Skip to content

The Foreclosure Crisis

January 1, 2014

What happened to all the homes foreclosed on when the housing bubble burst? Millions of people lost their homes and most of their life savings when the value of their homes plummeted during the most recent financial collapse. Many found they could not keep up with mortgage payments, either because they lost their jobs during the recession or because they were overextended financially for some other reason. Some would say many never should have been offered the loans in the first place. The fact remains that many people went from pursuing the “American Dream” of home ownership to struggling just to keep a roof over their heads by renting in a very short span of time.

The banks lost tons of money on loans that would never be paid in full, but they did have something very tangible in place of the money – the property. The real estate still belonged to them. Home buyers were left with nothing after pouring thousands of dollars into the effort to purchase a home, only to be turned out when they simply did not have the resources to complete the transaction. The banks were promptly bailed out by the taxpayers, despite questionable lending practices that ultimately resulted in sizable settlements. Little of the proceeds of these settlements ultimately made it into the hands of the people actually wronged. Some of the states used large chunks of the settlement money to fill budget holes instead of compensating former homeowners for their losses.

Many contend that being able to just pay some money, often obtained by questionable means to begin with,  without admitting any guilt on the part of the lending institutions or any of their executives was inadequate punishment for the serious nature of the wrongs perpetrated. That the companies were willing to spend that much money to avoid criminal prosecution or admission of any guilt indicates our government may have let them off too lightly. Certainly many of those most affectedly believe that is the case.

The result of all the foreclosure activity was the availability of enormous numbers of homes to be resold, often in bulk, for vastly reduced prices. Who better to step into the void created by the individuals forced into foreclosure than large institutional buyers – hedge funds and other private equity companies capable of raising large amounts of capital to invest in the family home market. This happened to a large degree. particularly in areas of the country where the housing market became the most depressed in terms of property values. The idea was often to turn these properties into rental units until such time as property values returned to levels that would allow them to be sold at a tidy profit. The result could then end up being that people who had lost their homes to foreclosure would end up renting similar property from one of these large institutional owners. They would have a place to live, but be unable to accumulate any equity in the property to be used in the future as a cushion against possible financial difficulties, or to pass on to heirs.

In effect, this trend has resulted in even further redistribution of wealth in this country upward – from the poor and particularly the middle working class people to the wealthy. Investors in private equity companies and hedge funds on this scale do not, for the most part, supplement their low wage incomes with food stamps or social security checks. People who live from paycheck to paycheck (believe me, there are many more of us than the Wall Street crowd would like us to believe) do not have spare change to put into a hedge fund waiting for the profits to start rolling in.

So the banks either get their money back from the bailout, or from the proceeds from reselling the repossessed real estate. The large investors get their money back with a profit for just collecting rent or repairing and reselling the properties. The only people who have little or nothing to show for their efforts are those who toiled to earn enough money to start trying to purchase a home, only to see it all evaporate in a sudden economic downturn. Their money ended up in the hands of the flimflam artists who sold them the rotten loans in the first place, along with those wealthy enough to buy the properties at rock bottom prices and further profit from them upon a resurgence in the real estate market.

Something is drastically wrong with a system such as ours which enables a very small percentage of the population to profit greatly at the expense of so many more others. The notion that only minimal amounts of money (in terms of the enormous wealth gained in the process) are seen by the powers that be to be adequate recompense for the misery created by these transactions is appalling. These companies and people produced far more economic damage to far more people than Bernie Madoff ever dreamed of. He was sentenced to 150 years in prison. They received bonuses. Attempts begun at effectively regulating the responsible financial institutions to ensure that a repeat performance can be avoided have been stymied at every turn by politicians, many of whom are beholden to the very interests they claim to want to regulate.

Some say we have the best government money can buy. It certainly serves the moneyed interests far better than rest of us. There are some elected officials willing to stand up to them and fight for rest of us. Unfortunately, they are currently a small minority in Congress and the legislatures of most states. Until we get effective regulation of the financial services industry to prevent future robbery of this sort, the economic inequality and impoverishment of ever more members of our society will continue. We need to back those who are willing to stand up for us and increase their numbers and influence in our government at every opportunity. Never again should this sort of disaster be allowed to be perpetrated on such a large segment of the American people with absolutely no accountability on the part of those responsible for it. Never again should the victims (in this case, the American taxpayers) be held responsible for financing this sort of economic chicanery, while those responsible stash their take in tax shelters and pay not a dime of their own money in fines or spend as much as a day in prison. This is a case where the punishment has to this point fallen far short of the seriousness of the crime.

Further Suggested Readings:

Wall Street Hedge Funds Buy Up Rental Properties

Hedge Funds As Landlords? In Search of Returns, Wall Street Buys Up Foreclosed Homes

Hedge Fund Blackstone Buying $100 Million in Foreclosed Homes Every Week

Hedge Funds Crowd First-Time Buyers Out of Housing Market

Foreclosure Bulk Sales Program Allows Banks and Hedge Funds to Buy Low After Selling High

Hedge Funds Are Fueling Foreclosure Inflation

Private Equity Has Too Much Money to Spend on Homes

Advertisements

From → Uncategorized

21 Comments
  1. sparkypath@comcast.net permalink

    Dear Mr. Cooley Do  you think you could run for office and bring some common senses into the lawmakers of the day?  There’s only one drawback in bringing common sense to the lawmakers. When it comes to money all conscience is put aside replaced with a lust and greed for  money.  You have the answers.  I hope  you can make a difference with honest decisions to alleviate or at least lessen the damage that has been done. Sincerely–Patricia Path—

    Like

  2. It’s a form of vulture capitalism, and it wasn’t an accident. Here’s the scheme:

    John owns a big bank. He knows there is a high demand for widgets because they’re a durable and essential commodity. He decides he wants to make money on widgets.

    Jill manufactures widgets. She would like to sell more and reduce her inventory, but many people just can’t afford the high price she must sell the widgets at to make a profit.

    Joe and many of his friends would like to buy widgets, but can’t afford them. John sees his chance. He offers them expensive loans. Joe and his friends don’t know very much about borrowing money from John’s bank, but get the loans anyway. After all, everybody “knows” widgets are a “safe” investment.

    John knows his lending will drive up the price of widgets. He bundles these loans into new financial products he can sell to speculative investors. Pretty soon, all the other big banks are doing the same thing and are even placing bets on the future value of these bundled loans.

    John has created an artificial bubble. He knows it will eventually collapse. So, he takes his enormous profits from the loans and the bundles and buys into Jill’s manufacturing company. John then forces Jill to severely cut her operating expenses and take on additional debt to pay him off. This triggers a sell-off in the bundled loans market, and the price of widgets falls dramatically.

    After the smoke clears, John is sitting pretty. He made profits on the loans, on the bundles, on the investment in Jill’s company, and he royally shafted his competitors. Whatever losses John incurred when the price of widgets dropped would be made up through insurance payments, taxpayer bailouts, and by an eventual rebound in the widgets market.

    Joe and his friends lost their widgets. Jill lost her manufacturing company. John’s bank got bigger.

    Liked by 2 people

  3. Right on Rick! I went thru hell myself, VA/Wells Fargo. It was traumatic, not knowing when ‘they’ may decide to post the door, change my locks, out… Finally won a refi. You wrote precisely what I have been thinking. Well said.

    Like

  4. Xena permalink

    Rick,
    There’s another sad side to homeowners who had money to make partial monthly mortgage payments. It’s those companies that promised to save their homes from foreclosure, but filed chapter 13 bankruptcy instead. In some of those cases, their bankruptcy was converted to a chapter 7 and they lost their homestead exemption that had not been claimed on their original petitions.

    Several U.S. Attorneys went after bankruptcy petition mills, but they still pop up and scam people.

    Like

  5. Excellent post, but the reality can be even worse. Many states allow deficiency judgments against people who were foreclosed. The following is roughly based on a case I know personally: Bob buys a house in 2006 that the bank agrees is valued at $400K. They give Bob an 80% mortgage of $320K. In 2007 Bob loses his job and his wife is too sick to work. They use up their savings to make payments. They try to sell the house but the market is frozen and values have plummeted. They default in 2008. Foreclosure goes through in 2009.

    Bob has to rent but can’t afford anything like the money the bank gets for renting out Bob’s house. The bank then takes Bob to court and argues the house is worth only $175,000. There is $310,000 left on the mortgage, with costs of foreclosing and interest during the whole default and foreclosure process the bank claims $315,000 owed. The judge awards $140,000 judgment against Bob (315-175).

    Fast forward to 2013 and Bob has found a job and is just getting on his feet. The bank moves to garnish Bob’s wages, which are barely enough to pay the rent and feed his family. Bob’s chances of putting money away for retirement are now zero. Bob’s chances of affording another home, so he can eventually retire into a property that is paid for, are now zero.

    But by 2014 the housing market as rebounded and the bank, which never had to sell tBob’s house, and pocketed 4 years of rent from it, tax free because of the rules of depreciation, can now sell it for $315K.

    No wonder suicide rates for middle age Americans have risen dramatically.

    Like

  6. This is all so crazy because we could sit and swap stories all day long. What is going on in America is just sickening! And yes, too many are driven to suicide as they see no alternative. Sad state of affairs, sad indeed!

    Excellent post by the way!

    Like

  7. Excellent post! Every word is true. I’m appalled at how this crisis has pretty much disappeared from MMS coverage, as if its of little note and revolted that the govt has done so little to even aid the victims. Truly a disgrace. The HAMP program is a joke and they’re doing nothing to correct it.

    I’m one of the people affected by this so truly appreciate you raising your voice.

    Like

  8. Reblogged this on Streams Of Consciousness – Coco Rivers and commented:
    Excellent post on Foreclosure crisis.

    Like

  9. Reblogged this on Pass the SAFE Act! and commented:
    I am sure you are asking yourself the question as to why I am posting this on the SAFE Act, right? As a owner of rescued TB’s (all elderly) finding suitable property to lease with horses is impossible. There are no properties available with land, so even if we were to try and get more people to rescue our horses, they have absolutely no hope in finding suitable housing to do so.

    Like

  10. Here is another tragedy that no one seems to be aware of, the pets of families that lost their homes. The shelters are so overcrowded, and the majority of those pets that are being given away at the Humane Society? Seniors, dogs, cats and horses who are then euthanize because these shelters do not have the funds allocated to them to find them homes through marketing and awareness campaigns.. I have worked for three years now to stop horse slaughter in the US and we have won a reprieve, however, trying to get S. 541/HR 1094 which would stop shipping over 190,000 a year to slaughter, (30 + hours in brutal conditions, packed like sardines in cattle trucks not built for these animals) into Mexico and Canada is going to be tough, but it will be even tougher for advocates such as myself that have stepped up and personally saved four horses will not be able to find suitable places to lease simply because anything that had land on them, is now in the hands of these folks. Just an incredibly tragedy that needs to be addressed as well. Any time we have a recession, these are the souls that are affected the worst.

    Like

  11. In my case I bought a home in 2005. It was 5 yr adjustable. I was paying 7% and told the interest would never go over that once it was adjustable. More likely to go lower.

    The mortgage was sold 3 times within the next 6 months. Finally ended up with hedge fund company. They started calling and threatening to raise my interest rate after the 5 years to 10-12 % during year 3 of ownership. Seems even though I asked this during signing and told It would not go up by everyone in the room at the title company, there was a small note in the contract that said the cap was 12%. This was my second house. I trusted the people that sold, mortgaged and titled the house on their word. This is no longer the case.

    The hedge fund harassed me for 2 years. I lost my job at year 4 and was still paying but ended up 2 months behind. tried to re-finance with no luck, so in 2008 I went to a local program supported by govt and negotiated a bit of help through them. GMAC Mortgage was the facilitator of the loan. They laid out a plan with GMAC and I waited for the paperwork to come. It never did even though I had wired them a partial payment. The payment was never applied. Then I was told by GMAC that the the hedge fund had not agreed to the terms.

    I ended up selling the house at a loss to get out of the harassment and threats when I was sent a letter saying my rate would go to 12% at 5 years. (which was 6 months away). Lost all equity in home and lost all respect for realtors, mortgage reps and banks.

    I couldn’t help but think they wanted me to fail. Turns out I was right. They were going to make more money off insurance with the mortgage bundle they bought if we all went into foreclosure. It was in their best interest If I failed.

    Basically I was a pawn to make money for big banks. My credit went off a cliff and because I have medical issues I became sick from all the stress.

    I will never recover the lost money, and have since gotten better in regards to health, but am still bothered by the lack of accountability of these banks. They are still doing the same thing and this will probably happen again to others. Never again should be bail out the banks!!! and if you are buying a house I recommend getting your own lawyer!!

    Like

  12. It’s even worse than you described. Imagine making payments regularly only to find that your house is foreclosed anyway . . . by two different mortgage companies who both say they own the paper! And neither is the one who gave you the loan. Your lawyer tells you not to pay anybody since it isn’t clear who owns the loan. And it just keeps getting worse from there. That’s what robosigning led to. Don’t ever assume that everyone who was foreclosed was a “deadbeat” since it isn’t at all true.

    There used to be a crowdsourced application online where people who knew how to read mortgage documents and deeds put in time finding the robosigning traces. I volunteered and stared into the face of EVIL. The traces were not at all hard to find. And the end of courthouse document registration and the beginning of the MERS system was all planned out so all that loan bundling could take place. One big Ponzi scheme by the TBTF banks.

    Like

  13. Reblogged this on Deadly Clear and commented:
    There is a lot we need to learn from the past.

    Liked by 1 person

  14. Reblogged this on California Freelance Paralegal and commented:
    Excellent blog post on the foreclosure crisis.

    Like

  15. Alina permalink

    Reblogged this on Alina's Blog.

    Like

  16. Stupendous Man - Defender of Liberty, Foe of Tyranny permalink

    Let them eat cake.

    Like

  17. The US Government is the ORGANIZED CRIME …….. https://www.facebook.com/AFloodofGunsandBlood/

    Liked by 2 people

  18. Reblogged this on strangebuttruehistory and commented:
    Thank you for the insight

    Like

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: