Not Exactly a Funfair

When it comes to government policies, especially those intended to foster broad-based "social goals," one thing you can be sure of is that they will have unintended consequences. That is, outcomes that few really expect.

Cynics might say the following report from the Associated Press, "Foreclosure Fairs Offer Advice and Support to Desperate Homeowners," details the latest in a long line of unexpected results stemming from the Bush Administration's efforts to promote an "ownership society."

MERCED — An overflow crowd piled into the Merced Civic Center, spilling out of the main auditorium, into the halls and down the stairs.

Some brought babies, others elderly parents. Everyone brought paperwork — the sum of their financial lives and wreckage of their American Dream.

The recent foreclosure prevention fair on a brilliant Saturday afternoon was the place to be in Merced, a city of 65,000 best known as the gateway to Yosemite National Park.

The fair was one of the first of a series of events planned in March, or what local politicians are calling “Foreclosure Prevention Month,” to help desperate homeowners in and around the northern San Joaquin Valley.

The world’s most fertile farm region, the San Joaquin Valley includes three metro areas — Stockton, Modesto and Merced — with some of the highest foreclosure rates in the nation.

“Clearly we’ve got a crisis,” said Democratic Rep. Dennis Cardoza, whose district includes much of the Valley. “You look around this auditorium and think this is America, hard-working family people who go to church on Sunday and want good schools for their kids.”

More and more family friendly foreclosure fairs are taking place in hard-hit cities and towns across the country. This month begins a series of “Homeownership Preservation Forums” sponsored by HOPE NOW, a collaboration of nonprofit, corporate and government partners, including HUD.

Organizers of the Merced fair had worried that attendance would suffer from too little notice; instead, they were overwhelmed by the response.

That same day, another 200 mobbed a fair in Los Banos, an old farming city of 35,000 residents, also in Merced County. Five percent of Los Banos’ 10,000 houses have already foreclosed and another five percent are expected to foreclose in the coming months, Cardoza said.

“You’re talking 10 percent of an entire city becoming homeless,” Cardoza said. “I don’t know how much worse things can get.”

Already, the valley’s Stanislaus County, which includes Modesto, is number four on the national rankings of foreclosure rates complied by RealtyTrac, a San-Diego-based firm that monitors foreclosures. San Joaquin County, which includes Stockton, is number two on the list, edged out of the top spot in the latest list by Detroit.

Sleepy Merced County, number five in RealtyTrac’s national foreclosure rankings, also has other numbers to worry about: in January, the county’s unemployment rate climbed to 13.3 percent, up from 11.9 percent in December, according to figures released last week by the California Employment Development Department. In contrast, the state unemployment rate was about 6 percent, and the national unemployment rate about 5.3 percent.

The median home price in Merced County in January was $215,000, down 33.8 percent from a year earlier, according to DataQuick Information Systems, a real estate research firm. In some towns in the county, such as Atwater, housing values have dropped 50 percent, officials said.

The number of chronically homeless people, or those who end up homeless for at least a year, also is growing. In a recent survey of 104 chronically homeless adults, five said they had been homeless for over a year after losing their houses to foreclosure. City leaders expect the numbers to increase.

At the Merced Foreclosure Prevention Fair, homelessness was a big concern for families. In random interviews with six families, four of whom had already received eviction notices from their lenders, all said they weren’t sure where they’d go once forced out of their homes.

“We’re three payments behind, which they told us here is not that terrible,” said Elizabeth Gomez. “If we can’t hold on, we’re lost.”

Most families had similar tales of woe. One couple said the same broker who had written their loan in 2005 promising he would help them refinance it to a 30-year fixed rate when the teaser rate of two percent expired refused to take their calls. Their mortgage on a $300,000 house mushroomed from about $900 to over $2,000.

They wearily took their place in the auditorium. Like the waiting room of a motor vehicle department office, everyone had numbers and spent up to three hours waiting for help.

No one was sure how many people at the fair would actually be able to avert foreclosure. Both fairgoers and officials complained that lenders have, for the most part, rejected pleas to help negotiate loans or forestall foreclosure with a payment agreement.

“The key after today’s workshop is the follow-up,” said state Rep. Cathleen Galgiani, who helped organize the month’s fairs.

Another Foreclosure Prevention Month fair is coming up in Stockton . Officials, anticipating a high turnout, are bringing bottled water and holding the event in the San Joaquin County fairgrounds.

Comments

[Jes]

"...lenders have, for the most part, rejected pleas to help negotiate loans or forestall foreclosure with a payment agreement."
Isn't it in a bank's best interest to agree to get a partial payment now, rather than get nothing now and when the foreclosed house finally sells, get very little? If one of the other commenters here can explain why it makes sense for banks to refuse to negotiate, I'd be very interested to hear about it.

[Adamant]

Jes, I agree with you. I hear story after story of lenders who seem to behave completely irrationally. Not negotiating with homeowners. Letting houses sit vacant and become decrepit rather than seeking a quick sale... it makes no sense. It's like lenders don't seem to understand that money now is always better than money later,

[A. Zarkov]

"One couple said the same broker who had written their loan in 2005 promising he would help them refinance it to a 30-year fixed rate when the teaser rate of two percent expired refused to take their calls."

Oral contracts are as binding as written contracts. Of course the broker only said "help." I don't know if the legal concept of "detrimental reliance" would cover this kind of situation, but it might.

[Nick]

Jes: I haven't found that banks "for the most part" have been refusing to negotiate with homeowners for repayment plans or modifications. They haven't been any more willing than in the past, but they aren't flatly denying homeowners in foreclosure from applying for help. If the owners can explain their hardship, show how they recovered from it, show relatively stable income, and come up with some of the amount that they are behind, then mortgage companies have been willing to offer a short-term solution to get the mortgage back on track.

Of course, for those homeowners that are facing a serious reduction in income, or illness or disability, and can not afford even a slightly lower payment, the banks are not offering solutions. But these are the people who would have faced foreclosure even without the subprime mess. They may be in a worse situation now that they can't sell for what they owe, but there will always be people whose financial situation has changed so that they can't afford the house anymore.

But otherwise, it is in the best interest of the banks to work with their homeowners. The banks don't want to end up holding a lot of devalued properties that they can not rent out or sell. If the homeowners can afford a payment plan or modification and they have the patience to wait on hold for hours with the bank, then they can usually find some solution. Lenders don't make it easy, of course, but they aren't rejecting every request for help.

[Jes]

Adamanant and Nick, thanks for your comments. My guess on why the Modesto and Merced people aren't finding much comfort is that banks up there may be afraid to start seeming lenient, lest everyone with an adjustable start yelling for help. It would be difficult to sort out those who really can't pay their higher adjusted rates from those who would simply rather not. Here in California house prices are falling like meteors and sales are extremely slow. So I guess the banks are between a rock and a hard place--afraid to open the floodgates on relief on one hand, but in danger of owning huge numbers of empty houses on the other. And I think they're still starry-eyed about all this and don't believe it will get a lot worse before it gets better.

[drewster]

All these people are incredibly stupid. How does anyone think a broker is going to help them get into a fixed rate mortgage they couldn't afford to begin with? By verifying that their income has gone up 200%. Oh, it hasn't? End of help. People, these are the dregs of our society. No money, no hope, building up families without being sure you can afford it first. And calling this homelessness is pathetic. It's houseless, but not homeless. These people may get thrown out of their houses, but then they get to move into what is known as an "apartment". Like the rest of us. Geez. Morons.

[Jes]

Not sure anyone will look this far back in the comments (I'm posting about a week after this article came out), but I believe I've answered my question (see above) about banks and the answer is so obvious that I'm annoyed I didn't get it earlier:
"Banks are so capital impaired they cannot lend. They refuse to write down assets to reasonable levels because to do so would bankrupt them."
This is from http://globaleconomicanalysis.blogspot.com/2008/03/great-pretender.html