Monday, January 17, 2011

They Are Walking Away From Their Mortgages

Who is this "they" kimosabe? Home owners? Nope that is old news. The Banks are walking away from mortgages they have underwritten.

...the United States, much of Europe, and China have severe balance sheet issues that are ravaging their respective economic prospects. The media, analysts, and investors are gingerly mozying along as if this is not the case. Well, no matter how hard you ignore certain problems, no matter how hard you try to kick the can down the road – the issues really do not just “disappear” on their own.

With these points in mind, let’s peruse this piece I picked up from the Chicago Tribune: More banks walking away from homes, adding to housing crisis blight: the bank walkaway.
Research to be released Thursday, the first of its kind locally, identifies 1,896 “red flag” homes in Chicago — most of them are in distressed African-American neighborhoods — that appear to have been abandoned by mortgage servicers during the foreclosure process, the Woodstock Institute found.

Abandoned foreclosures are increasing as mortgage investors determine that, at sale, they can’t recoup the costs of foreclosing, securing, maintaining and marketing a home, and they sometimes aren’t completing foreclosure actions. The property, by then usually vacant, becomes another eyesore in limbo along blocks where faded signs still announce block clubs.

“The steward relationship between the servicer and the property is broken, particularly in these hard-hit communities,” said Geoff Smith, senior vice president of Woodstock, a Chicago-based research and advocacy group. “The role of the servicer is to be the person in charge of that property’s disposition. You’re seeing situations where servicers are not living up to that standard.” City neighborhoods where 80 percent of the population is African-American account for 71.1 percent of red-flag properties, according to Woodstock.
So why is the concentration so heavy in African American (which used to be Black and before that Negro - changing demographics dontcha know) neighborhoods?
...this is definitely not an “African American” thing. As a matter of fact, the reason that this is concentrated in this primarily “African American” community is that this is one of the demographic groups that have been heavily targeted by predatory lenders. You will see other demographic “concentrations” start to show similar attributes and behavior from the banks – lower income, lower educated, higher LTV, lower mean rental income, lower property value, higher mean time to disposition from commencement of marketing areas, etc.
Shades of the Great Depression where people were going hungry and farmers were destroying food.

Speaking of the Great Depression it reminds me of Amity Shlaes' book:

The Forgotten Man: A New History of the Great Depression

The book discusses in great detail how government intervention made that Depression worse. In the current instance we have government interventions like the Community Reinvestment Act (CRA) which got the whole ball rolling. Downhill. (What? You were expecting the ball to roll uphill? Well actually it did for a while. You can do a LOT of anti-entropic things if you burn enough green).

Cross Posted at Classical Values

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