Tracking the Housing Recovery

Foreclosure Crisis By Mike Colpitts

America has a history of working in emergency mode, and damage control has been the government’s biggest over hang. Hearing government officials talk it’s as if we didn’t know an economic calamity triggered by the housing crisis had been developing for years until just a few months ago.

Now with the foreclosure epidemic cities from Cleveland, Ohio to St. Louis, Missouri in the mid-west down to Florida and all the way across the country to California are in disarray. Companies are shedding workers by the busloads. Communities are unable and ill-equipped to handle the crisis, despite bail out monies.

A Housing Predictor survey taken just two months ago determined that 1 out of 3 homeowners will walk away from their mortgage if home prices continue to fall. It would represent the largest single economic disaster in World history and put a stranglehold on the nation’s economy.

If housing prices continue to deflate at the current rate, there is no practical economic reason to believe they will slow down unless the government takes the power into its own hands and stops the problem at the root of the crisis in an over-whelming and abrupt manner by halting foreclosures. The government needs to stop the crisis at what will likely end up being $4-Trillion before it doubles financial losses to $8-Trillion in additional walk-aways.

Some 40% of all properties in default have mortgages that were taken out by investors, who will more likely allow properties to be foreclosed magnifying the crisis in terms of financial losses. Those lingering foreclosures will further damage the overall economy.

The Obama administration’s plan establishes guidelines for modifying troubled mortgages, and provides financial incentives to lenders to rework those loans, making them affordable. The plan also calls on Congress to amend the bankruptcy code allowing mortgage holders facing foreclosure to have mortgages modified through court protection.

However, the plan is being held up by the Senate in a political stalemate. It was originally designed to help as many as 9-million homeowners, but Obama administration officials now say it would more likely aid three to four million avoid foreclosure.

Despite the political problems, signs of a recovery in housing are developing. Florida has now seen home sales increase seven consecutive months, mainly because of lower prices and low interest rates. Still, major hurdles exist. Consumers trusted banks before this crisis. Now they disdain bankers and the corporations that control them along with their over-paid CEO’s.

The financial crisis in housing has grown into a national security issue, and the feds are playing catch up to handle the onslaught of mortgage fraud that has swept the nation. As recently as last year, the Justice Department rejected a Congressional recommendation to create a mortgage task force.

Under the Obama Administration the political winds have shifted. FBI Director Robert Mueller has agents working on more than 2,000 mortgage fraud investigations compared to nearly 300 in 2003. The sweeping investigations are leading to arrests and have already led to plea bargains in some cases.

Given the enormous size of the problem it will take years for the feds to work through the back load of cases. The schemes have now been complicated by a second series of frauds sweeping the country in which companies promise help to homeowners under going foreclosure, pocket advance fees and then do little or nothing to aid the victims.

There are legitimate companies that help homeowners negotiate deals with lenders to stay in their homes, including loan modifications. But most can be done by working directly with lenders or for free with non-profit organizations. A government website even has features which help homeowners to determine if they qualify for a modification at

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