A Beautiful Model for Fraud

Take a look at this:

A Beautiful Model for Fraud and here is the accompanying article:

The great credit unwind of '08.

New Foreclosure Fraud Scam

Foreclosure Fraud Scam PSA


Don't fall prey to scam artists to promise to "save" your home from foreclosure. The answer they promise will be worse than the disease. If you are having a problem, call your lender or talk to a bankruptcy attorney.

Hat tip: Tanta at Calculated Risk

Predatory Lending PSA

We're All Subprime Now

Today, blogger Tanta, who writes for Calculated Risk, today wrote about predatory practices in the mortgage industry in HMDA Data on High Priced Loans. A clip:

This whole dynamic may be hard for the WSJ and its fellows in the Big Paid Media, so let me explain this very clearly. In 1975, some folks accused lenders of redlining, which means not granting credit at all to some people. The lenders said they weren't doing that. Congress passed HMDA, and then there was actual data about geographic lending patterns to analyze instead of anecdotes. Once we got some HMDA data under our belts, the Community Reinvestment Act came into being (in 1977) precisely because it was clear that redlining had been going on. CRA in essence forces lenders to show that they are willing to make loans in neighborhoods in which they are willing to take deposits (i.e., those deposits need to be "reinvested" in the neighborhood they came from in the form of loans, not just mortgage loans, to that neighborhood. You can't extract deposits from poor people and use them exclusively to fund loans to rich people.) CRA does not mandate price levels, or even address the question of price levels.

You may be surprised to hear this, but over time accusations of discriminatory lending practices did not go away. In a number of cases, "mystery shopper" tests were performed, in which a white applicant and a black applicant each applied for credit at the same instutition with identical credentials (employment, income, credit history, loan terms), and the results showed that black applicants were more likely to be turned down. This cast some doubt on the lenders' claims that loan rates in minority neighborhoods were a function of the lower credit quality of those borrowers. That became a hypothesis in need of some testing, you see, not an accepted explanation.

So the 1989 revision to HMDA forced collection of demographic data, for the precise purpose of testing the assumption that poor and minority people are just always bad credit risks. This resulted, as you might expect, in conjunction with CRA and other fair lending laws, in much higher rates of home mortgage lending in those areas that were once redlined.

But were these poor and minority people happy, at last? Why no, they weren't. Turns out, anecdotal evidence began to emerge that while these good people were finally getting loans, they were getting them at much higher interest rates than higher-income folks and whites generally got, and that this could not be accounted for by the difference in creditworthiness of the borrowers or the quality of the collateral (the latter proxied by census tract).

...

The bottom line is, as [Calculated Risk] notes, that "high-risk" lending was everywhere in the boom years. Of course there is a desire to collapse it all into the easy category of "subprime." And there has for a long time been a lot of political pressure to keep the association of "subprime" and "urban minorities" in place, because it has functioned as a good excuse for the subprime lenders (they "help" the poor and minorities, remember?). My view is that a whole lot of parties are very interested in maintaining rather than seriously analyzing a lot of faulty assumptions about risk, rates, and borrower credit characteristics. If this ain't "just a subprime problem," then an entire debt-based economy in which even the middle and upper middle class cannot afford homes given [real estate] inflation and wage stagnation is suddenly in question. The last thing certain vested interests want to hear is that, basically, "we are all subprime now."

My favorite comments:

At least then, when they say the problem is contained to subprime, they'd be correct.
daveNYC | 10.11.07 - 10:47 am |


What about the revelations coming forward that a lot of these sub-prime loans were to people who would/could /should have qualified for prime loans. My gut feeling is that the lending industry realized that there was more money to be had in the sub-prime market and rationalized the use of the product by telling borrowers your can always refinance. So while I can see the possibility that we are all becoming sub-prime candidates because of high LTV due to lack of down payments or low rates to buy the MacMansion, I cant help but feel it was the lenders looking to sack the borrower for higher fees and on top of that being bale to book unrealized profits from the fully adjusted loans. Now there is a racket!!
formerly known as... | 10.11.07 - 11:41 am | #


Down where the rubber met the road, '04-06 subprime was a broker-dominated and refinance-oriented business. Those brokers tend to chase after big fish. Which would you rather do? ONE loan for a cardiologist with a bunch of lates thanks to the ex-wife or TEN deals involving city bus drivers with gambling problems, immigrant cleaning ladies with thin credit files, single moms with three jobs, dancers with cash wages and voracious drug habits? - oh, wait, that's alt-a - anyhow, you get the gist. It's not that subprime was ever AIMED at low-income - quite the contrary - it's just that median income of those with impaired credit happens to lower.
Shnaps Parlor

The last paragraph raises an interesting point. We have been told that FICO scores are not related to race, sex or economic status. However, it is also true that women, minorities and lower-income individuals not only have less economic power as a group, but also are at a greater risk that the above examples and medical problems/debt are more likely to adversely affect their ability to pay their bills. Hence, lower credit scores.

The end result is that it contributes to the disparity between the wealthiest (who have the highest credit scores, due to the ability to weather unexpected expenses, and therefore who borrow at lower interest rates), and the poor (whose credit scores crash after one adverse event and have to borrow at higher interest rates). (BTW: I have been meaning to write about how banks charge fees on small balances that can quickly sap wealth from poor patrons.)

The answer is to provide social insurance on some costs (medical debt and education) and living wages that allow for even the poorest to save for the future. There are some costs which cannot be defrayed: rent, electricity and natural gas, food, transportation and personal hygiene. Even the lowest wage should be enough to cover these costs and provide enough to save for the future.

Worst Is Yet To Come?

From the article Housing seer says there's worse to come:

So, with subprime mortgage losses and credit woes now the No. 1 topic in the markets, what does the former Goldman Sachs investment banker see next for the housing market and the U.S. economy?

Well, if you thought things were bad now, just wait. Think bank failures, recession, soaring default rates, home prices plunging by at least one-third and layoffs rippling across the economy. The unwinding could take five to seven years before the housing market hits bottom, he says.

As a former Wall Street insider, Mr. Talbott has a better appreciation than most for how large financial institutions operate. And what he senses now is a massive effort to conceal the extent of the toxic sludge buried beneath some of the biggest names in the business.

"Everybody is hiding and not disclosing losses," he says. "They're all winking and nodding at each other because they've all got this stuff on their books."

With 40 per cent of some banks' assets invested in residential mortgages, they won't be able to conceal their losses forever. Faced with rising defaults, banks are already pulling back on lending. The lack of credit, in turn, will exert a major drag on the economy, which for years has been fuelled by easy money. That's why Mr. Talbott says a recession in the next 12 to 18 months is a certainty.

...

The subprime meltdown has been described as a liquidity squeeze, which makes it sound like a temporary problem that can be cured with an injection of cash. But the problem is far more serious, he says.

"Giving a bank more cash doesn't solve the problem. What they're sitting on is huge losses and they can't recognize those losses without endangering their entire book equity and threatening bankruptcy and threatening a run on the banks."

I don't know if things will get that bad, but it's a potential scenario. I suspect this very scenario that could happen is what is worrying many Americans.

Countrywide

Hat tip to Calculated Risk

Read this story from the Chicago Tribune and see if you don't agree that that there is some serious need of judicial and congressional intervention to prevent these types of abuses. Here is part of it:

PITTSBURGH - For Donna and Steve Love, the plan seemed perfect.

Priced out of the Boston-area housing market, where 2-bedroom homes can cost about $500,000, the working-class couple thought it was time to head to a more affordable market.

They chose Pittsburgh. They liked the city, thought they could get jobs there and were sure they could afford a home without having to win the lottery.

After finding their home -- a $59,000, 3-bedroom, brick row house near the city's downtown that they paid for with a subprime loan -- they moved in June of 2006 and tried to settle into their new life.

But within a year, they were facing foreclosure, their relationship was strained to the near-breaking point and their emotions were in tatters as they tried to hold onto their home.

"Sometimes I feel like I have post-traumatic stress disorder," said Donna Love, 46.

Their story has been repeated thousands of times this year alone, as the subprime mortgage market, made up of loans to consumers with a higher default risk, continues its dramatic collapse.

...

The Loves qualified as subprime candidates because of their income level and because Steve Love, 30, had so little prior credit history.

"I believe in paying in cash," said Steve, who worked as a night manager at a CVS pharmacy near Boston, a job he expected to replicate by transferring to a Pittsburgh CVS store.

...

In March 2006, they reached what they thought were final terms for the loan: $5,000 down, a 7.75 percent interest rate, fixed for two years and then adjustable for the remaining 28 years, with a cap of 14.75 percent.

The $429 mortgage payments would be higher than they expected, but still within their budget -- equal to less than one week of Steve's salary with CVS. Plus, it was still cheaper than their $700-a-month rent in a suburb of Boston.

Then, on April 20, two weeks before the May 3 closing date, they said they got mortgage documents in the mail with a letter that said they should sign all the papers and return them as soon as possible.

But they quickly noticed the final contract listed a higher interest rate of 12.125 percent, with a cap of 19.125 percent. That pushed the monthly mortgage payments up more than $200 to $692 a month.

"We both said, 'Oh my God!' and started reading page by page," recalled Steve Love.

They called Countrywide and talked to several representatives who told them "that the fluctuating market went up and investors had asked for a higher percentage rate on the loans, and this was the best they could do," he said.

Other problems surface

"We weren't sure if we would ever find another property we'd agree on. We'd already rented our apartment. We'd resigned our jobs. We were afraid of losing our $1,000 deposit [on the home]. There was just a huge fear factor there," Donna Love said.

The couple decided to go ahead with the loan, figuring they could refinance in six months.

The lenders do this because of these people's commitments, they are without adequate bargaining power. This problem is playing out (pardon the pun) countrywide. We need to get some serious oversight and remedies and quick.

Mortgage Delinquencies Rising in Oklahoma

I got this from The Big Picture. I can't read the stories behind it (Barry gives the links) because they are behind subscription firewalls. Hey, I can't afford everything.


I can tell from the maps, however, that the Oklahoma City and Tulsa metropolitan areas are both getting hard hit. The area near Ft. Smith, Arkansas is getting even harder hit. I don't know what is causing that.

What is interesting is that this is happening at a time when the oil industry is starting to make a comeback in Woodward, Oklahoma (near the Oklahoma panhandle). But while there are several large oil companies in the Oklahoma City and Tulsa area (Devon, Chesapeake, Anadarko, Phillips, Williams), it is surprising that we have not seen the rush to hire new people.

The delinquencies are probably due to the closing of Firestone, Dayton and other industrial manufacturing plants locally. I reported on that earlier here and here.

TPM Post: Why Are the Economic Polls So Gloomy?

* 44 percent agree with the statement “I don’t have enough money to make ends meet,” up from 35 percent in 2002 (Pew Research Center).

* 35 percent describe the state of their own personal finances as “shaky” compared to 28 percent in January (LA Times/Bloomberg).

* 73 percent agree that the “rich just get richer while the poor get poorer,” up from 65 percent in 2002 (Pew); in an LA Times/Bloomberg poll from late last year, 74 percent said the income gap was a problem; that share rises to 84 percent for families with incomes less the $40,000.

* One of the most recent economic polls, from Gallup in early April shows that only 29 percent think the economy is getting better, down from 38 percent in February; 60 percent think it’s getting worse, up from 52 percent in February. The Gallup pollsters said the results reveal a “gloomy economic mood across the country.
”
* Another poll out today on consumer sentiment posted a larger-than-expected slide to its lowest level since August.

Here is a reprint of a comment by Anthony Wikrent:

I believe it is some sort of low point for a professional economist to appear in a so-called liberal blog and openly wonder why so many of our fellow citizens are gloomy about their economic prospects.

After six years of fiddling with the numbers, such as removing the “core” from the consumer price index, the economic statistics posted by the Bush regime are a joke. They’ve politicized the “occupation authority” of Iraq, they’ve politicized the command structure of the military, they’ve politicized the EPA, they’ve politicized the Dept. of Justice – you honestly don’t think or suspect they’ve politicized national account statistics?

To get a real sense of the national economy, you have to avoid large urban areas and resort areas for a few weeks. Try spending a few days in towns like Cumberland, Maryland; Zanesville, Ohio; Evansville, Indiana; Corbin, Kentucky; Boonville, Missouri; Yankton, South Dakota; Aberdeen, Washington; Coos Bay, Oregon; and you will be slapped in the face with the grim economic reality that professional economists are apparently unaware of: the industrial base of the United States has been shut down, and nothing has replaced it. Well, that second part is not quite true. Every small town is chock a block full of “antique” stores and thrift stores and second hand stores where the former workers of small town factories, mines, and lumber mills anxiously display their hand-made crafts or estate sale finds in the hopes of attracting buyers. The sense of desperation is palpable.

I have also yet to see or hear of a discussion or study of just how much the national account statistics have been skewed by the financialization of the economy. According to the latest Quarterly Report from the Bank for International Settlements, dated March 2007:

Trading on the international derivatives exchanges slowed in the fourth quarter of 2006. Combined turnover of interest rate, currency and stock index derivatives fell by 7% to $431 trillion between October and December 2006.

(see page 24)

So, derivatives trading – mostly futures contracts on interest rates, foreign currencies, Treasury bonds, etc -- is now $1,200 trillion in a year. That’s $1.2 quadrillion a year.

By comparison, U.S. GDP last year $12.456 trillion.
( Table B-1 of the 2007 Economic Report of the President.

So the entire U.S. economy of goods and services produced is traded once every two days. Assume a speculator is able to capture as profit one fifth of one percent of that $1,200 trillion a year in derivatives turnover, and that is $2.4 trillion a year. Surely such monstrous numbers are skewing averages and means significantly.

Perhaps it is not easy to get your mind to grasp what an astonishing figure this $1,200 trillion is. If you took just one percent of it, $12.0 trillion, and divided that by the 270 million Americans not in the top ten percent of income, every man, women and child would get over $44,000. Imagine how different the economy would look if every person in the United States had been given an additional $44,000 in income every year over the past few years, instead of this:

The New York Times (Bob Herbert) reported yesterday that the 93 million non-farm production and nonsupervisory workers in the U.S. saw their real earnings go up by $15.4 billion between 2000 and 2006. That's half of the Wall Street bonuses paid by just five firms in 2006.

Personally, I think that $44,000 figure is rather interesting. Because, if the percentage change in wages from 1959 to 1981, when Reagan became President, had held at 5.478% for the past 26 years, average weekly earnings for private industry today would come to $53,802 in annual wages, rather than the $29,473 we now have. Not an exact correlation, but very, very interesting. (These are my own calculations, based on Table B-47. Hours and earnings in private nonagricultural industries, 1959-2006 in the 2007 and 2004 Economic Reports of the President. I have multiplied weekly earnings found in the table to arrive at annual earnings.)

Or how about this: There are 45 million kids in the U.S. aged 5 to 15. With one percent of the annual turnover in derivatives, we could build and staff a brand new elementary school for every hundred kids in the US.

For the full post by economist Jared Bernstein and discussion of his post, click on the title above.

How Much of the Housing Boom Is Based On Fraud?

In an article today in the Washington Post, Housing Boom Tied To Sham Mortgages I saw this interesting quote:

Federal law enforcement officers say that with heavy demands on them from homeland security, they have had the resources to shut down only the worst offenders.

"By the time we prosecute, the damage has been done, the neighborhoods are already destroyed and the money is gone," said David E. Nahmias, the U.S. attorney who oversaw the Hill case.

In Atlanta, entire neighborhoods and condominium developments, especially those in affluent areas, were hit by organized fraud rings. Initially, these schemes pumped up housing values for everyone as artificially high appraisals helped the swindlers get inflated loans. Legitimate home buyers rushed in to get a piece of what they thought was a soaring real estate market. Now as the fraud is being exposed, their home values are taking a hit.

As more of these cases come to light around the nation, the question is: How much did an epidemic of fraud contribute to the frenzied housing market of recent years?

Earlier in the article there was this:

In some neighborhoods, mortgage fraud became so extensive that it drove up overall home prices. That is what happened in Atlanta. Hill, 50, was convicted last month in what authorities call one of the biggest mortgage-fraud cases in U.S. history. It involved 400 fraudulent loan applications; nearly $100 million in mortgages; and 120 closing attorneys, appraisers, mortgage brokers and others who prosecutors say were in on the scam.

Federal prosecutors say this kind of fraud is hardly unique to Atlanta -- the lax lending standards that Hill exploited have existed throughout the country in recent years.

What's that saying? "One bad apple spoils the whole bunch."

There were a lot of innocent victims taken advantage of:

Prosecutors think most of the straw buyers, some just college students, did not know what Hill was doing with their names and credit histories. Several later testified that Hill's attorney flipped through loan documents so fast at closing that they hardly read what they were signing. Most apparently thought they were becoming the owners of homes Hill would maintain and rent out to make the monthly payments.

This shows that more attention needs to be taken of white-collar crime. As the article says, resources are being taxed due to the demands of Homeland Security.

I can also tell you that working in the bankruptcy field, there is a lot of overlap in dealing with people who are the most vulnerable to being taken advantage of by these types of crimes. That is why it is important for us to have a strong governmental arm to be the watchdog for these people. Think about it, the people who are the most educated about how these things work -- lawyers, appraisers, real estate agents and bankers -- were were the ones taking advantage of less-educated folk and were getting rich at their expense.

This is the reason why you need more government oversight to prevent white-collar crime. The effects of the crimes often have wide-ranging consequences.

Did Subprime Mortgage Lenders Learn Their Tricks From Used Car Salesmen?

That's the theory behind Road To Ruin: Subprime Lending In The Auto Industry

Overholt is a shady car dealer's worst nightmare. In the business for 25 years, Overholt stood up and blew the whistle in 1997. At the time, by his calculation, he had swindled consumers out of $33 million. Today, he says, abuses at auto dealerships are even worse.

"In 1997, the average rip-off that I could identify, because I did it, was about $1,200 a car. Today it's over $4,000 per automobile."

The rip-offs don't just come on the price of the car, but on the financing. And Overholt says the subprime customer has provided an easy mark for the unscrupulous dealer.

The customer who has little money and poor credit gets saddled with a very high interest rate. In addition, the consumer is charged for things that aren't really there, inflating the price of the car and -- more critically -- the amount the consumer must finance.

They're doing it, he says, by falsifying documents. On the credit application, income is inflated and length of employment is increased to make the subprime borrower look more credit worthy, so they can afford a more expensive car, with those higher than necessary monthly payments.

"They're taking other documents the bank requires, such as a book-out sheet, showing the equipment on the car, and falsifying that," Overholt charged. "Now, that's a very key document because it establishes the value of the car. These two documents they falsify consistently."

For example, a consumer may want to purchase a used SUV that is actually worth $12,000. But as chrome wheels, alarm systems and premium sound systems are added on paper -- but not installed -- the price of the car rises to $15,000. As a result, the bank lends more money on the car than it's actually worth.

"The customer is not only upside down because of the interest rate, there's equipment on the car that doesn't really exist, and they've been put into an automobile they know they really can't afford," Overholt said. "The consumer always believes that the bank is the good guy, that it's not going to lend them money they can't afford to repay. But that's not the case."

How many car dealerships engage in these fraudulent practices?

Overholt admits that it's hard to know for sure, but he believes it could be as many as 60 percent, with more succumbing to the pressure all the time. One rule of thumb, he says, is the bigger the car dealer, the more likely it is to be ripping off its subprime customers. Recently, automotive site Edmunds.com hired an undercover reporter to expose fraud in the showroom.

[William] Cunningham, whose expertise is mortgage lending, has closely followed the implosion of the subprime mortgage market. He traces the problems to the very concerns Overholt has expressed.

"A lot of these predatory lending practices that are now showing up in the housing industry started out in the auto industry. When they weren't caught adding thousands of dollars to the cost of a car loan, those practices bled over to the housing sector," Cunningham said.

"A lot of these predatory practices were first put onto people in communities of color; in Hispanic communities, where there are language issues, and in African-American communities, where there is a problem just from a net-wealth standpoint. We've seen these practices that started out in communities of color now move into the broader community."

Hat Tip to Elaine Dowling for finding this article.

Real Estate Values as a Roller Coaster

Click on the title for a YouTube video posted at The Big Picture blog turning real estate values into a roller coaster using Roller Coaster Tycoon.

I am still not convinced that the Real Estate Bubble is as widespread as it is suggested. I am currently looking at buying a 850 square foot home with central heating and air, a garage, hardwood floors and a storm shelter (to dodge Oklahoma tornadoes) for about $55,000. My payments with taxes and insurance would be about $430 per month -- which is cheaper than what it would cost me to rent an apartment (and houses rent for about $600 in the same size). So I'm having a hard time understanding this housing bubble economy everywhere else.

Congressional Hearing On Predatory Lending Opening Statement

Here is the opening statement of James Rokakis, Treasurer for Cuyahoga County, Ohio, discussing the problems that such lending practices have caused for his community.

Under the Weather

I haven't been posting much because when I came back from vacation I was:

1) ill (Allergic Rhinitis and Bronchitis, according to my doctor); and

2) trying to catch up on some work.

I have been following the roiling of the financial markets (down another 2% yesterday, with several world markets also slumping overnight) when I was vegging out on my sofa with my hacking cough and going through a box of tissues. The illness has just left me without much motivation to blog (or read) much.

The builders are supposed to be by today and tomorrow to fix my roof and build my new carport. Among the repairs, I have been making other improvements because I am still leaning toward selling the house I inherited (with its payment) to move into a smaller house. A 1700 square foot house with almost an acre of land is just too much for one person, really. That's not to mention the three storage buildings. I thought about converting one (the largest one) into an efficiency apartment/cottage, but my heart wants to move to another area. Most of my neighbors are elderly and I want to live in a more vibrant area.

The conundrum is that under current prices here in Oklahoma City, the realtors that I trust are saying that my 1700 sf house with almost an acre of land would only sell for about the same amount as one in the part of town that I want to live in for a house that is half the size, a yard 1/3 the size and about the same age as the one I am in now (and not necessarily in as good of a condition). Even with the new roof, new carport, new paint inside and out, new water tank, a remodeled bathroom, new gravel in the driveway and all the other repairs and improvements that I have made, the value of my house, I am told, will stay about the same. Just those repairs alone have cost me over $15,000. Mind you, the large repairs, like the roof and the carport, were mostly covered by insurance, but all the other stuff wasn't.

I am looking for ways to downsize and save money, but other than the savings coming from having a smaller electric and gas bill, I am not seeing much savings moving to a smaller place in another neigborhood. The insurance and taxes would actually be higher somewhere else. The payment would be about the same and there are the fees associated with both buying and selling a home.

What to do? I am not sure I can get a good answer.

That Sinking Feeling

An article in BusinessWeek yesterday indicates that the fallout from subprime loan defaults could have implications for the overall economy.

The gathering storm clouds over the nation's housing and lending markets grow darker each day. Fueling the latest concerns is further fallout in the subprime mortgage loan market, where lenders offer financing to less-creditworthy buyers.

Global banking giant HSBC Holdings (HBC), the third largest subprime lender in the U.S., disclosed on Feb. 7 that full-year 2006 impairment charges at its U.S. mortgage unit would be 20% higher than the $8.8 billion or so that analysts had been projecting. On Feb. 8, New Century Financial (NEW), the nation's second largest lender to subprime borrowers, said it expected to report a loss for the fourth quarter, and that it would have to restate its financial results for the first three quarters of 2006 (see BusinessWeek.com, 2/9/07, "Subprime Time Bomb"). Another subprime lender, ResMAE, filed for bankruptcy on Feb. 13, bringing the total failures to 21 since December, according to www.ml-implode.com, reports Action Economics.

Wrong-footed by the rapid deterioration in subprime loans, primarily those originated in 2006, lenders such as New Century have had to buy back a growing portion of these loans, which they had sold to investors and other financial institutions, because of faster-than-expected defaults. HSBC particularly identified second-lien or "piggyback" loans (loans made above a first mortgage, generally to help buyers come up with downpayments) in its mortgage book as those that could be hurt by higher interest rates as adjustable-rate mortgages (ARMs) reset over the next few years. HSBC acknowledged that some borrowers face fewer refinancing options amid slowing growth in home prices, and limited if any appreciation in their home equity.

Home Sick: How Medical Debt Undermines Housing Security

A report by The Access Project shows that medical debt affects people's ability to acquire or maintain housing. Among the key findings:

The survey shows important connections between medical debt and significant financial hardships:

Housing problems were common

More than one-quarter of respondents with debt said housing problems resulted from the debt. Problems included:

• the inability to qualify for a mortgage
• the inability to make rent or mortgage payments
• being turned down from renting a home
• being forced to move to less expensive housing.

In addition, some people said they have been evicted or were now homeless because of medical debt.

These findings establish medical debt as a barrier to important elements of economic advancement, namely asset development and housing security. Respondents in all racial and ethnic categories, as well as all income categories captured in the survey, were substantially affected.

Bad credit was a frequent result of medical debt

Our survey found that most people did not know whether their medical debt was on their credit reports, but of those who did know, three in five said it had damaged their credit. Damaged credit affects people's ability to secure a mortgage or to rent an apartment. It may also be a barrier to employment and auto or home insurance, and has other repercussions as well. The effects of damaged credit linger: a delinquent account can remain on a credit report for seven years.

To see the full report, click on the headline above.

Predatory Mortgages Creating Crisis

Predatory mortgage lending, fueled by an explosion in high-cost, subprime loans, is creating a "crisis for millions of American homeowners" that requires action, Senate Banking Committee Chairman Christopher Dodd, D-Conn., said Wednesday.

Underscoring his point, Amy Womble of North Carolina told the panel how she refinanced into what she thought was a less-expensive mortgage after her husband died, only to find the monthly payments were $2,100, more than twice what she'd been told.

"I cannot afford this loan, and I'm very afraid I'm going to lose my home," Womble said, calling the house a constant for her children since their father's death.

...

Dodd and other lawmakers in a recent letter to regulators also expressed concern that most subprime loans are now adjustable-rate products, where monthly payments can jump 50% or more after an initial two- year period. "Subprime foreclosures threaten to displace more African-American families than (Hurricane) Katrina did, but it will be a silent and invisible storm," said Martin Eakes, CEO of the North Carolina non-profit Center for Responsible Lending.

Click the title for the rest of the story.

A Sad Foreclosure Story from Florida

(I've edited this a little for spelling.)

Bankruptcy and foreclosure

------------------------------------------------------

What is the name of your state? FL

I’m from FL.

I’ve read a lot of the posts here and respect the advice of the forum. I have a couple of questions about Chapter 13. I make over 50K, so I think Chapter 7 is out. I had a real estate deal gone bad. I bought a house and construction was slowed down because of the hurricanes so I had to buy another in the mean time, when it came time to close my wife didn’t want to move, so we tried to rent or sell it. A year later no luck. Now the bank is going to foreclose on it, and to top it all off my mortgage payment on my primary now went up $500 and month because they didn’t calculate the taxes correctly. They used the value of the land only to get me to qualify for the payment knowing that they wouldn’t hear about it until a year or more later. There is also no way I will ever be able to sell my primary no because with the taxes and insurance having gone up so much, and the properly values have gone down ( my neighbors house is better and they had to sell it for 150K less than I paid) I will never get close to what I owe. I’ve had some good real estate deals in the past, and was able to cover my mortgage for year, but have put everything I had into it. I do have some unsecured debt, but could pay all of it if I had to. Can I get out of my primary, and what happens to the primary if you are behind and want out, or stay? With my investment house, I don’t know [whether] to let it go into foreclosure. I can’t catch up with the payment and I’m concerned about get a judgment that I will have to pay for the rest of my life, because that will never sell for what I paid for it, and at a foreclosure sale that will never get ½ of what I own. I’m really ready to go back to renting until the market stabilizes, but who will rent to me if I have a foreclosure and a bankruptcy? Thanks.

It is cases like this that show the new means test is hurting unfortunate debtors. This would have been an easy Chapter 7 (liquidation bankruptcy) under the old law. Besides, a lot of the overvaluation of property in Florida is based on mania and fraud (which are, in many cases, tied together).

What are we going to do with an entire generation stuck in the same predicament? What a mess. Our country is so going in the wrong direction.

LA Times: Foreclosures increase 51 percent nationwide

However, here is the kicker:

The Southwest region was the hardest hit, accounting for one of almost 2.2 foreclosure filings. The region includes Arkansas, Louisiana Oklahoma, Texas and the Western states. Four states in the region -- Louisiana, New Mexico, Oklahoma and Oregon -- reported fewer foreclosure filings last year compared to 2005.

Foreclosures are rising currently due to several plant closings locally. But that appears to have more to do with local economic conditions than overpriced houses.

Update on House Hunting in OKC

I talked with a foreclosure attorney yesterday while I was at the bankruptcy court here in Oklahoma City. He told me that just one law firm was referred 600 cases for foreclosure just last month alone. It is expected that these houses will come on the market in April or May.

I don't think that spells a "market bubble" so much as a depression of prices due to the economy going downhill. Realtors are not quite sure how it will affect the market here. But the most likely result is that prices (which are already cheap by national standards) will probably fall even further. Not by California or Florida levels, mind you, but probably some as all of the foreclosed properties come on the market.

Of course, the good news for me is that I received three (3) calls for bankruptcy services yesterday alone. I haven't had three calls in a day for bankruptcy services since before the law changed. One thing about the law practice: it's feast or famine. We bankruptcy attorneys have been suffering from a famine for over a year. I think we are due for a correction. The main reason why people have not filed in the last year is because the price doubled, when you add in the extra attorney fees (up 50%), increased court costs (up 50%), costs of credit counseling (not required under the previous law) and other assorted "paperwork" costs that didn't exist under the old law. I think you are now starting to see the debt problems bubble to the service.

The math just doesn't lie. We have had a lack of internalized costs to society (i.e. health care costs) coupled with overconsumption (i.e. people buying stuff they don't need, with money they don't have, to impress people they don't know) that has put the country in a position of having too much debt floating around. The old saying "you can't get blood out of a turnip" is still true. That excessive debt will have to be resolved somehow. Restricting access to the bankruptcy courts will not cause those debts to be paid back, they will just result in more suffering and stress for the middle and lower classes whose wages have not kept up with those costs.

No one in congess that I am aware of have been talking about regulating interest rates and fees on credit cards. The credit card companies (who were most instrumental in lobbying for the change in the bankruptcy law) have been raising interest rates and fees (and increasing profits) to excessive levels -- even though their costs of borrowing have not gone up. They have also instituted "Universal Default" clauses which punishes someone who ends up being late on any bill, even if they are never late on their credit card payments. What we are seeing is excessive greed by those who already have more than they need.

Our values are out of whack. We are overdue for some kind of correction in our values as well as our markets.

House Hunting in Oklahoma City

Today I went out looking for a new (for me) house. Most of the houses were overpriced given the market here. Almost all of the houses I looked at required pretty extensive work to make it ready to live in, but they were on the market for a price that was close to what they would be expected to sell for in move-in condition (around $70 square foot). Even the bank-owned property, which needed probably $15,000 worth of work to make it livable was on the market for $72,000. In top condition, the house would be worth around $79,000.

Mind you, I am looking for a house with about 1000 square feet. (For my European and Australian readers, this is about 100 square meters).

What I am finding out is that houses larger than 1000 sq. ft. are not selling for as much money per sq. ft. as the smaller houses.

Finally, I looked at a fixer-upper that is being offered for $49,000. That amounts to less than $50 per sq. ft. However, it will require probably about $10,000 in repairs. This doesn't seem like such a bad deal. On the other hand, I have not seen the results of any inspections, so there might be something wrong that could not be seen upon a visual inspection.

It certainly is not like the madness that is taking place on the coasts and many cities around the country.