Tag Archives: housing downturn

Proof We’re in a Recession

Here’s proof that we’re in a recession: Starbucks is closing 600 stores.

According to the New York Times, “Starbucks said Tuesday that it planned to close another 500 underperforming stores and eliminate as many as 12,000 full- and part-time positions. The company, which now plans to close a total of 600 underperforming stores, will take related charges totaling more than $325 million. Most of the stores, which are company owned, will be closed by the end of the first half of its fiscal year, which ends September 2009, the company said. Starbucks estimated that total pretax charges associated with the closures, including costs associated with severance, would be $328 million to $348 million. The nation’s largest coffee chain said 70 percent of the stores targeted for closure have been open since the beginning of fiscal 2006. The job losses would represent about 7 percent of the company’s global work force.”

These closings are clearly fallout from the housing bust.  As the Times noted, Starbucks had “aggressively opened stores in areas like California and Florida, which have been hardest hit by the housing downturn. ”

The next time economists get together to discuss whether we’re really in a recession, they may have to meet somewhere other than the local Starbucks. 

It might be closed.

 

State of Washington Fines Countrywide for $1 Million for Discriminatory Lending — Will Seek to Revoke Countrywide’s License to Do Business in State

Washington Governor Christine Gregoire today announced plans by her state to fine Countrywide Home Loans $1 million for discriminatory lending.

In addition, the company will be required to pay more than $5 million in back assessments the company failed to pay.

Gregoire also announced the state is seeking to revoke Countrywide’s license to do business in Washington for its alleged illegal activity.

Joining Gregoire at today’s announcement was Deb Bortner, director of consumer services at the Washington state Department of Financial Institutions (DFI), and James Kelly, president of the Urban League of Metropolitan Seattle.

“The allegation that Countrywide preyed on minority borrowers is extremely troubling to me,” Gregoire said. “And I hope to learn eventually just how much this may have contributed to foreclosures in our state. The allegation offers evidence that Countrywide engaged in a pattern to target minority groups and engage in predatory practices.”

“That’s why we intend to bring the full weight of the state on Countrywide to rewrite home loans for minority borrowers who may have been misled into signing predatory mortgages,” the governor noted. “My job is to protect hard-working Washingtonians, and protect them we will.”

DFI is required to examine every home-lender licensed in the state of Washington. The agency conducted its fair lending examination of Countrywide last year. At that time, DFI looked at roughly 600 individual loan files and uncovered evidence that Countrywide engaged in discriminatory lending that targeted Washington’s minority communities. The agency also found significant underreporting of loans during its investigation.

“The Urban League is seeing far too many families caught up in the mortgage crisis who are being steered into bad loans,” stated James Kelly. “Today’s announcement from the governor is consistent with her message of protecting Washingtonians from national mortgage instability.”

DFI sent Countrywide a statement of charges on June 23, notifying the company of the fine and the back assessments the state plans to pursue.  Washington says that the investigation continues.

We have written on the disproportionate impact that the mortgage meltdown and housing crisis has had on minorities.

Washington’s action against Countrywide comes on the heels of lawsuits for fraud, deception, and unfair trade practices filed against Countrywide by the states of Illinois, California, and Florida.

 

More Housing Blues — U.S. Homeownership in Sharp Decline as Housing Crisis Forces More Families into Rentals

Even in the midst of the most serious housing and foreclosure crisis since the 1930s, the United States is still a nation of homeowners not renters. 

But recent data released by the U.S. Census Bureau show that Americans are now renting their living spaces at the highest level since 2002, and the percentage of households headed by homeowners has suffered the sharpest decline in 20 years

Households headed by homeowners fell to 67.8 percent from 69.1 percent in 2005. By extension, the percentage of households headed by renters increased to 32.2 percent, from 30.9 percent.

According to the New York Times, these figures “while seemingly modest, reflect a significant shift in national housing trends, housing analysts say, with the notable gains in homeownership achieved under Mr. Bush all but vanishing over the last two years.” 

“Many of the new renters, meanwhile, are struggling to get into decent apartments as vacancies decline, rents rise and other renters increasingly stay put. Some renters who want to buy homes are unable to get mortgages as banks impose stricter standards. Others remain reluctant to buy, anxious that housing prices will continue to fall.”

“We’re not going to see homeownership rates like that (the 1990s and the early 2000s) for a generation,” said Mark Zandi, the chief economist at Moody’s Economy.com.

“The bloom is off of homeownership,” said William C. Apgar, a senior scholar at the Joint Center for Housing Studies at Harvard University who ran the Federal Housing Administration from 1997 to 2001.  Apgar said the Joint Center had predicted an increase of 1.8 million renters from 2005 to 2015, given expected population trends. Instead, they saw a surge of 1.5 million renters from 2005 to 2007 alone. In the first quarter of this year, 35.7 million people were renting homes or apartments.

Zandi said minority and lower-income homeowners had been hardest hit. Nearly three million minority families took out mortgages from 2002 to the first quarter of this year. Since minority families were more likely to receive subprime loans, economists believe these families account for a disproportionate share of foreclosures.

As we’ve noted before, the collapse of the housing market and the rise in foreclosures have created an ideal market for apartment owners, especially in economically depressed regions.

As the demand for rental housing has increased, so has the cost of renting.  Nationally, rents are up about 11 percent from 2005.

Christopher E. Smythe, the president of the Northeast Ohio Apartment Association, which represents landlords in the Cleveland area, said the collapse of the housing market had improved the economic climate for apartment owners.

“Our apartment traffic is up, people are renting again and occupancies are up,” he said in a letter to members this year.

The Times also reports that in high-end markets like Los Angeles, the slump in the housing market has begun to push up vacancies as condominiums are converted into rentals.

On the other hand, “those new apartments are often out of reach of struggling families. And since many owners of rental properties are also going into default, the foreclosure wave has resulted in fierce competition for affordable apartments in some cities.”

In other words, the housing crisis is hitting the most economically vulnerable families the hardest. 

As we’ve discussed in an earlier post, minorities have been the most seriously affected by the subprime crisis and the bursting of the housing bubble.  Not surprisingly, the Census Bureau data shows that the percentage increase in renter households from 2005 to 2008 was nearly twice as high for Black families than for Whites.

We’re reminded of the old Billie Holiday song, God Bless the Child, written at the end of the Great Depression:

Them that’s got shall get
Them that’s not shall lose
So the Bible said and it still is news
Mama may have, Papa may have
But God bless the child that’s got his own
That’s got his own

Yes, the strong gets more
While the weak ones fade
Empty pockets don’t ever make the grade
Mama may have, Papa may have
But God bless the child that’s got his own
That’s got his own

 

 

Top 10 Steps for State Governments to Tackle the Mortgage Crisis

The Brookings Institution, one of the nation’s most prestigious think tanks, has issued a new report on the mortgage crisis focusing on the role of state governments. 

The report, entitled “Tackling the Mortgage Crisis: 10 Action Steps for State Government,” was written by Alan Mallach, a Senior Fellow at the National Housing Institute and a Visiting Scholar at the Federal Reserve Bank of Philadelphia, and suggests “10 Action Steps” that can be taken by state governments to “tackle both the immediate problems caused by the wave of mortgage foreclosures and prevent the same thing from happening again.”

The 10 steps are:

  • Help borrowers gain greater access to counseling and short-term financial resources.
  • Ensure a fair foreclosure process.
  • Encourage creditors to pursue alternatives to foreclosure.
  • Prevent predatory and fraudulent foreclosure “rescue” practices.
  • Establish creditor responsibility to maintain vacant properties.
  • Make the process as expeditious as possible.
  • Ensure that the property is ultimately conveyed to a responsible owner.
  • Better regulate the mortgage brokerage industry.
  • Ban inappropriate and abusive lending practices.
  • Establish sound long-term policies to create and preserve affordable
    housing, for both owners and renters.

These seem like common sense steps to us — although the debate over what in fact are “inappropriate and abusive lending practices” and “sound long-term policies to create and preserve affordable housing” — will be where the reform process is likely to break down.

We’ve noted before that “while the federal government’s response to the mortgage and real estate crisis appears to be paralyzed by partisan politics, the States are taking the initiative in trying to protect homeowners facing foreclosure.”

The Brookings Institution agrees:

“Although most media attention has focused on the role of the federal government in stemming this crisis, states have the legal powers, financial resources, and political will to mitigate its impact. Some state governments have taken action, negotiating compacts with mortgage lenders, enacting state laws regulating mortgage lending, and creating so-called ‘rescue funds.’ Governors such as Schwarzenegger in California, Strickland in Ohio, and Patrick in Massachusetts have taken the lead on this issue. State action so far, however, has just begun to address a still unfolding, multidimensional crisis. If the issue is to be addressed successfully and at least some of its damage mitigated, better designed, comprehensive strategies are needed.”

As we’ve pointed out, “Unless a national consensus is quickly reached on dealing with the rising tide of foreclosures — and we believe this is unlikely to happen when presidential candidates are competing for votes based on whose plan is best for dealing with the mortgage and real estate crisis – we think lenders can expect to fight individual battles over foreclosure in all 50 States. Given the negative publicity that lenders have had in the media, and with a bitterly fought presidential election on the horizon, these are not battles that the lenders are likely to win.”

Since delinquent and at-risk borrowers have far more political leverage in many state capitols than they have in Washington, the Brookings Institution report not only provides a road map for individual state action, but also further increases the pressure on the mortgage industry and their supporters in the federal government to come up quickly with an effective national plan for dealing with the foreclosure crisis.

 

Chronology of Home Price Declines in Orange County — Median Home Price Now Lowest Since March ’04

We found this chronology of the decline in median home prices in Orange County, California, showing a $179,000 decline in single family home prices from its high in June 2007:

Single Family Median Home Price:

2006 ~ Monthly

$690,000 = Feb
$695,000 = Mar
$705,000 = Apr
$705,000 = May
$700,000 = Jun
$699,000 = Jul
$685,000 = Aug
$680,000 = Sep
$665,000 = Oct
$660,000 = Nov
$665,000 = Dec

2007 ~ Monthly

$675,000 = Jan
$675,000 = Feb
$695,000 = Mar
$720,000 = Apr
$695,000 = May
$734,000 = Jun — Peak of O.C. Housing Bubble
$718,000 = Jul
$710,000 = Aug
$655,000 = Sep
$650,000 = Oct
$655,000 = Nov
$600,000 = Dec

2008 ~ Weekly ~ Monthly

$600,000 = 01/07
$595,000 = 01/15
$595,000 = 01/23
$583,250 = Jan
$585,000 = 02/07
$575,000 = 02/13
$575,000 = 02/22
$575.000 = Feb
$580,000 = 03/07
$575,000 = 03/14
$567,000 = 03/20
$570,000 = 03/26
$570,000 = Mar
$553,750 = 04/08
$565,000 = 04/14
$563,000 = 04/22
$550,000 = 04/28
$555,000 = Apr

The most recent DataQuick stats from April 2008 show a $500,000 median selling price. 

The last time median home prices were this low in Orange County was March 2004.

Perhaps even more disturbing: nearly four out of every 10 homes sold in Southern California last month was a foreclosure.

 

N.Y. Times Editorial Calls for Foreclosure Prevention Legislation Before the Next Mortgage Meltdown

The New York Times entered into the politics of the foreclosure crisis with an explosive editorial today accusing the Bush administration of failing to protect the economy and instead “sowing confusion and delay” in the face of the mortgage meltdown.

Here’s what the Times said:

“The housing bust is feeding on itself: price declines provoke foreclosures, which provoke more price declines. And the problem is not limited to subprime mortgages. There is an entirely different category of risky loans whose impact has yet to be felt — loans made to creditworthy borrowers but with tricky terms and interest rates that will start climbing next year.”

“Yet the Senate Banking Committee goes on talking. It has failed as yet to produce a bill to aid borrowers at risk of foreclosure, with the panel’s ranking Republican, Richard Shelby of Alabama, raising objections. In the House, a foreclosure aid measure passed recently, but with the support of only 39 Republicans. The White House has yet to articulate a coherent way forward, sowing confusion and delay.”

“[I]f house prices fall more than expected — a peak-to-trough decline of 20 percent to 25 percent is the rough consensus, with the low point in mid-2009 — financial losses and economic pain could extend well into 2011.”

“That is because a category of risky adjustable-rate loans — dubbed Alt-A, for alternative to grade-A prime loans — is scheduled to reset to higher payments starting in 2009, with losses mounting into 2010 and 2011. Distinct from subprime loans, Alt-A loans were made to generally creditworthy borrowers, but often without verification of income or assets and on tricky terms, including the option to pay only the interest due each month. Some loans allow borrowers to pay even less than the interest due monthly, and add the unpaid portion to the loan balance. Every payment increases the amount owed.”

“In coming years, if price declines are in line with expectations, Alt-A losses are projected to total about $150 billion, an amount the financial system could probably absorb. But until investors are sure that price declines will hew to the consensus, the financial system will not regain a sure footing. And if declines are worse than expected, losses will also be worse and the turmoil in the financial system will resume.”

“There’s a way to avert that calamity. It’s called foreclosure prevention. There is no excuse for delay.”

We agree with the Times that effective foreclosure prevention legislation is long overdue.  As the Times pointed out, unless Congress acts fast, it is likely that the economic consequences of the bursting of the housing bubble will be even more serious and widespread.

Even Fed Chair Ben Bernanke — who could not be called an advocate of government intervention in the markets — has stated that “High rates of delinquency and foreclosure can have substantial spillover effects on the housing market, the financial markets, and the broader economy” and that what is at stake is not merely the homes of borrowers, but “the stability of the financial system.” 

We also can not imagine a more self-defeating political strategy than that of the Republicans who have opposed foreclosure prevention legislation. 

We’ve already written about Senator Richard Shelby’s close ties to the apartment owners industry, which has aggressively opposed federal aid to homeowners in, or near, default.

Surely, with the presidential election only months away and their party in trouble, more Republicans — including Senator McCain — should see the need for coming to terms with the economic, and political, realities of the foreclosure crisis, even if it requires ideological compromise.

 

Eleven State Foreclosure Prevention Group Slams Lenders and Bush’s New Hope Alliance — Says Not Enough Being Done to Help Homeowners

In the summer of 2007, the Attorneys General of 11 states (Arizona, California, Colorado, Iowa, Illinois, Massachusetts, Michigan, New York, North Carolina, Ohio, and Texas), two state bank regulators (New York and North Carolina), and the Conference of State Bank Supervisors formed the State Foreclosure Prevention Working Group to work with servicers of subprime mortgage loans to identify ways to work together to prevent unnecessary foreclosures. 

The Working Group has now issued two reports, in February 2008 and April 2008, based on data collected from subprime mortgage servicers. 

The reports note that foreclosure prevention continues to fall short, despite widely-publicized campaigns to encourage homeowners in trouble to seek help and initiatives by servicers to fast-track loan modifications.

The major findings of the State Foreclosure Prevention Working Group include the following:

  • 70 percent of homeowners who are two months behind on their mortgages still aren’t getting help and are still not on track for any loss-mitigation.
  • While the number of borrowers in some kind of loss mitigation program has increased, it has been matched by an increasing level of delinquent loans; thus, the relative percentage has remained about the same. “This large gap suggests a systemic failure of servicer capacity to work out loans.” 
  • Only one in three delinquent borrowers completed a workout within 45 days.  Slow assistance is partly why the number of homeowners facing foreclosure increased 16 percent.  Servicers’ loss-mitigation departments are severely strained in managing the current workload.  “We are concerned that servicers overall are not able to manage the sheer numbers of delinquent loans…the burgeoning numbers of delinquent loans that do not receive loss-mitigation attention are clogging up the system on their way to foreclosure…We fear this will translate to increased levels of vacant foreclosed homes that will further depress property values and increase burdens on government services.”
  • Homeowners who do receive loss-mitigation help are most likely to receive some form of loan modification.  Such modifications are a solution that seems to offer better long-term prospects for successful resolution of problem loans. Many servicers are replacing their use of repayment plans in favor of loan modifications.
  • The Hope Now Alliance — a coalition of mortgage lenders and servicers backed by the Bush administration — has not provided borrowers with very much hope.

Based on their findings, the State Foreclosure Prevention Working Group made the following recommendations:

  • Develop a more systematic loan work-out system to replace the intensive, individual, “hands-on” loss-mitigation approach. “Initial efforts to develop systemic approaches are far too limited to make a difference in preventable foreclosures. Without a systematic approach, we see little likelihood that ongoing efforts will make a serious dent in the level of unnecessary foreclosures.”
  • Slow down the foreclosure process to allow for more work-outs. “Targeted efforts to slow down subprime foreclosures may give homeowners and servicers more time to find solutions to avoid foreclosure.”

“Progress is being made, but there is a long way to go,” said Iowa Attorney General Tom Miller, a founder and leader of the State Foreclosure Prevention Working Group. “We still see a tremendous gap between the need for loan work-outs and the options in place today.”

“Foreclosures are costly, further reduce real estate values, and harm not only borrowers, but also neighborhoods and communities,” said Massachusetts Attorney General and Working Group member Martha Coakley.  “In most cases, and particularly where mortgage loans contain payment terms that were not structured to be sustainable in a real estate downturn, loan modification and other loss mitigation should be done much more actively.”

We would point out that the states involved in the Working Group have nearly half of the nation’s electoral college votes — and that several of these states are crucial “swing” states in the 2008 presidential election.  The candidates need to pay close attention to the Working Group’s findings and recommendations.