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 Power and Control
Comments
5 responses to “They Are Walking Away From Their Mortgages”
The banks are doubtless afraid of being stuck owning properties they cannot sell, but which must be maintained, insured, and policed, lest they be sued. It isn’t worth the hassle of foreclosing. I can remember a property in Berkeley which had been rendered valueless because of rent control laws. The tenants sued the owner, and got a huge damage award for “illegally high rent.” The owner couldn’t pay and let the place go into foreclosure. Then the bank learned (much to its horror) that it was now a Berkeley landlord, so it went to court in an attempt to reverse the foreclosure. The judge tried to get the bank and the former owner all to agree to deed the house to the tenants, but being sanctimonious leftists who believed it was “immoral” to own property, they refused to be owners, yet demanded that someone take care of the house and continue to be the landlord. It ended up as a huge mess, with the judge angrily threatening “I AM GOING TO INSIST THAT SOMEONE BE THE OWNER OF THIS HOUSE!” Whether there ever was a resolution, I don’t know.
I suspect something similar is afoot with these “Red Flag” houses. A house that no one wants is a major liability.
We should thank the wonderful progressives and their allies in the government for creating these artificial situations.
***QUOTE***
“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.
***END QUOTE***
The clear subtext is that the banks should be forced to be owners, with corresponding duties.
I guess they’re damned if they do foreclose, and damned if they don’t.
Whoops! I left out property taxes. The government expects them to be paid too. By someone.
I wonder how many of these are coming as a tacit admission that the bank cannot show a legal transfer of the debt from entity to entity, and therefore can’t foreclose even if they wanted to. Seems to me that it’s easier to say, “not economical to foreclose” instead of “we completely screwed the pooch in a way that opens us up to liability and prevents us from doing anything about it.”
Good book (the Forgotten Man). Didn’t have time to finish it when I’d checked it out, but got through most of it and it was… eerie to hear arguments from the 1930’s that we were hearing from 2008 and 2009 about how we should tackle our current economic troubles.
The government is going to end up owning a lot of real estate.