Tag Archives: foreclosures

Looking toward the end of COVID-19 housing help

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COVID-19 led to pauses on mortgage and rent payments and moratoriums on evictions. As deadlines for regulations near, several data sources suggest fewer owners and renters will be affected:

Photo by Kindel Media on Pexels.com

The share of mortgage borrowers in forbearance programs fell below 4% as of June 8, the lowest level since the onset of the Covid-19 pandemic, according to Black Knight Inc., a company in Jacksonville, Fla., that provides data and software to mortgage lenders and servicers…

In August, Census projected that there were 1.7 million American adults living in households that weren’t current on their mortgage payments and who thought it was very or somewhat likely that they would lose their homes in the next two months. By just before Christmas that was up to 1.9 million. It fell to 1.2 million by March and was around 900,000 in the latest survey covering May 26 to June 7.

The trend is similar for renters. In August Census projected that there were 3.8 million American adults living in households that were behind on the rent and who thought it was very or somewhat likely that they would lose their homes in the next two months. Just before Christmas the total was 5.2 million. It dropped to 3 million in March. In the latest period it edged back up to 3.2 million.

This is still a large number of people and there are additional concerns:

That’s not to say all is well. Many people fall through the cracks. In an analysis of the latest Census data, the Center on Budget and Policy Priorities says that one in five renters in households with children were behind on the rent as of the May 26-June 7 survey. There are also disparities by race. While 10% of non-Latino White households were behind on the rent, 16% of Latino households and 24% of Black households were behind on the rent.

COVID-19 helped bring to the forefront the issue of housing facing many Americans. On one hand, someone could say that COVID-19 was such an unusual event that affected so many jobs. On the other hand, there are other social changes – think automation or the decline of major sectors in the economy – that could also affect the ability for many Americans to find and keep decent housing. Add to this the other oddities of the COVID-19 housing market, including those with resources could leave cities and the limited supply of housing, and there are numerous issues to consider.

More broadly, this offers an opportunity to discuss housing in the United States. Should people be afraid for their housing in a time of crisis? Where is more affordable housing going to come from? What should landlords, builders, and investors expect in times of economic trouble? Is housing itself a primary driver in the inequality in wealth and access to housing? How much should income be tied to the quality of housing?

These are not new questions but perhaps ones that are more pressing in light of current events. Of course, addressing housing at a national scale is not easy. Yet, the number of people still in a housing lurch in the coming months might help move the conversation on housing forward.

Foreclosure crisis to come in Puerto Rico

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Even as the foreclosure crisis seems to have passed in recent years on the mainland, Puerto Rico is set to see foreclosures galore in the coming months:

Now Puerto Rico is bracing for another blow: a housing meltdown that could far surpass the worst of the foreclosure crisis that devastated Phoenix, Las Vegas, Southern California and South Florida in the past decade. If the current numbers hold, Puerto Rico is headed for a foreclosure epidemic that could rival what happened in Detroit, where abandoned homes became almost as plentiful as occupied ones.

About one-third of the island’s 425,000 homeowners are behind on their mortgage payments to banks and Wall Street firms that previously bought up distressed mortgages. Tens of thousands have not made payments for months. Some 90,000 borrowers became delinquent as a consequence of Hurricane Maria, according to Black Knight Inc., a data firm formerly known as Black Knight Financial Services.

Puerto Rico’s 35 percent foreclosure and delinquency rate is more than double the 14.4 percent national rate during the depths of the housing implosion in January 2010. And there is no prospect of the problem’s solving itself or quickly.

Even before the storm, Puerto Rico was mired in a severe housing slump. Home prices over the past decade have fallen by 25 percent, and lenders have foreclosed or filed to foreclose on 60,000 home loans, according to the Puerto Rico state court system. Last year, there were 7,682 court-ordered foreclosures — a roughly 33 percent increase from 2007. Some 13,000 foreclosure cases are pending, Black Knight estimates.

Without an easy fix and knowing that this is a longer-term issue that may not be solved with mild economic improvement, it will be interesting to see what happens. Some questions this raises:

  1. Will Puerto Rico and the involved parties (residents, mortgage lenders, local governments) be treated the same as mainland parties during the late-2000s housing slump?
  2. What lessons learned from the late 2000s will be applied here and can those lessons demonstrably help lessen the impact over time?
  3. Will institutional buyers of distressed properties see Puerto Rico as a potential gold mine? If so, how does this then affect Puerto Rico in the next few decades?
  4. What is a long-term plan to help boost the economic prospects of the island?

There are many ways this could play out but one would hope that since we have seen some of this before, the effects do not have to be so bad.

How a foreclosure can slow momentum toward the American Dream

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The effects of foreclosures after the burst housing bubble may be long-lasting for many individuals and households:

A foreclosure is a one-time event, but for many families it’s something that never ends, wrecking years of their lives and the hopes they once had. The story of the Santillans’ foreclosure illustrates the way that the recession changed the American economy, and for millions of Americans, forever changed their lives. Some nine million families lost their homes to foreclosure or short sale between 2006 and 2014. But many lost more than that: They lost their momentum, too. Families like the Santillans had been moving up a ladder towards the American Dream, and fell off into a deep pit. They’re still at the bottom of the ladder a decade later, trying to get back to where they had been…

A foreclosure set them back them even further. Academic studies point to the many negatives associated with foreclosure: Families in foreclosure have more frequent emergency-room visits and worse mental-health outcomes. Their children do worse in school and have higher truancy rates. They are more likely than other families to rely on the social safety net. Losing a home can also mean becoming disconnected from the community where you lived, and the connections that might have helped you find a new job or get a loan, Roberto Quercia, the director of the Center for Community Capital at the University of North Carolina at Chapel Hill, told me. It’s for these reasons that many of those families are still struggling today. White families had largely recovered financially from the Great Recession by 2013, according to the Federal Reserve, while even today, the median income for black and Latino households has still not reached 2007 levels…

But they learned what many American families did during the financial crisis—that while America prides itself on being a place where people can climb up the economic ladder, it’s also a place where people can fall fast, and far. “We just can’t forget, that in any given moment, things can change,” Karina told me. This has implications beyond the fates of these individual families. The American economy thrives when people are in the jobs they want, being as productive as they can, and when they feel financially stable enough to make purchases that will raise their standard of living. The aftermath of the foreclosure crisis and recession means that many families have not felt secure like that in a long time.

Three points stick out to me:

  1. Social mobility in public conversation usually means moving up the class ladder but people also can fall down that ladder, particularly with major changes like loss of a job, foreclosure, or a major medical issue.
  2. It will be interesting to see how long it will take to truly recover from the burst housing bubble. Ten years? A full generation or two?
  3. There has long been a gap in homeownership and wealth between whites and both Latinos and blacks. The foreclosure issues only seem to have exacerbated these issues as whites as a whole have recovered while blacks and Latinos have not. How will these long-lasting ill effects of foreclosures affect inequalities between racial and ethnic groups?

Investing in foreclosed homes goes public

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Here is a new business model: buy a lot of foreclosed homes after a housing bubble bursts, plan to rent out many of the properties, and watch the money flow in.

Though Blackstone is unlikely to sell much or even any of its stake in an IPO, the stock market debut will test investors’ interest in the idea that the rental-home business can be institutionalized as apartments, shopping centers and office towers were before.

Blackstone and others investors believed that the housing collapse presented a rare opportunity to acquire homes for less than it cost to build them. Millions of foreclosures created a market large enough to justify investing in large systems to manage and maintain sprawling portfolios of rental homes…

To generate the revenue growth that shareholders will demand, they must pace rent hikes to avoid spooking tenants into becoming home buyers themselves. And now that foreclosure rates have returned to normal levels and prices have rebounded, they could find it difficult to add new houses at attractive prices.

They also must convince investors that huge home-rental companies are viable long-term businesses, not just massive portfolios of properties that need to be sold off.

I imagine there will be some particular parties (not just investors) interested in how this works out:

  1. Nearby residents. What happens if this leads to significantly more renters of homes in certain places? Americans tend to view renters more negatively than homeowners – though this might change in the future if the country shifts to fewer homeowners. How well will Blackstone do with having quality renters and following up with issues?
  2. Communities. Having renters is probably preferable to having vacant homes. But, they might have similar concerns as nearby residents as well as other interests in how Blackstone uses the properties.
  3. Advocates for affordable housing. There was some concern a few years ago that having large firms like this purchase cheap homes could limit lower priced housing. The lower end of the housing market could use more stock but investors may need to pursue higher rents in order to generate profits.
  4. Renters and homebuyers. What kind of rents will Blackstone charge? Will they eventually sell these properties and at what price? What kind of landlords will they be.

Additionally, I wonder what would happen if this does not prove to be a viable business plan. Are there others who would be interested in purchasing these properties? What if foreclosure proceedings begin with an institutional investor?

“The McMansions are coming!” to Modesto

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Maybe the broader statistics don’t matter – opposition to McMansions is often strongest at the local level, like when teardowns arrive in Modesto:

In the old College area of Modesto, I’ve spotted an unsettling trend – the sprouting of what folks in the Bay Area call “McMansions.”…

These behemoths bring nothing to the locales, and basically boil down to somebody wanting to live in an older neighborhood in a development-style home with maximum square footage. You can imagine how people who have lived among one-story neighbors feel when a McMansion glares down at them. Many choose to move or erect tall plants as barriers in an effort to recapture a sense of privacy.

McMansions are a hot issue in the Bay Area, with existing homeowners protesting the intrusion. But few cities have any restrictions or guidelines in place for protecting and/or building in older neighborhoods. Those who do have recognized the value of managing older neighborhoods to bring value to their town. Along the same lines as preserving historic downtowns for their appeal, they preserve historic neighborhoods.

Large homes equal larger tax revenues from the city’s point of view. But as historic old neighborhoods succumb to McMansions, it’s just a matter of time before these areas look like the row houses in the 1970s Archie Bunker sitcom; they will have ruined the “old” neighborhood ambiance they sought.

Not a positive view of teardown McMansions. I wonder how this works in communities like Modesto which have been hit hard by foreclosures (though some Central Valley cities are not below national foreclosure rates). Can a city afford a NIMBY approach to McMansions if the housing stock isn’t doing so well on the whole? At least the teardowns suggest there is some demand for living in certain neighborhoods in Modesto – not all communities have even that.

This question regarding teardowns could also apply elsewhere: are big teardowns and gentrification better than no development at all? Both involve changing the character of a neighborhood, particularly upgrading the housing options. Both are often viewed negatively by residents already there. Both typically involve outsiders and new residents. Of course, these aren’t the only choices available in neighborhoods but are they better than negative conditions or decline?

Fortysomethings have more influence on sluggish housing than millennials

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While millennials currently have lower homeownership rates than in the early 2000s, Derek Thompson suggests fortysomethings are the bigger issue for the sluggish housing market:

The economy has a Gen-X problem. It’s a small cohort with a much-smaller-than-usual homeownership rate. And people wonder why the housing market is sluggish.

Update: Read Trulia’s Jed Kolko on why the middle-aged are the true lost generation of homeowners. In short: They bore the brunt of the foreclosure crisis:

In 2005, the year when the true homeownership rate peaked for most age groups, 25-to-29 year-olds were the age group for which homeownership was highest relative to the demographic baseline, followed by 30-to-34 year-olds. These were first-time home-buyers getting easy credit for overpriced homes; then, they bore the brunt of the foreclosure crisis, losing their homes and wrecking their credit history…

The millennial generation was still in their early 20s or younger in the mid-2000s–too young to have bought during the bubble and then to have suffered a foreclosure: Only the oldest among the 18-to-34 year-old group in 2013 would have been of home-buying age during the bubble.

Interesting data. Generation X had bought into the American Dream and the importance it places on owning a home but they were badly burned by the housing collapse. They were in the wrong place at the wrong time: eager to buy homes, able enough to overpay based on decent jobs, and particularly indebted when their housing values tanked.

There is another issue at play here: while millennials may not have been very involved in the economic crisis, they are the generation that could continue the homeownership ideal among Americans. If they choose otherwise – and perhaps they are watching those older than them – then there may not be much of an upward tick compared to Generation X.

Side note: a funny quote from earlier in the article.

It is a truth universally acknowledged that a journalist in possession of a negative statistic must find a way to blame Millennials for it.

Generational blame is alive and well even in our advanced rational and enlightened age. Talking about generations is an easy shorthand for analyzing social trends. Whether such talk holds water compared to other age breakdowns or other data may be another matter…

Changes in foreclosures, single-family rental market

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One housing expert discusses the state of the housing market in regards to foreclosures and single-family rentals. First, foreclosures:

Yes, the pig has finally made it almost through the python. At the peak of the crisis, we were looking at about 14.5 percent of all loans being either delinquent or in the process of foreclosure. In a “normal market” that number is between 4 and 5 percent.

Right now, we’re roughly at 7.5 percent of all loans, so we’re down by half from the peak but almost twice as high as normal. In the next two to three years, that number should work its way down to the norm…

We’re seeing pretty much historically unprecedented loan performance — historically speaking, about 1percent of loans will be in foreclosure in a given year, and now we’re looking at about half of that…

And this suggests that we probably have over-tightened credit. Not that we want more people in default, but we know that people are having a hard time getting loans. Loan standards are just too tight.

Second, changes to the rental market:

Before the Blackstones of the world, 95 percent of single-family rentals were owned by people who owned five or fewer properties. It was a cottage industry, literally.

What I’ve seen happening is, these little guys are becoming the property scouts for the big investors…

They’ll buy the houses, do the repair work and flip them to the Blackstones. They’ve moved from being landlords to being flippers.

Some interesting changes with continued fallout from the bursting of the housing bubble. And it is still hard to know whether these changes are “the new normal” or the market could overheat again as we are eight years or so from the peak of the bubble.

Link between more foreclosures and higher suicide rates

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A new study suggests a rise in foreclosures is connected to higher suicide rates amidst the economic crisis:

The study, publishing in the June issue of the American Journal of Public Health and available online now, is the first to ever show a correlation between foreclosure and suicide rates.

The authors analyzed state-level foreclosure and suicide rates from 2005 to 2010. During that period, the U.S. suicide rate increased nearly 13 percent, and annual home foreclosures hit a record 2.9 million (in 2010).

“It seems that foreclosures affect suicide rates in two ways,” said co-author Jason Houle, assistant professor of sociology at Dartmouth College. “The loss of a home clearly impacts individuals and families, and can arouse feelings of loss, shame, or regret. At the same time, rising foreclosure rates affect entire communities because they’re associated with a number of community level resources and stresses, including an increase in crime, abandoned homes, and a sense of insecurity.”

The effects of foreclosures on suicides were strongest among adults 46 to 64 years old, who also experienced the highest increase in suicide rates during the recessionary period.

Given the (1) relative importance of owning a home as a means of providing for one’s family as well as signaling one’s status and (2) the relative financial burden of having a mortgage (usually far beyond credit card or student loan debt), this makes some sense. At the same time, this study tackles the issue from a broad perspective without being able to link individual neighborhoods or cases to certain outcomes.

Municipalities and Wall Street argue over using eminent domain to stop foreclosures

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Some municipalities are considering using eminent domain to slow foreclosures – and Wall Street and those in real estate are not happy:

On Saturday, Mayor Wayne Smith of Irvington, N.J., will announce that his mostly working-class city is proceeding with a legal study of the plan. Irvington could try to head off legal action and repercussions through what are called “friendly condemnations,” in which incentives are used to persuade the owner to drop any objections, he said. “We figure if this program works it can help anywhere from 500 to 1,000 homes.”

This summer the similarly working-class city of Richmond, Calif., in a heavily industrial part of the San Francisco Bay Area, became the first to identify homes worth far less than their owners owe, and offer to buy not the houses themselves, but the mortgages. The city intends to reduce the debt on those mortgages, saying that will prevent foreclosure, blight and falling property values. If the owners of the mortgages — mostly banks and investors — balk, the letters said, the city could use eminent domain to condemn and buy them.

Since then, intense pressure from Wall Street and real estate interests, including warnings that mortgages will become difficult or impossible for Richmond residents to get, has whittled away support for the plan. The city has yet to actually use its power of eminent domain, but it is already fighting two lawsuits filed in federal courts…

Opponents of the strategy, including the institutional investors BlackRock and Pimco, Wells Fargo and the Mortgage Bankers Association, say that taking mortgages by eminent domain is a breach of individual rights and that investors will not receive fair market value for the mortgages. In Richmond, Mayor Gayle McLaughlin has asked investors to come to the table to work out a price, but they have so far declined to negotiate.

An interesting convergence of rights. Typically, eminent domain usage tends to raise the ire of citizens but this article makes it sound like this is something residents want. Is this the case? One argument often leveled against eminent domain is that allowing another case gives governments more opportunity to do what they want when they want. However, with this strategy, the municipalities are trying to work for the residents and against larger entities.

I wonder if the only thing that would convince banks and mortgage holders to consider this would be bad publicity, something along the lines: “Those Wall Street banks want to take advantage of distressed communities and are unwilling to work with them to improve their neighborhoods or help their residents.” This would involve less of a legal strategy and more of a public relations strategy.

 

Claim that Bank of America takes better care of foreclosed properties in white neighborhoods than in minority neighborhoods

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A new report from the National Fair Housing Alliance argues Bank of America has taken better care of foreclosed properties in white neighborhoods:

A year ago, the alliance and several of its member organizations filed a complaint against the bank with the Department of Housing and Urban Development, arguing that the bank had violated the federal Fair Housing Act by neglecting foreclosed properties in minority communities in Denver, Atlanta, Miami, Dayton and Washington, D.C. Today, the groups amended their complaint with a stack of evidence – in maps, data, and photos – showing that the problem has persisted in each of those cities, while documenting it anew in Memphis, Denver, Las Vegas, Tucson and Philadelphia.

In total, housing advocates have now identified the problem in 18 metropolitan areas, across 621 Bank of America properties…

The sample size in each city varied, from about a dozen properties to more than 44 of them in Denver. But across all of the cities, homes in minority communities were two times more likely than those in predominantly white areas to have more than 10 maintenance or marketing problems. In Denver, homes in minority neighborhoods were 9.3 times more likely to have a broken door or lock. In Las Vegas, they were 4.5 times more likely to have damaged windows. In Philadelphia, they’re twice as likely to have accumulated substantial amounts of trash, relative to homes in white neighborhoods in the same market.

The pattern suggests yet another way that subtle housing discrimination may further handicap the ability of minority communities to recover from the housing crisis (or, put another way, this suggests why the effects of the recession will linger in minority communities for much longer). Federal fair housing law prohibits actions (or attempts at action) that “perpetuate, or tend to perpetuate, segregated housing patterns,” or that obstruct the choices in a community or neighborhood. It’s not hard to envision how these neglected homes could wind up doing just that.

Bank of America responded that the methodology of the study was flawed and that some of the homes in more disrepair were the responsibility of other entities.

More broadly, this suggests a potential new line of research questions about how banks and financial institutions respond after an economic crisis and whether this is stratified by race and class. How have banks made decisions regarding which foreclosed properties to improve or leave to others? Have they primarily worked with more valuable pieces of property, ones that might be found more often in middle to upper class neighborhoods? Is there also more political pressure (from local homeowners to municipalities) to address these more expensive homes or places with higher property values? It also seems like the analysis here would benefit by looking at the actions of multiple mortgage holders to see if there is a pattern across institutions.