULIE CRESWELL - NYT
Published: May 21, 2007

ATLANTA ? The three women call themselves the All-Broad Fraud Squad.
Nearly a decade ago, concerned that mortgage fraud was threatening their pastoral towns, the women ? two full-time mothers and a mortgage executive then in their 40s ? got together to write down license plate numbers of suspicious cars in their neighborhoods, scour public documents for housing titles and deeds and seek the help of local law enforcement. At first they were ignored, written off as bored housewives.
Today, the three women ? Ann Fulmer, Alicia Sheppard and Julia Barrette ? are helping train F.B.I. agents, speaking to lending associations across the country and lecturing college students on how to identify mortgage fraud.
?For us in the industry, we could deal with mortgage fraud during the day but go to our homes at night and forget about it,? said Matt Wade with Fannie Mae in Atlanta. ?But for these gutsy women, it was personal.?
The women?s upper-middle-class neighborhoods have almost nothing in common with the places where mortgage fraud has recently made headlines ? like the more than $40 million scheme uncovered last fall in one of the poorest neighborhoods in Indianapolis.
Yet from coast to coast, these frauds often work the same way: Buyers gain control of properties at a low price and then sell them quickly at a big profit, rigging the game every step of the way by procuring bogus property appraisals and using false or stolen identities to obtain mortgages. While the scam artists profit in these flipping schemes, the lenders are ultimately the losers, left holding the bag when the loan on the home ultimately defaults.
And whether in a wealthy neighborhood or a poor one, mortgage fraud has a similar impact. For one thing, inflated appraisals can cause tax assessments to skyrocket. At the same time, neighborhoods swept up in fraud rings tend to be hit repeatedly, leaving many houses vacant and in disrepair and causing property values to plunge.
Today Georgia is finally getting its mortgage fraud problem under control. For the first time since 2002, Georgia fell from being the No. 1 state in the country in mortgage fraud to No. 4, according to a report released last Wednesday by the Mortgage Asset Research Institute. Community-based efforts like the one begun by the three women are credited with making a difference in Georgia, and Atlanta is being seen as a model by other cities struggling with mortgage fraud.
As the housing market cools and lenders, particularly those that made loans to people with riskier, or subprime, credit scores, take a much closer look at the mortgages they underwrote, evidence of mortgage fraud is growing nationwide.
The Mortgage Asset Research Institute said reports of mortgage fraud rose 30 percent for loans made in 2006 compared with those made in 2005. (The report also warned that it might take three to five years to uncover the full extent of fraud that occurred in loans made last year.)
Likewise, the number of fraud cases reported to the F.B.I. soared to 35,000 last year, from 7,000 in 2003. Those gains prompted the Mortgage Bankers Association to ask the House and Senate Appropriations Committees to dedicate $31.25 million in funds over the next five years for the F.B.I. and the Justice Department to combat mortgage fraud. Firms that track mortgage fraud say it costs banks and lenders more than $4 billion a year.
?The industry was in denial as to the extent of the problem for a long time,? said Arthur Prieston, chairman of the Prieston Group, which provides lenders with mortgage fraud insurance and training.
The Atlanta women encountered that denial when they tried to alert regulators and lenders about the suspicious activity in their neighborhoods.
Ms. Fulmer?s Smoke Rise neighborhood, west of Atlanta, where she lived for 13 years before she moved last year, is filled with 5,000-square-foot homes with manicured lawns and backyard pools.
Ms. Fulmer, a former lawyer who had been handling civil insurance fraud cases at an Atlanta law firm, moved into the neighborhood in 1992 and was on the mommy track, she said.
But around 1996, she started to hear odd stories from her neighbors. Houses that had been on the market for two years at reduced prices were being bought at one price and sold the same day for $100,000 to $300,000 more.
The effect of these frauds hit home for Ms. Fulmer around 1998, when the inflated sales prices in her neighborhood pushed up her tax assessment by 30 percent. She was furious, and set out to discover what was happening in her neighborhood.
Ms. Fulmer began digging through property deeds and sanitation and water records at the county courthouse. She was shocked to find the same names reappearing.
Around the same time Ms. Fulmer started realizing something was wrong in her neighborhood, Ms. Sheppard, a mother of three, and her husband, a lawyer, built their home in 1995 a few miles away. About a year later, five homes in Ms. Sheppard?s neighborhood nearby were bought by a company that said it would renovate them and lease them to professional football players.
Instead, nobody moved in for months, the grass grew high and packages were delivered to vacant homes, a possible sign of drug trafficking.
About six months after the homes were sold, people began moving into the homes at night. Soon loud parties and prostitutes started disrupting the once-quiet neighborhood. One evening in July 1998, after the Sheppards had watched a movie, they heard gunfire outside.
?We ran to our study window like idiots and see a guy striding down the street holding an automatic weapon,? Ms. Sheppard said.
Ms. Fulmer and Ms. Sheppard finally met in 1999 at the Smoke Rise Golf and Country Club, where they began comparing notes.
?Ann had already gone to the authorities and was accused of being a bored housewife,? Ms. Sheppard said. ?Nobody at that time understood what mortgage fraud was and the collateral crimes that go with it.?
What they needed to grab the attention of prosecutors and law enforcement, Ms. Fulmer said, was a victim ? a lender who was losing money because of fraudulent loans.
That same year, Julia Barrette, an operations manager at a Georgia-based mortgage lending company, noticed that more investors were asking the company to buy back loans that had been sold but had since defaulted.
?We started investigating the files and finding some fraud,? Ms. Barrette recalled. ?But we were lending in 13 states and did not sense any pattern at the time so we initially thought we just had some bad apples.?
But as the problem continued, the mortgage company sent out a notice in April 2000 to agents who worked on closings that said if a seller of a home had owned the property for less than 12 months ? a sign the property might be the target of a flipping scheme ? they needed to stop the closing immediately and contact the office.
Shortly after the flier went out, Ms. Barrette received a call from Ms. Fulmer. ?Are you having a problem with flipping?? she asked Ms. Barrette.
Ms. Fulmer and Ms. Sheppard had finally found their victim, a lender who was losing money because of fraud.
In July 2000, about 34 people, including state regulators, local law enforcement officials, community leaders, F.B.I. agents and representatives from the Internal Revenue Service and Social Security, met in Atlanta to persuade prosecutors that Atlanta had been victimized by widespread mortgage fraud.
While it is difficult to explain why some cities are hit harder by mortgage fraud than others, some suggest Atlanta may have been a target because of a wide disparity in the prices of homes in a single neighborhood. When there is a $100,000 house next door to a $300,000 house, it is easier for those who are planning a fraud scheme to inflate appraisals, experts say.
The grassroots effort begun by the women eventually linked a network of community leaders, industry professionals and federal regulators who now share the information they gather on mortgage fraud. The network is called the Georgia Real Estate Fraud Prevention and Awareness Coalition, or Grefpac, and it is run largely by volunteers and financed by contributions and some corporate sponsorships.
Because of Grefpac, a nonprofit group, federal prosecutors in the state now have caseloads made up entirely of mortgage fraud crimes. Two years ago, Georgia became the first state to enact legislation to specifically address mortgage fraud, and state prosecutors have more than 200 cases in their office. Other states are considering similar laws.
?I think there had been a perception that it was just the lenders who were losing money and if the lenders weren?t willing to come forward, we couldn?t prosecute the crimes,? said Gale McKenzie, an assistant United States attorney in Atlanta who attended that meeting. ?They showed the U.S. attorney at the time that there were in fact quality-of-life issues and that this was more than monetary issue.?
Some experts blame lax state regulations for fueling mortgage fraud.
Utah, for instance, is one of a handful of states that do not disclose the sale price of homes, making it easy for those who are planning a fraud to artificially inflate a home?s appraised value to obtain a mortgage. And until last year, Colorado was one of only two states that did not require mortgage brokers to be registered.
?I think when people realize the full scope of mortgage fraud out there, they?re going to find that it is substantial with a capital S,? said Ms. Fulmer, who now works for a mortgage fraud detection firm called Interthinx. ?The fraudsters have been working together for a while to commit fraud. Now it?s up to authorities and regulators to start to work together to try to stop it.?

Oh come on, ARMs adjust according to the Treasury bill rate and not the Fed funds rate. The Treasury bill rate is set by the market and not the government. Basically, if investors fear inflation in the upcoming year, your rate goes up with the yield on Treasury bills or whatever other benchmark your loan has.

The only way that politics relates to this is the Democrats' uncontrollable urge to intervene in things that aren't the business of government and f*ck up the economy. It's been a while since the Democrats held Congress and the White House for four years and I don't recall the economy under Carter fondly.

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"I agree, fAB, but it is being held artificially low while the republicans remain in the white house. When a Democrat is elected the fed will raise rates and say "see? The Democrats have ruined the economy.""

Exactly!.
Our current Turd-in-Chief is the most corrupt, incompetent, illiterate and all-around A-Hole to ever hold office in this country's history.



"It is time to let our wings take dream"
GW Bush

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I agree, fAB, but it is being held artificially low while the republicans remain in the white house. When a Democrat is elected the fed will raise rates and say "see? The Democrats have ruined the economy."

Orale El Magnifico!!

Brewster wrote (along time ago):
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I sort of feel a little vindicated when I remarked that 'siht will hit the fan' in the property market and families with mortgages will need to tighten their belts and some will lose their homes - I still believe that interest rates will increase, which will be the final nail in the coffin for some.

There's a nationwide RE crash coming very soon to a city near you.

Why?. Because (mostly Californican) mortgage lenders relaxed their lending standards more than an intoxicated hooker at a gangbang. And now those same lenders are going belly-up faster than you can say, "foreclosure", while people who had no business buying a house find themselves suddenly in Shittesville. Read on;


" Deborah Beatty recognizes that she and her family could lose their home in Jersey City, N.J., across the Hudson River from New York, because they can?t afford the mortgage. The newly constructed three-level home offers a view of the Manhattan skyline and the Statue of Liberty from Beatty?s master bedroom window.

?I?m going to miss that,? said Beatty, 53, who collects disability payments and does not work. ?When I come in, I like to see the lady (the statue), especially when it?s a beautiful clear night.?

Her 29-year-old daughter, a graduate student with an annual income of less than $20,000, qualified for a mortgage of $600,000 with no money down, split into two different loans at 8.75 percent and 12.5 percent interest rates.

With income from tenants, which didn?t come right away, Beatty?s daughter thought she could afford monthly payments of nearly $5,000.

But she hasn?t made a mortgage payment in more than three months, and she?s receiving letters threatening foreclosure."///

http://njrereport.com/

http://thehousingbubbleblog.com/

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My only problem with the above is that I don't see the buyers of a no money down deal that goes under as a victim, because they never had the money to buy the place to begin with. They didn't lose anything but a credit rating that sucked to begin with.

As the saying goes, "follow the money", to know who's the robber and who's the robbed. It's the bondholders, who are left holding the bag in this debacle, that have been robbed by the lending mob. Though if there's a bailout, the victim will be the taxpayers, as it was in the S&L mess.

When is it the responsibility of buyer to do some research or find out things for themselves?

I don't agree with mortgage brokers taking advantage of people but they buyers of these houses need to know they can't afford what they're buying.

People just want more than they can afford, and when shit goes south they want to blame everyone but themselves.

There was a recent NYT real estate article mentioned prices dropping 10%+ in last month in JC. I know on my block that prices have dropped from $500+ sq/ft to $415 to 425 sq/ft for insiders.

Last night, I saw an episode of My First Place on HGTV. This single guy in Atlanta wants to buy a house. I didn't watch the whole show because I was doing laundry. But, in the beginning of the show, he said that he budgets and saves his money, and now he is ready to buy a house. Somehow, at the end of the show, he bought a house with no money down, and two mortgages. I was surprised when I heard that.

The houses he was looking at was around $150,000, not $600,000. And he has a full-time job. But I do think the mortgage brokers are taking advantage of people.

As I see it the real issue with the subprime market is it failed to function efficiently as a market. There's nothing wrong with a market compensating for risk with high interest rates. But it appears that the buyers of the mortgage bonds, without whom the banks wouldn't have lent a dime, had insufficient knowledge of just how bad the risks were. Had they known about our Jersey City neighbor they would never have bought a subprime bond. These buyers were mostly institutional, not amateurs, so it raises the question of when limiting the info to investors by the middlemen (the brokers & banks) constitutes fraud. IMO, this market is rife with criminal fraud.

The SEC's job is to make sure everyone has the right info. Unfortunately the powers on The Street are trying to gut Sarbanes-Oxley as we speak.

I wonder what this 29 year old graduate student majors in. It ain't economics or reality.

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A nontraditional loan? Is that the kind where they call the interest "vig"?

What sort of horse-ass bank would have given them a loan in the first place? Any dumb-ass would know that these guys had no chance of meeting their obligation.

I hate it when banks know full well when giving a loan that the recipent has no way of repaying and foreclosing - its just a scam between banks and developers!

Saw this AP story mentioning JC on Digg.
Tip of the iceberg, anyone? I would like to see criminal charges against the mortgage broker.

http://digg.com/business_finance/The_Bubble_Bursts

Deborah Beatty recognizes that she and her family could lose their home in Jersey City, N.J., across the Hudson River from New York, because they can't afford the mortgage. The newly constructed three-level home offers a view of the Manhattan skyline and the Statue of Liberty from Beatty's master bedroom window.

"I'm going to miss that," said Beatty, 53, who collects disability payments and does not work. "When I come in, I like to see the lady (the statue), especially when it's a beautiful clear night."

Her 29-year-old daughter, a graduate student with an annual income of less than $20,000, qualified for a mortgage of $600,000 with no money down, split into two different loans at 8.75 percent and 12.5 percent interest rates.

With income from tenants, which didn't come right away, Beatty's daughter thought she could afford monthly payments of nearly $5,000.

But she hasn't made a mortgage payment in more than three months, and she's receiving letters threatening foreclosure.

Beatty's daughter had to take out a nontraditional loan because she would not have qualified to borrow that much money through a traditional 30-year-fixed mortgage, said Judith Brzuskiewicz, a loan counselor with Citizen Action, a nonprofit advocacy group that is helping the Beattys and other families avoid foreclosure.

Beatty acknowledged the mortgage was probably too good to be true, and now her house is on the market. The family wouldn't be able to afford buying another house and would likely rent, she said.

"It's embarrassing," Beatty said. "It hurts your pride, your respect."

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If you've been here 10 years as I have and seen prices quadruple, a 30% correction doesn't seem like the end of the world, just the end of insanity.

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But it's still a pain of my neighbors thought they could get $X for their house and, in reality, they can only get 70 percent of that price because the market is so soft. And maybe the original price was 10% higher than they ever could have realistically expected to get, but it's still a shame.

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what are you talking about? if they bought 40 years ago, the value of their current real estate will most likely have doubled and tripled on average. Even if they missed the high point at 2006 and sell right now they will still walk away with very nice profit.

I think the real estate market will get a lot worse, but even then it wont be at the price level 40 years ago including inflation and interest costs.

some more bright news: http://money.cnn.com/2007/03/26/news/ ... e_sales/index.htm?cnn=yes

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Notice I didn't "rip you a new one" when you said that, alb, because in fact, as the article points out, the fear is very real. Mortgage companies, believe it or not, don't like to foreclose. They'd much rather collect money and say see you later. They're not happy about having to manage properties, and all too often "foreclosure blight" becomes a very real problem.

Believe it or not, I don't have a personal vendetta against you, alb. I only "rip you a new one" when you say idiotic things. I've said it before that I agree with you sometimes, and I have no problem with admitting that (as somebody said regarding Minnie at last night's meeting, "a broken clock is still right twice a day").

Sales of existing homes unexpectedly rose in February by the largest amount in nearly three years, but analysts expressed fears that the recovery for the battered housing industry will be slowed by spreading troubles in mortgage lending.

===============================
Home sales rise unexpectedly in Feb.

By Martin Crutsinger, AP Economics Writer | March 23, 2007

WASHINGTON --Sales of existing homes unexpectedly rose in February by the largest amount in nearly three years, but analysts expressed fears that the recovery for the battered housing industry will be slowed by spreading troubles in mortgage lending.

The National Association of Realtors reported Friday that sales of existing homes rose by 3.9 percent last month, pushed higher by a sharp increase in sales activity in the Northeast. It was the biggest increase since a similar increase in March 2004.

The increase pushed sales up to a seasonally adjusted annual rate of 6.69 million units, still 3.6 percent lower than a year ago. Sales fell by 8.5 percent for all of last year as housing hit a sharp slowdown after setting sales records for five straight years.

Analysts, who had been looking for sales to decline in February, said the increase reflected warmer weather in the Northeast and Midwest and said that the housing industry is still not on a sustained rebound.

"Sales cannot be sustained at this level, which is way above the pace implied by mortgage applications," said Ian Shepherdson, chief economist at High Frequency Economics.

The price of a median home sold last month dropped to $212,800, down by 1.3 percent from the same month in 2006. It marked a record seven straight months that the median home prime has fallen compared to the same period a year ago.

Analysts said the price declines were helping to lure buyers back into the market. But analysts expressed concerns about what the growing problems in the subprime lending market will do to the prospects for future sales.

Subprime mortgages were offered to people with weak credit histories who could not qualify for standard types of mortgages. Now an increasing number of those mortgages are going into default. That is forcing lenders to tighten up on their loan standards, meaning people who would have qualified for subprime mortgages will not be able to do so.

David Lereah, chief economist for the Realtors, said he believed that demand for homes could be cut by 150,000 to 200,000 annually over this year and 2008 because of the lending troubles.

"Our view is that the tightening in the subprime market will have a negative impact on home sales," Lereah said. "It probably won't postpone the recovery (in housing) but it will slow it."

By region of the country, sales were up 14.2 percent in the Northeast, a gain that was attributed in part to warmer-than-normal weather this winter, which spurred sales.

Sales of existing homes were up 3.9 percent in the Midwest and 1.6 percent in the South, while sales were unchanged in the West. Lereah said the reluctance of sellers in the West to trim prices was holding back a rebound in that region.
? Copyright 2007 Associated Press. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed

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Seriously: I typed the stuff about "lenders may maintain a lot of the houses they get back poorly" and thought, "Well, maybe Nondowntown will be right when he rips me a new one, because maybe that's an exaggerated fear."

Then, hear in The New York Times, we see that "foreclosure blight" isn't a theoretical risk of a real estate crash. It's already a serious social problem.

Also: every educated person should have known that the real estate market was going to run into severe problems in 2007, but a lot of the people described in these articles aren't well educated, and the subprime mortgage brokers involved probably weren't well educated, either. Courts probably will find that was the legal responsibility of the lenders to protect the subprime buyers and the low-end brokers from obviously unsuitable deals. (Just as it's the duty of Wall Street brokerage houses to protect widows and orphans from obviously unsuitable stock purchases.)

Another thing to keep in mind is that this article is implying that the subprime crash may have a devastating effect on knowledgeable, thrifty homeowners who simply own homes in neighborhoods popular with the subprime buyers. I feel really terrible for a hard-working elderly couple that bought a modestly priced house in a modestly priced neighborhood 40 years ago, paid off the mortgage 10 years ago, and now will see the value of the paid-off house drop simply because the neighbors got in over their heads.

I don't have that much sympathy for the borrowers who stepped out on a limb to buy a house that they couldn't afford. How could some of these people who took out adjustable rate mortgages now claim that they didn't know that rates would eventually rise. Are they stupid. If so, they had no place trying to buy a house in the first place.

March 23, 2007

Foreclosures Force Suburbs to Fight Blight

By ERIK ECKHOLM

SHAKER HEIGHTS, Ohio ? In a sign of the spreading economic fallout of mortgage foreclosures, several suburbs of Cleveland, one of the nation?s hardest-hit cities, are spending millions of dollars to maintain vacant houses as they try to contain blight and real-estate panic.

In suburbs like this one, officials are installing alarms, fixing broken windows and mowing lawns at the vacant houses in hopes of preventing a snowball effect, in which surrounding property values suffer and worried neighbors move away. The officials are also working with financially troubled homeowners to renegotiate debts or, when eviction is unavoidable, to find apartments.

?It?s a tragedy and it?s just beginning,? Mayor Judith H. Rawson of Shaker Heights, a mostly affluent suburb, said of the evictions and vacancies, a problem fueled by a rapid increase in high-interest, subprime loans.

?All those shaky loans are out there, and the foreclosures are coming,? Ms. Rawson said. ?Managing the damage to our communities will take years.?

Cuyahoga County, including Cleveland and 58 suburbs, has one of the country?s highest foreclosure rates, and officials say the worst is yet to come. In 1995, the county had 2,500 foreclosures; last year there were 15,000. Officials blame the weak economy and housing market and a rash of subprime loans for the high numbers, and the unusual prevalence of vacant houses.

Foreclosures in Cleveland?s inner ring of suburbs, while still low compared with those in Cleveland itself, have climbed sharply, especially in lower-income neighborhoods that border the city. Hundreds of houses are vacant because they are caught in legal limbo, have been abandoned by distant banks or the owners cannot find buyers.

The suburbs here are among the best organized in their counterattack, experts say, but many suburbs elsewhere in the country have had jumps in foreclosures and are also working to stem the damage.

Outside Atlanta, Gwinnett and DeKalb Counties have mounted antiforeclosure campaigns while several towns south of Chicago are forcing titleholders to fix up empty houses, or repay the government for doing it.

Here in Ohio, there are more than 200 vacant houses in Euclid, a suburb of Cleveland north of here. In the last two years more than 600 houses in Euclid have gone through foreclosure or started the process, many of them the homes of elderly people who refinanced with low two-year teaser rates, then saw their payments grow by 50 percent or more.

Euclid has installed alarm systems in some vacant houses to keep out people hoping to steal lights and other fixtures, drug users and squatters. The city has hired three new building inspectors, bringing the total to nine, to deal with troubled properties and is getting a $1 million loan from the county to cover the costs of rehabilitation, demolition and lawn care at the foreclosed houses. (When the properties are sold, such direct maintenance costs will be recovered through tax assessments.)

The Euclid mayor, Bill Cervenik, said the city, with a population of 53,000, was losing $750,000 a year in property taxes from the empty houses.

At greatest risk in Cleveland?s suburbs are the low- and moderate-income neighborhoods where subprime lending has soared. The practice involves lenders issuing mortgages at high interest rates for people with lower incomes or poor credit ratings, usually involving adjustable rates and sometimes no down payment and no investigation of the borrower?s circumstances.

?What makes the subprime mortgages so devastating from a community perspective is that they?re so concentrated geographically,? said Dan Immergluck, a professor of city planning at the Georgia Institute of Technology.

Rosa Hutchinson Yates, 62, had kept up payments on her tidy two-story house on Chagrin Boulevard in Shaker Heights for 30 years. Now, she may well lose the house because of a disastrous refinancing deal in 2003 that brought her $24,000 in cash but bills she could not pay.

Ms. Yates, who has worked as a beautician and a cocktail waitress, was emotional and confused as she tried to explain what happened. Though she signed the closing documents, she said she did not realize that she was getting an adjustable rate mortgage that did not include taxes and insurance.

In 2006, broke and bewildered, she stopped making payments and the lender started foreclosure proceedings. A Shaker Heights city attorney said it appeared that illegally high fees might have been charged and that the broker had overstated Ms. Yates?s income, raising the possibility of a legal challenge.

Ms. Yates, preparing for the worst, has learned that she can move into a subsidized apartment for retirees. But the thought is devastating.

?When folks pay for a home, they expect to die in it,? she said, breaking into tears.

In a report for Shaker Heights, Mark Duda and William C. Apgar of Harvard University found that expensive refinancing deals had been aggressively ?push-marketed? in the city?s less affluent west and south sides, bordering Cleveland. They said that ?the rising number of foreclosures threatens to undermine the stability? of those areas.

?The moral outrage,? Ms. Rawson, the mayor, said, ?is that subprime lenders have targeted our seniors and African-Americans, people who saved all their lives to get a step up.?

About one-third of the residents in Shaker Heights and Euclid are black.

Early last year, James Rokakis, the Cuyahoga County treasurer, started a countywide foreclosure-prevention program, which pays community groups to educate people about loans and help defaulting borrowers negotiate with lenders.

In the late 1990s, Mr. Rokakis said, the flight of manufacturing jobs was the major cause of rising foreclosures but around 2000, the surge in careless lending began to wreak havoc.

Mr. Rokakis estimated that more than three-fourths of the current foreclosures in Cuyahoga County involved subprime loans, some of them blatantly unwise or dishonestly portrayed to buyers. Only last year did Ohio tighten its laws to require more complete disclosures to borrowers.

With so many homeowners running into trouble, the City of Cleveland has been unable to keep track of the number of vacant houses, said Mark N. Wiseman, director of the county prevention program. He estimates that 10,000 of the city?s 84,000 single-family houses are empty.

Suburbs like Shaker Heights are trying to avoid the experiences of blighted neighborhoods in Cleveland like the one where Barbara Anderson lives. Ms. Anderson, 59, said her block of East 76th Street was fully occupied three years ago, but now about half the houses are empty.

Many of the houses are filled with smelly trash and mattresses used by vagrants. They have been stripped of aluminum siding, appliances, pipes and anything else that scavengers can sell to scrap dealers.

?It stifles you,? Ms. Anderson said of the squalor. ?It lowers the value and affects the kind of people who are willing to move here. I?m embarrassed to say I live here.?

Ms. Anderson, who works for the city ombudsman?s office, is president of a street association that is working with a county-financed group, the East Side Organizing Project, to salvage some homes. But so far, she said, ?when we try to board the houses up, someone comes and tears the boards down.?

Things are not as bad in the Moreland section of Shaker Heights, but residents are worried and angry all the same. Robert O?Neal, 52, has lived there nearly all his life and, until recently, could not remember a house being empty for more than a month. Now on his block, 4 of the 12 houses are vacant, 3 of them for more than a year. Lost jobs, divorces and predatory loans have all played roles, he said.

?It?s sucking the life out of the neighborhood,? said Mr. O?Neal, the town?s chief probation officer. ?These are big empty houses near the Cleveland border, and people start worrying about letting their kids out to play.?



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Copyright 2007 The New York Times Company

Normally a housing price decline/crash is led by a recession. Now the economy is good yet housing is stagnant or going down - in itself not a big deal.

What is all over the financial press (and more importantly, seen in markets), is the subprime mortgage crisis. Relatively few home owners (so far) have mortgages that they can't pay but there is a huge amount of concern that this may have a broad impact. The rational response for a lender is to tighten up on requirements to obtain a mortgage (e.g. one might actually have to prove the income that one claims, pony up 20%, etc.). Lenders to lenders have already done this and that is why some subprime lenders are facing bankruptcy. This will dry up part of the already shallow pool of buyers and this could impact the already weak residential real estate market.

When a market becomes disconnected from its fundamentals (dot.com in 1999, residential real estate in the 2000s) it's difficult or impossible to know when the crash will come. What will pop the bubble is probably even more unknowable but it's unlikely that when a market goes off the rails it won't a some point revert to the mean. Maybe the subprime crisis will be just a glitch but maybe it will lead to a recession, in which case it would be a huge hit to residential real estate.

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Banks and 'predatory lending' should be illegal and if siht hits the fan for the borrower, the banks should return every cents the borrower paid before the bank gets the house.

http://www.cnn.com/2007/US/03/22/subp ... .html?eref=rss_topstories

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I think that it's always a great time to buy a home for someone who needs a home, and I think that, over the long run, investing in real estate in this area should be a smart thing to do.

But:

- I think the private equity industry is just a game of financial musical chairs. Some private equity funds will continue to do well and make a lot of money, but a lot are clearly overpaying for what they're buying and will do poorly, even if the underlying companies and properties do well. So, I don't think it's good to count on private equity funds to bail people out.

- It's hard to know whether the foreclosure rate will stay at 1% of mortgaged homes once the ARMs adjust. Maybe the rate will be lower than people are expecting, but maybe it will be higher.

- The important ratio isn't the ratio of foreclosed homes to all mortgaged homes, but of foreclosed homes to homes on the market. If, say, only 15 percent of all mortgaged homes are on the market, and 10 percent of those homes (1.5 percent of all mortgaged homes) are homes involved in foreclosures, then the foreclosures could have a pretty big effect on the market.

The lenders might push down prices for all homes by moving to sell the foreclosed homes quickly, to cut the cost of managing all of the foreclosed homes.

Because the lenders will probably maintain the foreclosed homes they do have poorly, that could hurt property values in any neighborhood with a high percentage of foreclosed homes.

Finally, ordinary home sellers often help the home market by using their home equity to buy nicer homes. But the people who defaulted on the foreclosed homes probably will be stuck in the rental market and won't be around to buy nicer homes.