Wednesday, February 21, 2007

The New Faces of Foreclosure

I just got back from a day at court. After court was over, I went to see another attorney about some work he needed done. He had just returned from a seminar where a local judge recounted how many foreclosures that are starting to take place locally. The real shocking news was that about half of the foreclosures were homes owned by attorneys. Apparently the market is worse than I previously thought.

Now, the judge's account is merely anecdotal, but the fact that she is noticing a significant number of attorneys who are losing their homes in foreclosure is, to me, substantial.

Based on what I am generally hearing at the courthouse, and from this lawyer in particular, incomes are down for attorneys. After the change in the bankruptcy law, mine sure is. I went from doing 3 or 4 consumer bankruptcies a week to 4 all of last year. Because of the nature of the law practice, it is not so easy to "retool" your practice if your area of concentration or specialty is curtailed due to legislation. I am not the only attorney to face a fractured market. Oklahoma severely restricted worker's compensation. (I don't really practice this area, but my understanding is that they eliminated all compensation for "soft tissue" injuries.) Oklahoma also has limits on punitive and exemplary damages. I have previously written on the attempted restriction on medical malpractice lawsuits.

The net result of all these "reforms" is that it has led to lower incomes for attorneys. So it is no wonder that attorneys are feeling the same crunch as the rest of middle America. In some ways, I'll admit that there may be some good in it. Lawyers are still the educated class. They will be able to articulate why the conservative attempts to limit access to the courts is a bad idea.

In the past, lawyers argued for more access to the courts because "jaw-jaw" is better than "war-war." That is to say: it is better that people be able to fight out their differences in the courtroom than riot on the streets with weapons and violence. Less access to the courts mean less avenues for responsible and peaceful resolutions of real or perceived injustices.

I have actually considered (and am still considering) getting out of the practice of law completely. But getting out of the law practice is not so easy. Once on a case, it can be a tar baby to get out of. (On a side note, although I touch on racial issues in this post, I am not using "tar baby" in the sense of a racial epithet. I would use another term -- if I could think of one -- but I cannot find any references to other terms that have the same meaning.)

Yesterday, Barry Ritholtz of the Big Picture blog published a series of colored maps on the risk of foreclosures around the country. He got the maps from a site called Neighboroo. Based on this map, the far west side of Oklahoma City is at the least risk for foreclosures, while the rest of the metropolitan area are at a greater risk.

Based on what I know about Oklahoma City, it appears there is some correlation to African-American areas having a greater risk of foreclosures than other areas. There has been some hints in the past that African-Americans have been steered into more risky loans than other racial groups, so this could be an indication of it as well.

I have more of a tendency to believe that it has a greater correlation to poorer and less-educated populations being taken advantage of rather than on a strictly racial basis. But I think that because African-Americans have less economic power as a group that it shows up as a racial correlation.

Here is a page that explains the terms "Collateral Risk" and "Foreclosure Rate."


Teri said...

It still does not make sense to me that people couldn't recognize historically low interest rates. To me, if they are that low, you want to lock in a fixed rate. Instead, people chose to buy more house than they could truly afford, putting little or nothing down and choosing an adjustable rate mortgage designed to increase as the rates went up. I'm glad to be out of that. Your mortgage payment would go up regardless thanks to increasing property taxes. My friend with five acres in the Vancouver WA area is being charged $5000 a year in property taxes. She's going to have to sell the place, even though she's got equity in it and bought the place before prices got crazy. Her salary won't cover the property taxes plus the mortgage.

Jacqueline S. Homan said...

I believe we should tell our elected representatives that "lender reform" is far more constructive than tort reform. Tort reform, or more aptly tort deform, has basically curtailed the rights of those who have been done wrong to seek adequate remedy to be made whole. This article on skyrocketing foreclosures brings to mind an example from here in Erie, PA. My stepdaughter and her husband are both solidly middle class and should not have lost their modest home.

However, when interest rates were at a record low two or three years ago, Dyan and George tried to do the "right thing" and refinance in order to save 3% or more on their monthly mortgage payments.

But unfortunately, their credit wasn't very good. Their own bank, Wells Fargo, would not refinance them at the more affordable rate. They ended up in an adjustable loan from an out-of-state mortgage lender. The worst part is that they were lied to by this lender, and from what I gather this lender violated every law under Regulation Z (the Truth in Lending Act).

They were told they got a fixed rate mortgage when they did not. One thing led to another and they ended up behind on the payments and subsequently lost their home and are now reduce to having to rent a house that is too small for their family of four, but it was the best they could get on what they could afford. They had to give away their pets, which was as hard on the animals as it was on their kids, because no landlord would rent to a family of four that also had 3 cats and a pit bull.

The worst of it was they trusted the "professionals" with whom they were dealing. When they tried to get their delinquent mortgage caught up, the late fees had piled on and they were set on a one-way path to foreclosure. In desperation, they turned to yet another shady outfit who advertized on the local radio station that they can stop foreclosures. This outfit was based out of Florida. Instead of stopping the foreclosure, all they did was take Dyan and George's money.

Dyan and George are not educated people. Dyan got an alternative HS diploma (she got pregnant in high school and had to go to an alternative school for unwed young moms) and George has a GED. Dyan works in a call center, George lucked out and got in with the city driving a garbage truck for about $45,000/year plus benefits. They are your average salt-of-the-earth people who live right, work hard, and play by the rules. And they got taken for a ride, apparently without legal recourse.

Out of state sub-prime lenders who are nothing short of con artists and thieves can duck lawsuits easily. Even if you can manage to find a lawyer willing to go out of state to sue these outfits, they simply file corporate bankruptcy and reincorporate somewhere else. Instead of tort reform, what we really needed was lender reform.