Tag Archives: housing

The latest foreclosure chapter: lawyers and “robo-signers”

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The Wall Street Journal suggests that one particular lawsuit, begun in 2004, helped bring to light the most recent issue in the American foreclosure saga: the use of “robo-signers” by lending firms. Because of these practices, a number of banks have had to suspend foreclosure proceedings to examine the paperwork more closely:

Lillian and Robert Jackson stopped paying on their home in Jacksonville, Fla., in 2004 when business dropped off at their cleaning company. Eviction might have seemed inevitable when they faced a foreclosure hearing two years later.

But their lawyer, James Kowalksi, had the idea of taking a deposition from the signer of the mortgage papers. When a document processor for GMAC Mortgage admitted she routinely signed such papers without being familiar with details of the loans, she was tagged as one of a species now known as robo-signers.

It was a first step in the growth of a legal sub-specialty called foreclosure defense that has sown confusion and turmoil in the housing market. Lawyers in the field now commonly use a technique more identified with corporate litigation: probing depositions, designed to uncover any lapses in judgment, flaws in a process or wrongdoing. In the 23 states where foreclosures entail a court hearing, the bank may be ordered to pay the homeowner’s legal bill if a lawyer can convince a judge that the bank has submitted false documents, such as affidavits saying employees personally reviewed the details of loans when they didn’t.

Ultimately, lenders argue that this sort of legal proceeding doesn’t keep the resident in their home; they still should be evicted from their homes for failing to pay because this is just a paperwork issue. What remains to be seen is if there is some sort of “smoking gun” case where the bank proceeded with foreclosure when it should not have.

But in the mean time, it appears that there are a number of lawyers who see an opportunity here. And in the court of public opinion, revelations like this don’t help the public image of the lenders.

Hottest housing market: Israel

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Amidst housing troubles in many developed nations, an unlikely hot housing market has emerged in Israel:

Israel, despite perennial fears of war, has emerged as one of the hottest – and least likely – property markets in the world: Since real estate collapsed around the globe in 2008, at least one industry watchdog lists it as the fastest-rising property market on earth…

According to Global Property Guide, a trade magazine that monitors the housing market, Israeli housing prices in the second quarter of 2010 rose sixth-fastest in a ranking of 36 countries. Four of the top five, including Singapore and Latvia, were rebounding from sharp price drops. So looking at the past two years ended in June – the last period for which there is data – Israeli real estate clocks in at No. 1.

For Israel, where high-tech and science are booming businesses, the property price spike is the latest claim to fame. But it’s one officials aren’t boasting about, given ample evidence of how an imploding bubble can shatter decades of economic growth.

What is interesting to note is that Israeli officials are working to cool down the housing bubble so that their country doesn’t join other nations in experiencing a burst housing bubble. If their actions are any indication, might most developed countries now pursue policies that try to even out the housing market over time to avoid any possible issues with booms or busts? And if so, how effective can central governments be in attempting to control the housing market?

Explaining a short-term dip in chronic homelessness

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A sociologist provides an explanation for the short-term dip in chronic homelessness in the United States:

Amid increases in poverty and unemployment, [the United States and Japan] have seen continuing decreases in street homelessness. The most recent Homeless Assessment Report to the U.S. Congress states that the chronically homeless, or those who have been on the streets or in shelters long-term and have disabilities, decreased by 10 percent from 2008 to 2009. The Japanese Ministry of Health, Labor and Welfare has reported a national decrease of street homelessness of 16 percent between 2009 and 2010…
While the provision of subsidized housing is crucial to get people off the streets, a lesser-known component in both nations has been the flexible, holistic and trust-building work of frontline staff persons at organizations linking people to and keeping them in housing.
This argument suggests that it is not just about providing resources (such as housing) to help reduce chronic homelessness but having staff help point them to and keep them using such resources.
I wonder how much data there is to back up this argument. Additionally, do governments see/acknowledge the value of these staff positions, particularly in lean economic times?

The possible housing bubble in China

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While the American housing crisis continues, FinanceAsia takes a look at the current housing situation in China:

Many homebuyers nowadays in China consider their property assets as part of their long-term savings plan, as well as a hedge against inflation.

Why property? China’s tightly run financial system leaves only three places for its zealous savers to put their money. Bank deposits are one option. But they yield 2.25%, less than the 3.1% rise in May’s consumer price inflation. The equity markets are a second choice. But stocks have been performing poorly; Shanghai’s benchmark index was one of the world’s worst performers in the first half of 2010. (And the bond market is underdeveloped.) Even with its high transaction costs and manic price moves, property has become the preferred investment choice for everyone from young married couples to middle-aged factory workers trying to ensure their retirement.

Recent statistics show that there are about 64 million apartments and houses that have remained empty during the past six months, according to Chinese media reports. On the assumption that each flat serves as a home to a typical Chinese family of three (parents and one child), the vacant properties could accommodate 200 million people, which account for more than 15% of the country’s 1.3 billion population. But instead, they remain empty. This is in part because many Chinese believe that a home is not a real home unless you own the flat.
And so people prefer buying to renting, and as a result, the rental yield is relatively low.

That’s a lot of vacant property. This is a testament to the power of cultural norms regarding housing: since renting is less desirable, a large percentage of the housing stock goes unoccupied. Also, savings behavior seems partly driven by these norms (and perhaps also by limited economic returns elsewhere) – houses have developed into investments rather than just places to live.

I don’t know much about the Chinese housing market but it is intriguing to read about non-American norms and values attached to housing. I wonder how these norms and values developed over time.

Thinking about a culture of homeownership

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The recent cover of Time featured a story about homeownership. While the story emphasized the idea that homeownership is not an unquestionable good (particularly economically), it also argued something else: homeownership is an important part of American culture that should be examined.

For generations, Americans believed that owning a home was an axiomatic good. Our political leaders hammered home the point. Franklin Roosevelt held that a country of homeowners was “unconquerable.” Homeownership could even, in the words of George H.W. Bush’s Secretary of Housing and Urban Development (HUD), Jack Kemp, “save babies, save children, save families and save America.” A house with a front lawn and a picket fence wasn’t just a nice place to live or a risk-free investment; it was a way to transform a nation. No wonder leaders of all political stripes wanted to spend more than $100 billion a year on subsidies and tax breaks to encourage people to buy.
With the economic crisis surrounding homes (and the foreclosure issue is going to be around for a while), some are beginning to question the role of housing within the American dream. From the early days of American life, the single-family home was a special place that dovetailed with American emphases on individualism, the nuclear family, and an anti-urban bias.
Of course, this cultural ideal was pushed along and aided by government and economic policies that emphasized homeownership. So, now faced with economic troubles, the country could either support or move away from this value:
1. Support this value by making houses a safer investment and tightening up the mortgage markets so that lenders and borrowers are working together rather than simply trying to profit.
2. Change or work against this value by supporting other kinds of housing tenure, primarily renting. But this could include moves toward more co-operative housing or other options.
Thus far, I would say Option #1 has been chosen: try to shore up the housing market without questioning whether homeownership should be the ideal or if other options are possible.
I’m not suggesting homeownership is necessarily good or bad. What this housing crisis does offer is an opportunity to ask how homeownership fits into our future vision of America.

Mortgage problems continue; 9.9% have missed at least one payment

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Some new data suggests the mortgage crisis is continuing and still affecting a large number of people:

One in 10 American households with a mortgage was at risk of foreclosure this summer as the government’s efforts to help have had little impact stemming the housing crisis.

About 9.9 percent of homeowners had missed at least one mortgage payment as of June 30, the Mortgage Bankers Association said Thursday.

That number, which is adjusted for seasonal factors, was down slightly from a record-high of more than 10 percent as of April 30.

In a worrisome sign, the number of homeowners starting to have problems with their mortgages rose after trending downward last year. The number of homes in the foreclosure process fell slightly, the first drop in four years.

More than 2.3 million homes have been repossessed by lenders since the recession began in December 2007, according to foreclosure listing service RealtyTrac Inc. Economists expect the number of foreclosures to grow well into next year.

Even if this data were to improve soon, there would still be a long way to go to get back to anything resembling the housing markets of the 1990s or 2000s.

A home may no longer be a profitable investment

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The housing crisis in America has prompted a number of commentators to again examine what it means to own a home. A number of sources I have read recently have suggested there was a large shift regarding American homes toward the end of the 20th century: people saw homes less as places to live and have a good life and instead viewed a home as an important investment from which they could continuously generate profits.

A New York Times article makes this argument as well, saying “many real estate experts now believe that home ownership will never again yield rewards like those enjoyed in the second half of the 20th century, when houses not only provided shelter but also a plump nest egg.”

If this is true, it could have profound impacts on community life. Perhaps owners will stay in homes longer, spending more money on their current homes while also maintaining local social relationships for longer periods. Perhaps the housing sector of the economy (everything from manufacturers to developers to real estate agents) will decline in importance to other sectors.

h/t Instapundit

Places with most affordable homes not exactly hot spots

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CNNMoney.com has a feature on the five most affordable metro areas. While the home costs are attractive, there might be reasons why these places have such low median home prices. Here are the five most affordable places
(ranked by an affordability score) and the median home values:

1. Syracuse, NY $88,000

2. Indianapolis, IN $113,000

3. Detroit, MI $85,000

4. Youngstown, OH $74,000

5. Buffalo, NY $112,000

This list of five rust-belt cities needs a lot more context to be valuable.

Hotbed for exports is…Wichita?

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The Financial Times reports that according to a Brookings Institution study, Wichita has the highest percentage of exports of any metropolitan region in the country:

Thanks to a cluster of aircraft manufacturers such as Learjet, Cessna and Hawker Beechcraft, the economic focus of Wichita – population 366,000 – is very different from the emphasis on services and consumer demand typical of 21st century America. According to a study published late last month by the Brookings Institution, a Washington think-tank, nearly 28 per cent of the city’s gross metropolitan product is sold abroad. That makes it the most export-oriented in the country, just ahead of Portland, Oregon – noted for its computer and electronics companies – and San Jose in California’s Silicon Valley.

Wichita is not who I would think is leading this list. But the article goes on to say that Wichita and some other places have figured out how to move beyond two lagging sectors of the economy, consumer goods and housing, to move forward. For the rest of the country’s economy to move forward, they may have to follow Wichita’s model.

How race effects chosing a house

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The Houston Chronicle contains an interview with sociologist Michael Emerson about a forthcoming study (to be published in Social Forces) regarding housing choice and race.

First, a bit about the methodology of the study:

Researchers for the Institute for Urban Research at Rice University asked that question to 1,000 whites, 1,000 African-Americans and 1,000 Hispanics in Harris County to determine whether race makes a difference when they select homes and neighborhoods, independent of crime, housing prices and schools…

The housing questions were part of 30-minute interviews conducted for the annual Houston Area Survey. Respondents were asked to imagine they were looking for a house and found one they liked in their price range. They then were presented with computer-generated, random scenarios of school quality, property values, crime rate and racial makeup, and asked the likelihood that they would buy the house.

By using hypothetical situations, researchers were able to isolate the effect of certain factors, such as the racial composition of a neighborhood or the crime rate.

Here is a quick summary of the findings, according to Emerson:

For whites, the percentage of African-American or Hispanic matters significantly. They’re more and more averse to buying a house in a neighborhood as the percentage of African-Americans or Hispanics increases, even when crime is low, property values are increasing, and the local schools are of high quality.

The other result we found was for African-Americans in the Houston area, they’re sensitive to the percent Asian. So as the percent Asian increases, the less likely they are to say they want to buy the house.

And for Hispanics, the racial composition did not impact their preference for buying the home.

One other way to understand how strong the impact is, for whites: The likelihood they wouldn’t want to buy the house when there was racial diversity was equal to the likelihood they wouldn’t want to buy when the crime rate was high.

These findings are similar to those of other studies: Whites prefer not to choose a neighborhood with a certain number of African-Americans and Hispanics, even if the neighborhood has other positive features. The findings about other races are interesting as well – a lot of the housing literature focuses on the preferences of whites which makes sense as they are still the largest group and historically and today tend to have more wealth. But it is important to know the preferences of African-Americans and Hispanics, particularly as the Hispanic population grows.

Interestingly, the racial composition of the neighborhood does not appear to matter to Hispanics. I am curious to see what Emerson and his co-authors suggest is behind this.