All Fired Up?

For those who keep assuming that what has been taking place over the past year or so is either temporary or "normal" (in the sense that economic activity tends to ebb and flow), there's plenty of things that they probably haven't factored into their "models." Like the fact that desperate times can lead to a rash of desperate acts, even among normally upstanding citizens.

Unforunately, such episodes are not all that unusual -- think, for example, about the chaos and lawlessness that erupted in New Orleans following the Hurricane Katrina disaster. More recently, reports indicate that there has been an increase in shoplifting as families struggle to make ends meet.

In Arson Surges for Foreclosed Homes Lost to Subprime," Bloomberg's Kathleen M. Howley details another opportunistic crime trend that appears to be gaining ground in the wake of the bursting housing bubble.

At 10:40 p.m. on April 27, a blaze at the beige Victorian house at 19 Nye St. lit up a neighborhood littered with boarded-up homes on the north side of New Bedford, Massachusetts. It left charred wood and melted vinyl siding on the three-story structure.

The house had been abandoned after the owner defaulted on a $240,000 home loan from GreenPoint Mortgage Funding, a Novato, California lender that shut down in August, 2007. The fire was one of four suspicious blazes in foreclosed properties that month in the southern Massachusetts city. All are under investigation.

The biggest surge of mortgage defaults in seven decades coincides with an increase in blazes in foreclosed properties led by states with the most repossessed homes, according to fire safety officials in Nevada, Massachusetts and Ohio.

``The more empty houses we have, the more fires we are going to see,'' said James Wright, chief of the Nevada State Fire Marshal Division in Carson City, the state's capital. ``It's particularly dangerous for firefighters, because they don't know what condition these buildings are in or what they might find in them.''

National arson statistics for 2007, due in September or October, probably will show a significant increase as foreclosures climbed toward an all-time high in 2008's first- quarter, said James Quiggle, a spokesman for the Coalition Against Insurance Fraud in Washington.

Arsons Follow Foreclosures

``Home arsons follow foreclosure trends, with a lag,'' Quiggle said, pointing to an increase after the last housing slump when the number of blazes reached 116,600 in 1992 from 111,900 in 1990. ``We're facing a potential spike in arson like we've never seen before.''

The most recent national data is from 2006, when the median price of a U.S. home reached an all-time high of $221,900, as measured by the National Association of Realtors. There were 31,000 arsons that year, compared with 31,500 in 2005, according to the U.S. Fire Administration in Emmitsburg, Maryland.

Profit usually is not the motive when foreclosed properties burn, Quiggle said. Cases such as Sheryl Christman, 38, sentenced in February to five years probation for torching her Caledonia, Michigan, home four days before it was repossessed are the ``exception not the rule,'' Quiggle said.

Nevada Fires

Insurance pays the replacement cost, which rarely covers the mortgage of a property in foreclosure, he said. The value of the land is not covered.

``It takes a lot of chutzpah to set fire to a house when you're the policy holder and would be first on any suspect list,'' Quiggle said. ``It doesn't take much for a squatter to knock over a candle or for some kids to set a fire when a building is vacant.''

Last year, fires in vacant Nevada buildings increased 4 percent from a year earlier, said Wright, the fire marshal. That number may grow, he said. The state had the worst foreclosure rate in the U.S. during the first quarter, with one filing for every 54 households, according to data compiled by RealtyTrac Inc. The national rate was one filing per 194 households, analysts at the Irvine, California company said.

In Ohio, where one of every 161 households had a foreclosure filing during the first quarter, the number of blazes in vacant buildings rose 18 percent in 2006, according to the latest figures compiled by the state's Division of State Fire Marshal in Reynoldsburg.

Empty Buildings

Damages climbed 52 percent to $22.7 million from a year earlier in the state where home sales began tumbling in 2004's second half, a year before the national decline began.

The value of homes owned by U.S. banks more than doubled to $8.6 billion in the first quarter of 2008 from $3.59 billion a year earlier as lenders repossessed homes in default, data compiled by Federal Deposit Insurance Corp. in Washington show.

``Empty buildings have more fires and more serious fires than occupied buildings,'' said Steven Westermann, president of the International Association of Fire Chiefs in Fairfax, Virginia. ``There's no one around to sound an alarm.''

Nationally, there were 396,000 home fires of all types reported in 2006, the highest in 10 years, according to the latest data available from the National Fire Protection Association in Quincy, Massachusetts. They caused a record $6.83 billion of damage.

Seeking Reward

Almost two-thirds of fires that occur in unsecured vacant buildings are intentionally set, said John Hall, head of research at the National Fire Protection Association. The rate drops to 32 percent in empty buildings protected with locks or boarded windows and 7 percent in occupied homes, he said.

In New Bedford, where the Nye Street home was boarded up, the city has posted signs on the charred building that read: ``Reward of up to $5,000 if you know who did this.'' So far, there are no leads.

The house has been empty since the subprime mortgage defaulted in August 2007, the same month the lender, GreenPoint Mortgage, went out of business after selling the loan to investors in a mortgage-backed security called BS ABS 2004-AC5 2300, according to documents at the Bristol County Registry of Deeds.

``For every foreclosure, you have more empty homes and more people who may become homeless,'' said Hall, of the National Fire Protection Association. ``These properties are on the fringe of society's attention.''

`Exercise in Futility'

The growing number of vacant buildings, however, has not escaped the attention of firefighting officials. Flint, Michigan, put out a June 2007 study that called vacant-building fires ``a dangerous exercise in futility.'' Blazes in empty structures such as foreclosed homes account for 40 percent of the city's fires and 62 percent of its firefighter injuries, Fire Captain Andy Graves said in the report.

Nationally, there are 3.7 firefighter injuries per 100 blazes in vacant buildings, compared with 1.9 injuries per 100 fires overall, Graves said in the report.

``We lose a lot of firefighters in vacant structures,'' said Westermann of the International Association of Fire Chiefs.

Firefighter Mark Reed knows how dangerous a vacant, foreclosed property can be. He was critically injured battling a June 2007 fire in Buffalo, New York, set by arsonists in a foreclosed home on the city's east side. Bricks from the chimney crushed Reed, who was then 36. His mangled right leg later was amputated.

Firefighters in Danger

``Every vacant home that's allowed to deteriorate becomes a danger to firefighters because they can't just sit back and say `Let it burn,''' said Barbara Reed, Mark's mother. Her only child lost his senses of smell and taste as a result of his brain injuries, and still goes to physical therapy twice a week, she said.

When the chimney fell on Reed, he was standing between the burning building and the home next to it, trying to protect lives and property, his mother said. The other members of Reed's company, Engine 31, dug him out from under the bricks, she said.

``Even if the bank doesn't care enough to maintain a home and keep it from being a hazard, firefighters still have to answer the call to go and put out any fires that might come from their negligence,'' the retired fourth-grade teacher said.

Buffalo had 677 foreclosure filings in the first quarter, including notices of default and auctions, RealtyTrac reported. Since last year's accident, firefighters have begun inspecting and marking the city's 10,000 vacant houses with ``their own form of graffiti,'' said Reed. They use red spray paint on the doors or front walls of the buildings to cite potential dangers, she said.

``Structurally, we're talking about a massive amount of heavy plaster, bricks, and glass in every one of these houses,'' said Reed, 61. ``Buffalo is not the only city where firefighters are putting their lives on the line to take care of these homes that no one wants.''

Comments

[Biologist]

Speaking about models and about normal ... there is a reason to why these mathematical models (such as the risk model for CDOs) fail, and the fancier the models, the worse the crash. For details: Mandelbrot and Hudson, 2004, The (mis)behavior of markets. 328pp. In short, the findings are:

- the models Wall Street uses for risk, from simple "beta" to the most complicated risk analysis for mortgages, use the normal distribution to model risk
- the normal distribution has a relatively low risk of big desasters (e.g. about two in one million that something six standard deviations out of the ordinary will happen)
- reality of markets does not follow the model: the risk of desasters is much higher. For example, the crash of 1929 and of 1987 happened in the same century
- therefore, economists run full speed into a brick wall, again and again.

A national Char Policy towards current and future vacant foreclosed houses owned by banks would all but solve the housing bubble crisis for house owners/mortgage payers.

Would the holding banks/mortgage companies take it in the shorts or would the mortgage insurance companies? We already know the Amercian tax payers are.

[Jes]

"Since last year's accident, firefighters have begun inspecting and marking the city's 10,000 vacant houses with ``their own form of graffiti,'' said Reed. They use red spray paint on the doors or front walls of the buildings to cite potential dangers, she said." I'm impressed by the initiative these firefighters are showing. It shouldn't be their job to assess dangers in empty houses, but since no one is doing it for them, they're stepping in. I find that admirable.

[colin]

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