About Me 0012: foreclosure homes

The financial costs of the seemingly endless foreclosure crisis have been widely reported with Credit Suisse estimating that as many as 12 million families will lose their homes before this is all over. The predatory lending that led to the spike in foreclosures, and the robo-signings coupled with the illegal forcible removal of many families from their homes, promise to keep these issues in the headlines for years to come.

Lost amidst the news reports, legislative hearings, scholarly journal articles and books, documentary films, and blogs of all sorts are the perhaps more profound non-financial consequences. There have been some reports of the family tensions that often surround financial struggles, the hardships children face when they are forced to change schools, and related social stresses. But a deeper, darker challenge may be on the horizon resulting from the mistrust and betrayal families report as a result of the deception they have experienced in the mortgage market. While also feeling shame and embarrassment, even personal failure, for having allowed themselves to be taken in, these families are also aware of the exploitation they have experienced at the hands of their "trusted" financial advisors. That mistrust threatens the recovery some believe has begun in recent months.

As the British sociologist Anthony Giddens has noted, in complex societies where each individual cannot become expert in all the institutional contexts in which they must operate, trust is essential for people to negotiate the various realms, including financial institutions, in which they operate. People must feel secure in the trust networks they establish in order to survive and prosper, and for society itself to advance.

In a series of in-depth interviews nationwide with 22 adults who are at risk of foreclosure (they were either behind in their mortgage payments at some point in the past two years or, in two instances, had already lost their homes due to foreclosure) all respondents expressed both anger and personal responsibility. The interviews lasted between 30 and 90 minutes. In no question with any respondent was the word "trust" used. But in every case but one, the respondents explicitly referred to the mistrust they now have for anyone associated with the mortgage lending industry in particular or financial services generally.

One woman who, unknowingly, took out a variable rate mortgage told us "We didn't have any reason to believe that he would lie to us or would mislead us on this. I mean there was no reason for us not to trust him." Another young woman described the reaction of her elderly uncle who was misled into taking an adjustable rate loan, "He doesn't trust anybody now, nobody."

Homeownership, of course, has long been one of the pre-eminent symbols of success in the United States. Self-respect for many is wrapped up in the fact that they could call themselves a homeowner. Taking care of one's family, being a contributing member of society, the very identity of who we are is often measured by the fact of being a homeowner. When that status is lost, it can be devastating. Many who are caught in the bursting of the housing bubble individualize their troubles and blame themselves, in part, for their situation no matter how egregious the deceit on the part of the lender. Anger is directed at their broker and themselves.

As one homeowner, whose family income was inflated by a broker in one of the loan documents, offered, "...if I had to do it all over again I would definitely have legal representation just to be there, cross my 't's' and dot my 'I's'"

One man acknowledged the haste with which he signed a loan where the broker misled him into thinking that various credit card loans would be consolidated. Instead, he was left with credit card payments on top of the mortgage, "Yes, I wouldn't have been so rushed in the process...we should've known better, the things that they tried to pull."

So our respondents exhibited a double-consciousness. They knew they were victims yet they still held themselves responsible. More problematic, in various ways all said they would be far more cautious in the future, with some indicating they would not likely deal with financial institutions again. In reference to the use of credit in the future, one respondent observed "Don't let them have your money and don't listen to them. I will be borrowing a lot less and I will be doing a lot less than what I did." After watching his interest rate increase from 8 percent to 11 percent one man stated, "I tell my kids, you know, trust no one. No one out there, no one's your friend, and I'm learning that more and more each day. I don't trust them anymore."

From a public policy perspective, even if the overriding concerns are the strictly financial costs, or more cynically the well-being of the "too-big-to-fail" institutions, these psychological and emotional costs may pose far greater challenges to our economy than the dollar amounts represented by the mounting number of foreclosures. Observers at all ends of the political spectrum recognize the importance of (prudent) risk-taking. When based on a foundation of knowledge, hard work, and no small amount of faith, entrepreneurship (which means risk-taking) is essential for any meaningful economic recovery. Refusal to participate in the nation's financial institutions (assuming they are properly managed) due to lack of trust or any other reason, can only forestall that recovery.

Small business operators, homeowners, and citizens generally must have trust and faith in complex institutions, including banks, if our economy and society are to prosper. Whether our focus is Wall Street or Main Street, our families and homes or our global institutions, focusing only on the immediately transparent (and readily quantifiable) value of the foreclosed homes understates the true costs of the crisis and will only extend and exacerbate the years of struggle before us.

Lauren M. Ross is a graduate student in the Department of Sociology at Temple University. Gregory D. Squires is a professor of sociology at George Washington University. This essay was drawn from their forthcoming paper, "The Personal Costs of Subprime Lending and the Foreclosure Crisis: A Matter of Trust, Insecurity, and Institutional Deception" to be published in the March issue of Social Science Quarterly.

LPS Applied Analytics released their November Mortgage Performance data. According to LPS:

• The average number of days delinquent for loans in foreclosure is a record 499 days

• Over 4.3 million loans are 90 days or more delinquent or in foreclosure

• Delinquency rates are down across all products as more loans entered foreclosure and new delinquencies declined.

• Foreclosure inventory increases are being driven both by elevated levels of foreclosure starts as well as a very limited amount of foreclosure sale activity.

Click on graph for larger image in new window.

This graph provided by LPS Applied Analytics shows the percent delinquent, percent in foreclosure, and total non-current mortgages.

The percent in the foreclosure process is trending up because of the foreclosure moratoriums.

According to LPS, 9.02% of mortgages are delinquent (down from 9.29% in October), and another 4.08% are in the foreclosure process (up from 3.92% in October) for a total of 13.10%. It breaks down as:

• 2.61 million loans less than 90 days delinquent.

• 2.16 million loans 90+ days delinquent.

• 2.16 million loans in foreclosure process.

For a total of 6.92 million loans delinquent or in foreclosure.

Note: I've seen some people include these 7 million delinquent loans as "shadow inventory". This is not correct because 1) some of these loans will cure, and 2) some of these homes are already listed for sale (so they are included in the visible inventory).

Two key numbers to watch in 2011 are:

• New delinquencies. With falling house prices, delinquencies could start to increase again.

• Foreclosures. With the end of the foreclosure moratoriums, foreclosure sales should increase - and the number of homes in the foreclosure process should decline. However REOs (Real Estate Owned) will increase unless the homes are sold.

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Thursday, January 13, 2011

foreclosure homes

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