Hey Candidates: It's still about the economy and foreclosure

Monica Davis
Originally published by www.opednews.com on 1/9/08

Dear Hillary, Barak and assorted others:It's still about the mortgage and foreclosure frenzy. It's still about people losing their homes, being thrown out in the street, adding to the nation's homeless problem.
The vultures are rolling in--what are you going to do about it? Ya'll are still senators, aren't you?It’s all over the news, how the mortgage foreclosure fallout is turning parts of American cities into ghost towns. As you bask in the suns of your respective universes, foreclosures are hitting condos in Miami, apartment complexes in Ohio, and closing in on homes and farms from shore to shore.
The market has tanked so rapidly that many renters no longer know where to send their rent checks. On a foreclosure blog, one man brags that he hasn’t paid rent in four months because his rented condo has been flipped more than a pay day hooker at a military base and nobody knows he’s renting the property.
The consequences of cheap condo conversions, greedy investors, criminal conspiracies and con gams, combined with the action, or non-action of look the other way authorities have come home with a vengeance. Home prices are falling like dead birds from the sky, as many of the nation’s cities and states prepare for massive budget shortfalls and layoffs, due to decreased property revenues.
The mortgage fraudsters have made billions through fraudulent appraisals, sales to non-existent buyers, pocketing their often-outrageous fees and profits. Now that the winds of time have finally blown their spit and glue house of cards into oblivion, the nest of snakes in the nation’s real estate investment sector twisting and hissing for the whole world to see. Unfortunately, their poison has spread throughout the world in the form of risky securitized mortgage investments.
Straw buyer purchased condos sit empty and abandoned in hundreds of cities across the country. The hand of real estate fraud continues to wreak havoc around the world as discover that their loan portfolios are full of nearly worthless, or grossly devalued mortgage investments.
The fur is flying so fast that many of the investors have no idea what their investments are truly worth, nor are many of them aware of exactly what they own. The untold thousands of foreclosed rental properties stick in their collective craws like indigestible rock.
Many banks have no intention of becoming landlords and kick out tenants when they foreclose on an apartment property. They’d rather see the property remain vacant, rather than bother with becoming landlords or hiring property managers.
Onetime real estate investment hotspots are cooling fast. A recent sub-headline in a Miami newspaper reads, "South Florida’s many condo buildings began to suffer from hundreds of foreclosures – and it may get worse in 2008." (Miami Herald, 1-09-08)
According to several real estate analysts, the foreclosure crisis is really hitting condo complexes, with those who are left behind and continue to occupy their buildings now having to foot even higher maintenance and home owner association costs. The owner-occupied units have to take up the slack for the now abandoned and foreclosed invester-owned properties.
It’s been said that hot manure doesn’t run uphill and the same is true of bills and fees. When companies get in trouble, they pass their ‘trouble’ on to their customers and clients. The same is true of governments and home owner associations.
Many cities are losing tax revenue because of the massive amounts of abandoned foreclosed properties within their corporate boundaries. Likewise, the remaining condo-owners and property owners who live in neighborhoods or condo complexes with large amounts of abandoned, foreclosed properties wind up taking up the slack in some form or another, through decreased property values and falling tax and homeowner’s association revenues.
Condo associations, which collect fees from residents for maintenance, repairs, management salaries and utilities, have been losing revenue as the numbers of speculator-driven foreclosures rise. It turns out that many condo owners who are struggling to pay their mortgages are also falling behind on association dues. (Business Week, 11-29-07)
Across the country, there are a lot of anxious investors who are waiting for the other shoe to drop. Many hopped into the condo investment business hoping to take the loot and run, but unfortunately, when the bottom dropped out of the market, there were no takers and they were left holding the bag. Thousands of investors were so sure they were going to strike it rich in real estate development that many invested money they could not afford into homes, condos and apartments, only to find that they now are holding the bag on white elephants that nobody wants to buy.

The condo frenzy displaced millions of apartment dwellers, in a time where it was thought that you could make a bundle converting apartments into condos and selling each unit at a hot price. Unfortunately for them the market has not only cooled, but a great part of it is frozen into foreclosure. And now, the shoe has not only dropped, it’s been kicking investors upside the head with a vengeance.
Many investors are caught between a rock and a hard place, saddled with unsaleable properties. Instead of appreciating nicely, with a good profit in store, the value of their real estate investments are instead dropping like rocks, leaving them in a quandary, as was the case with a group of investors in the rental market in San Diego.
The group toyed with a number of possibilities: condo conversion-conversions, condo reversions and even apartment conversions. Pinnegar, executive director of the San Diego County Apartment Association, isn't sure if they ever pinned down a final moniker. But he does know that everyone in the business is asking what's going to happen to all the people who jumped on the condo conversion bandwagon in San Diego, only to find a sinking condo market at the end of the road. ("Condo Conversion-Conversions", Will Carless, staff writer, Voice of Sand Diego, 7-24-06)
The mortgage and foreclosure crisis, which is currently chewing up the nation’s real estate market has uncovered deep faults in the industry. According to an on-line version of Atlantic magazine, there is quite a lot of variety in the types of cities, structures and neighborhoods struck by the foreclosure mess, so much, in fact, that whether foreclosure is a catastrophe or minor crisis depends much on the nature of the mortgages being foreclosed.
Nationally, the variety of communities facing a wave of foreclosures is striking. Many areas of go-go growth—the Southwest, California’s Central Valley, much of Florida, eastern Colorado, Greater Atlanta—have been hard-hit. So too have portions of the Rust Belt, and a narrow east-west strip running from Tennessee into Arkansas. The places encompass run-down neighborhoods as well as areas with at least a veneer of affluence. (On the street pictured below, many of the houses sold for $400,000 or more.) If nothing else, the meltdown forces us to consider how much uncertainty may lurk beneath the surface of apparent prosperity; an ample suburban house could be an asset or a liability, depending on the terms of the mortgage and the direction of the local market. ("There Goes the Neighborhood", the Atlantic.com, January/February, 2008)
Meanwhile, as the lights go out in condos and homes around the nation after a visit from the foreclosure squad, many so-called vulture investors say, don’t blame us, we provide a necessary service. So-called vulture investors say they are a necessary part of the real estate food chain, even going so far as to say there aren’t enough of them to "clean up the market."
Between 2006, the start of the sub prime meltdown, and 2007, over 165 lenders have closed there (sic) doors due to poor business decisions. What happened to all their loans? Larger institutions purchased them at pennies on the dollar. These big banks and others were not looked at as vultures. It was simply accepted as common business practice. Now those institutions have to foreclose on all the nonperforming notes they bought and try to sell the properties at auction. What happens if no one buys them? What if there are no vultures to come and solve the problem? The more money the banks spend on their properties the less money they have to lend. Eventually they will go out of business and possibly send the country in to a recession. The "carcasses" will rot away, and feed no one. That where the Vultures come into balance the food chain. Traditionally Vulture funds were set up to help the rich get richer off the miscalculations of others and you would need a minimum of 1 million dollars to take part - because that’s what the market conditions called for. However, now we are in a new age; the age of the Vulture. The market is saturated with deals. The game calls for more players. (foreclosure blog)
Many who can still afford their homes continue to pay their mortgages, despite living in neighborhoods with far too many vacant, foreclosed properties for their comfort. They know what the real estate agents know: foreclosed properties in their neighborhoods decrease the value of their own property. To heap more coals on this roaring fire, foreclosure is an infection which contaminates whole city blocks, entire neighborhoods.
One of the most dangerous side effects of foreclosure, residential foreclosure in particular, is the effect that abandoned, foreclosed homes/property have on the surrounding neighborhoods. The boarded up, empty, abandoned properties, by their very presence, harms the neighbors of people in foreclosure, even those who aren’t having trouble making loan payments.
According to one academic study, every foreclosure reduces the value of all other houses within an eighth of a mile by about 1 percent, as the sight of vacant property scares off potential buyers. Combine that with a market already in decline, and neighborhoods that begin to have troubles can go off the cliff. On the street pictured, three houses not in foreclosure have been languishing on the market for 72, 97, and 149 days; asking prices along the cul-de-sac vary widely, but average about $40,000 less than the comparable prices in the first two quarters of the year. (Ibid)
From a "vultures" point of view, dive on in, the water's great. Despite the foreclosure glut, there are people, institutional investors, who have billions of dollars in investment capital available. They are on the prowl, looking for good real estate investments, yes, even in this market. And they are searching for a "good deal"—with cash in hand.
(Jack) McCabe, chief executive of McCabe Research and Consulting in Deerfield Beach, Fla., said investment groups with capital "in the multiple billions" are already active in South Florida, searching for fire-sale prices on properties with good long-term prospects. (Washington Post, 10-20-07)
To top it all off, and throw more blood in the water, the fact that the major players keep falling out of the trees like iguanas in a South Florida cold snap makes the game all the more exciting and profitable for those who have the money to buy. As of today, rumors about a potential bankruptcy by a major player in the mortgage industry abound.
The LA Times is reporting of rumors that Countrywide may file for bankruptcy protection.
Countrywide Financial Corp. denied Tuesday that it was considering filing for bankruptcy protection, but its stock price collapsed on widespread rumors, falling to an 11-year low. The Calabasas-based company, which cut more than 11,000 jobs last year, was pummeled by the bankruptcy speculation and Wall Street gossip that its debt would be downgraded by one of the major bond-rating firms. (LA Times, 1-9-08)
The bloodletting in the mortgage industry continues and the vultures are waiting in the wings. As one analyst put it: the problem is not just centered on urban areas, in neighborhoods full of subprime mortgages sold to poor and minority homeowners. There are trillions of dollars worth of risky loans out there, and untold numbers of vulture capitalists waiting to invest in the fallout.

As America's mortgage markets began unraveling, economists initially focused on sub-prime mortgages issued to largely low-income, minority and urban borrowers. Closer analysis reveals risky mortgages in nearly every corner of the USA. Analysis by The Wall Street Journal indicates that from 2004 to 2006, when home prices peaked in many parts of the country, more than 2,500 banks, thrifts, credit unions and mortgage companies made a combined $1.5 trln in high-interest-rate, high risk loans. The potential losses on these loans are unknown. ("This Credit Crunch Has Bite: Part I", Minyanville.com)

Monica Davis is a journalist, public speaker and author of hundreds of articles and several books, including: Land, Legacy and Lynching: Building the Future in Black America. Her articles have been used by home schoolers and students around the world. Author website: http://www.lulu.com/davis4000_2000