Bank Foreclosures Information

The worsening economic situation which started in December 2007 brings about more job losses ahead as predicted by economic forecasters from a survey released by the National Association for Business Economics.

According to the survey, thirty-nine percent predicted job layoffs for the next six months, around 45 percent thought of no change in hiring plans, and about 17 percent believed that hiring would still go up.

The job cuts are due to the payroll cuts by several companies such as Pfizer Inc. and Sprint Nextel Corp. who announced to slash 8,000 jobs, and Home Depot Inc. to cut 7,000 jobs.

In fact, there were already 2.6 million jobs lost the previous year, which was the most since 1945. The unemployment rate climbed to 7.2 percent last December, which was the highest in about 16 years, and it is expected to continue this year.

It is hard to see employment rate increase this year since the economic situation gets worse and worse. And one of its implications is a negative effect on the housing industry. With homeowners losing their jobs, they will not be able to afford their mortgages and therefore, face foreclosure.

The problem of foreclosed homes is another thing that weakens the economy even more. It pulls down home prices as foreclosures continue to flood the market.

Also in the NABE survey was the 52 percent who expected the gross domestic product (GDP), which serves as a barometer of economic fitness, to decline by over one percent this year.

The business conditions have shown dropping customer demands, reduction in capital spending, and shrinking of profit margins. Given this, it is hard to find lenders who are sure to help distressed borrowers to prevent foreclosure because of weak consumer confidence.

This could have been the country’s worst economic performance–job losses increasing, more homeowners facing foreclosure, and consumer confidence weakening. This explains why forecasters are getting pessimistic about the country’s economy.

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Although the administration of President Obama promised to fight the foreclosure crisis aggressively, officials are yet to find and decide on which course of action to take.

In addition to pushing for a foreclosure moratorium that will last for six (6) months, other possible actions include doubling the deduction in mortgage interest rates, additional tax credit to be enjoyed by home buyers and launching a program involving mortgage refinancing sponsored by the federal government.

For the past two years, there have been numerous plans to stop foreclosure that were discussed by both the financial industry and the government. However, the challenge lies in agreeing on one that will divide the losses between the lenders and borrowers.

With such a consideration, the White House is bent on designing a foreclosure rescue program as well as a prevention package that will basically promote refinancing. However, it is focused on making sure that the irresponsible lenders and borrowers will not benefit from the said program.

In a letter written to congressional leaders by Lawrence Summers – Obama’s choice to head the National Economic Council, a commitment was made by the government to set aside as much as $100 billion to be used in making sure that the enduring foreclosure crisis is finally addressed.

However, in the fine print, the letter stated that the Obama administration has no plans of helping every distressed homeowner. The ones which are targeted by the refinancing program are only those who are responsible and burdened by a “preventable foreclosure”. Determining who will be worthy or not is yet to be discussed and finalized.

For now, it is still too early to tell which course of action Obama’s administration will take. In the meantime, officials are thinking of declaring a bank owned foreclosure moratorium in order to give them time to come up with criteria for separating the mortgages that can be and cannot be saved as well as finalize the refinancing program for the worthy borrowers and the tax credit for the home buyers.

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Washington’s efforts to resolve the financial crisis has been very bleak according to the Wall Street, as banks are accumulating its losses and its stocks plummeting. Banks in the United States are burdened with mortgage-backed assets from the foreclosure crisis, and are in a risky position regardless of an addition of billions of dollars from the government last year. The problem is getting bigger and the banks can only take so much.

Treasury Secretary Timothy Geithner simply stated that the administration plans to get credit flowing again and fix the $700 billion bailout. Investors hope that the Obama administration ponders on several options to keep the banks alive like pumping more money into banks and establishing a government unit to purchase bad bank assets so that they will start lending again, which can somewhat uplift the spirits of those experiencing the foreclosure crisis.

In addition, experts believe that Citigroup and the Bank of America will require even more government cash injections to compensate future losses to stay afloat. It is feared that as these big banks have merged into the global financial system, their collapse could initiate a disaster.

Moreover, investors are in agony as Citigroup’s stocks took a big 20 percent drop to below $3 a share last Tuesday. The Bank of America also shares a drop at 29 percent. Both banks recovered on Wednesday, but experts believe the worst is yet to come.

But the bailout money may not necessarily resolve the financial crisis, for the root cause of the problem has not yet been addressed: the mortgage foreclosure crisis and bad assets of the bank’s books. Moreover, giving the banks more money may lead to the removal shareholders due to a federal takeover of the banking system in the United States.

An alternative proposed would be creating a bank run by the government to purchase the banks’ bad assets. By eliminating the assets that put a burden to banks, they will stop hoarding money and start lending again, especially to those on the brink of losing their homes to foreclosure.

A report made by Goldman Sachs last week calculated that financial institutions and investors all over the globe will eventually absorb $2 trillion losses on U.S. loans alone from the foreclosure crisis – but up to now have identified only half of these losses.

Troubled banks could take a fall and can cause panic unless the banking department finds a way to counteract these losses.

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One option which foreclosure troubled homeowners can resort to is short sale. Under the said method, although homeowners would not be able to keep their property, they would be able to prevent foreclosure.

Fannie Mae, one of the biggest mortgage companies in the country, has devised a system so that homeowners can take advantage of the short sale option. The company is working on a new program in which short sales would be pre-approved. The program targets the areas which are greatly affected by the housing crisis, two of which are Orlando and Phoenix.

The program is expected to speed up the process of a short sale which normally takes a long time. Fannie Mae will agree on a sales price of a property about to be foreclosed and the expected loss before a transaction is settled.

A short sale is one option when a homeowner is no longer capable of repayment. Upon approval of the lender, the homeowner would sell their property for a price lower than their debt the lender to prevent foreclosure. Most of the time, the remaining obligation of the homeowner is forgiven.

The Valley has experienced an increase in foreclosure incidence over the previous year. Short sale efforts of owners of distressed homes and real estate agents have always fallen short because homeowners and lenders would not agree on a sale price, not to mention the long time that a short sale usually takes.

The short sale program is expected to be launched soon through the joint efforts of Fannie Mae and the Arizona Regional Multiple Listing Service. It will focus on properties under Countrywide Financial and which are expected to sell for an amount lower than the mortgage balance.

If the short sale program turns out to be a success, it will be implemented across the country. This is but another measure to combat the foreclosure crisis.

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The Federal Deposit Insurance Corp. has ordered more than 5,000 state-chartered banks and saving and loans associations that accepted help from the first $350 billion of the Troubled Asset Relief Program in 2008 to monitor and report on how they spent the funds. The banks were ordered to include descriptions of how the federal funds helped them help borrowers avoid foreclosure.

Among the large banking institutions that received money from TARP are Citigroup, JPMorgan Chase, Bank of America and Wells Fargo. The smaller banks include Regions Financial, Zions Bancorp and Western Alliance Bancorp. These banks received a total of $250 billion from the Treasury Department in 2008 to prop up their capital.

The directive also applies to financial institutions that received help from the Federal Reserve in the form of temporary loans and from the FDIC in the form of three-year government guarantees.

According to Wayne Abernathy, a top executive of the American Bankers Association, the FDIC directive will give them the opportunity to show how the federal funds enabled association members to continue providing affordable loans to consumers and help mortgage borrowers avoid foreclosure.

The Treasury Department has been criticized by the public and by Congress for how it handled the first half of the TARP funds. They cited the department’s lack of focus and failure to directly help borrowers avoid foreclosure. The department also did not establish conditions that would force the financial institutions to focus on helping revive the housing market and helping end the financial crisis.

To make a bigger impact on the housing and credit sector and on foreclosure-laden communities, the economic advisers of President-elect Barack Obama have been developing a set of provisions that would make recipients more accountable for what they receive from the second $350 billion of the $700 billion TARP fund. Among others, the provisions would limit executive compensation and would ensure the allocation of money for borrowers at risk of foreclosure.

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Barney Frank, chairman of the House Financial Services Committee, has introduced legislation that would amend the Troubled Asset Relief Program and force the Treasury Department to spend $50 billion of the second half of the $700 billion TARP funding to help solve the foreclosure crisis.

Frank’s proposal includes the condition that the second half of the TARP fund will be released only if the Treasury Department issues a program that would allocate at least $50 billion for foreclosure mitigation. He required funding for a program that would pay down second lien mortgages and grant incentives to mortgage servicers in order to stimulate loan modifications and help prevent further foreclosures.

Meanwhile, Senate Finance Committee member John Ensign has also introduced legislation that would suspend tax rules related to cancellation of indebtedness. The bill would enable companies to strengthen their finances, helping them fight the effects of the economic downturn.

The cancellation of indebtedness rules require the taxation of canceled corporate debt. Ensign proposed that a company receiving, for example, $400 million in cancelled debts would not be taxed for the whole $400 million. Ensign also proposed that creditors related to the original issuance of the debt would also receive tax breaks.

Legislators in Congress, especially the Democrats, refocused their efforts on the foreclosure crisis because of rising public criticism of how the Treasury Department spent the first half of the $700 billion TARP program. Treasury Henry Paulson spent most of the $350 billion to help financial institutions, arguing that stabilizing the financial sector was more important at the time he released the funds.

Frank made sure in his legislation that the foreclosure problem would receive attention in the second release of the TARP fund. But he also said that the administration of President-elect Obama will have flexibility in how it will craft its own foreclosure mitigation program.

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What property owners do after experiencing foreclosures is an added burden to them.

They look for another house and that is never easy. They try to get another loan, but were rejected due to bad credit record.

Ohio State University research scientist Jay Zagorsky said that it is painful to bear, but most victims of foreclosures will again become homeowners.

Maurice Ortiz, the Apartment People marketing director said that landlords admit tenants who only have credit rating of 580, but the problem is money for rent deposit.

Foreclosures may scare landlords if they look at the records, and not the score. But if the tenants can explain the reason of foreclosure and has good working history, he may somehow be considered.

President of Fogelman Management Group, Mark Fogelman said that deposits may double if someone is in a precarious position, and coming up with rent deposit is not easy since owners are strapped in cash.

Mr. Ulzheimer said that consumers’ records can be revived and can get better credit card interest rates and loans in 2 years, provided that the foreclosure record is confined within a solid credit history.

According to home loan agent Jerry DuPaw Jr., a loan that is FHA-insured may be a very good option if a borrower, after a foreclosure, wants to acquire mortgage.

In addition, a minimum of 3 years is the time for completing the foreclosure up to the time when a borrower may be eligible for FHA loan, regardless of any circumstances.

Homeowners should never be intimidated with employers asking about their foreclosure during a job interview. There are job positions in which those types of questions are necessary for the employer to see how good the applicant is when it comes to handling money.

Always remember, foreclosures are not the end of the world. It is a lesson to learn and there is always a solution to it.

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President-elect Barack Obama stated that Shaun Donovan will be the person in charge of the HUD or Department of Housing and Urban Development and will also be concentrating on maintaining houses reasonably priced.

According to Federal Reserve Chairman Ben Bernanke, foreclosures increased in 2008 from 1 million to 2.25 million.

In addition, Mortgage Bankers Association reported that 1 out of 10 property owners are default in paying the mortgage.

Obama stated that he plans to make use of the 2nd half of $700 billion fund permitted by the Congress to lessen the number of foreclosures.

Donovan is a 42-year old architect from Harvard and manages a $7.5 billion plan in the state of New York with a job of making or maintaining 165,000 cheaper houses as Commissioner of New York’s Housing Preservation and Development Agency.

According to Spokesman Nick Shapiro, Donovan, who wants a Senate approval, was unavailable for meetings.

Meanwhile, Obama has quickly named positions in the Cabinet with errors in terms of financial system, including the people in charge of Commerce and Treasury Departments. Obama stated that HUD will have a big responsibility in establishing or maintaining 2.5 million employments in 2 years.

Donovan is a resident in New York and has a master’s degree in Architecture and in Public Administration.

He was the Assistant HUD Secretary under the previous President Bill Clinton.

In addition, he was a Managing Director of cheaper house investments, as well as in lending at the Prudential Mortgage Capital.

National Housing Conference President Conrad Egan said that Donovan’s appointment as a Housing Secretary of the Obama administration will give a bigger importance on reasonably priced houses than HUD had in the past few years.

Manhattan Institute Policy Research Vice President Howard Husock trusts that Donovan will find methods in helping landlords venture into business and at the same time, stop foreclosures as well.

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