Foreclosure crisis: Who is at fault for the defaults?

Noah McIntosh, 2, left, and Zahbeon McIntosh, 4, play outside an empty, bank-owned house in Carriage Pointe. [Chris Zuppa | Times]

Analysis of thousands of foreclosures in Hillsborough County, which has one of the highest default rates in Florida, shows individual homeowners are getting too much of the blame. Two neighborhoods, worlds apart geographically and demographically, are examples of a bust created by investors and speculators. See photos and meet the people who live there.

Grand Hampton is a luxury subdivision in New Tampa where at least 125 of 800 homes have been in foreclosure — but new houses are still being built.

Carriage Pointe opened in 2005 as a neighborhood of starter homes in Gibsonton, but quality of life there has spiraled as half the homes have been in foreclosure and crime keeps going up.

Comments

[mike]

donald deserves a Nobel Prize for Economics.
Sunday's article was well done but ignored the sponsorship role in the whole bubble played by the government's Community Reinvestment Act (1979). Once this genie was out of the bottle, then those who could profit from FannieMae and FreddieMac guarantees went to work!
People need to understand the real-world impact of well-intentioned government programs.

[Kenneth]

How about blaming the borrowers for their inability to perform basic math? Someone tried to give me an ARM when I was getting ready to purchase a home, but a simple understanding of math led me to realize that this wasn't a viable option. So sorry if I don't have a ton of sympathy for those who jumped on board without sitting down and crunching the numbers.

[donald]

Economics 101.

the making of a disaster.

1. Have a country develop a building industry capable of building 3.1 million new residential home annually.

2. Add two years of unusual natural disasters.

3. Disasters causes strain on both material and labor resulting in increases in housing related costs.

(To explain further. If the economy is set to supply both material and labor to construct, lets say, 3.1 million homes, and there is a sudden increase in demand for the labor and/or material, the price of the labor and/or material goes upward. If I build houses and I have a problem getting material or labor, I will pay more for the labor or material. With the natural disasters, labor and material needing to be performed to fix damaged and to rebuild destroyed homes was drawn from the supply of material and labor from the current housing building market. Why did workers go to the damage areas, because the companies in the effected areas paid more to the labor than what it was getting paid to build new homes. What did the new home builders do? Raised their labor rates to either retain their labor or attract labor to their company. This same scenario is going on with supplies. If the timber, concrete, wire, roofing material, etc, produce product for the 3.1 million homes each year and now needs to supply additional material for the repair and replacement of the disaster area homes, the suppliers can not simply "make" more stuff. It takes factories and plants as well as labor. These plants, factories, and labor will not appear over night.)

4. Have Congress create an affordable housing initiative permitting individuals who can not afford to purchase a home the "ability" to buy a home. (Thus the name "affordable housing initiative". If one can afford the housing there would be no reason for the initiative. This "initiative" causes demand on supply of material and labor resulting in additional upward movement in the costs of the material and labor) It gets better.

5. Congress through Fanny Mae and Freddie Mac all but requires banks to loan money to home buyers. ( I will explain. The President of your community bank takes in money from community members through checking & savings accounts, CD and Money Market deposits. A member of the community wants to buy a house. Member has a 780 Beacon Score and a 28% disposable income to put towards a mortgage. Local bank President sees the loan as a good risk and loans the community member's money to the home buyer. Problem, too many of those "initiative" people from paragraph 4 do not qualify and the local bank President does not want to loan his community member's money to this high risk group. No problem, Freddy and Fanny tells local bank President, don't you worry, we will buy those loans. Freddy and Fanny has no problems loaning money to buyers with 630 beacon scores and having 20% of their income available for mortgage payments. Bank President loans money to high risk group. Bank makes money on the up front charges, loan fees, points, etc. By weeks end, Freddy or Fanny has purchased the loan from the bank.) The addition of this group of buyers puts an upward strain on housing prices.

6. Feds relax lending requirement. Banks create the ARM (adjustable rate mortgage)loan.
( First home buyer does not qualify for loan with lower beacon score and lower disposable income level. So at a fixed 7% on the $150,000.00 house loan the payments would be $1522.00. To bad buyer only has $1250.00 monthly. No problem, with the ARM you get a 4.5% loan. New payment only $1075.00 monthly. In five years the loan will need to be paid off or refinanced. But no need to worry, that's five years away. We'll worry about that later. The second buyer comes in with the same beacon and percentage as first buyer above, yet because of a lower income, only has $600.00 monthly for a home. No problem. Bank has a interest only ARM. 4.5 % would cost you $563 monthly. Again don't you worry, you have FIVE years to get in better financial shape. BY THE WAY, do you think you will be making more money in five years, Buyer says "YES". And you know your house will be worth more in five years don't you? Buyer says hell yes.) These buyers put additional strain on the housing market. The market only needs a spark. WATCH OUT HERE COMES THE SPARK!!!!!!!!!

7. Due to no comprehensive energy policy, the United States's economy was vulnerable. Petroleum prices climb steadily from $55 to $137 over the next 15 month and was above the January 2007 benchmark for 20 months. Each day the US imported 12 million barrels. Each $10 increase costs the US consumer $120,000,000.00 in buying power, daily. At the peak price of $145 an increase of $90 per barrel the cost to the US consumer over $1,000,000,000.00 each day. If the average increase over the 20 months was $34, or $89 per barrel and the average import was 12,000,000 barrels, the cost to the US consumer was $250,000,000,000.00 or $40 per month per person in the US. A family of five was paying an additional $200.00 monthly is energy cost. Where did the consumer get this money. The consumer stopped spending money in the same manner. Stopped buying cars pushing auto makers and dealers into bankruptcy. Stopped shopping at Circuit City, Bennigans Restaurant, Shells Seafood Restaurants, and the list goes on and on, all out of business. Was this because of the housing crisis NO NO NO NO NO. It was because of a lack of an energy policy. We depend on other countries to fuel our thirst. Imagine you are in a dessert and hours from death, your savior offers you a bottle a water for $20.00, would you but it. DAMN straight you would. You have no choice. We need the oil. We MUST PAY any ransom required from our captures and we have demonstrated our ability and willingness to pay. This will happen again and again and again. History will repeat itself. We did nothing when this happened in the 70's and have done nothing now. What is the solution. DRILL DRILL DRILL. Drill in Alaska, drill in the Gulf, drill in my back yard or invade the middle east and take over a country or two (Kidding as far as the takeover). We must plan a comprehensive and affordable energy policy. We must drill, reduce consumption (FYI US imports have decreased from 12 million to 9 million barrels daily, an astonishing 25%) and find affordable alternative energy sources. With petroleum prices going from $55 in January 07 to peak at 145 in July 2008 and than drop to $35 in January 09 and climb currently near $80.00, this energy market is too unstable for the consumer to feel confident in large financed purchases. When the energy costs got out of hand, many of those home buyers mentioned about living on the edge could not afford the increase energy cost, so they took their mortgage money and paid their energy costs. To make matters worse, the tightening of the credit market causes a sharp decline in the demand for housing. This had an opposite effect of all the steps mentioned in paragraphs 4,5, and 6 above.

In closing, as in life, if you want to control your destiny, you must be in control of your path of travel. If this country is to control it 's destiny into the future, it must take control of it's economic path. If the U.S. permits other counties to manipulate it's path of travel through oil prices, those countries will control the UNITED STATES'S destiny.

As we travel and meet and discuss and argue and get heated, always remember JUST BE NICE

[Greg]

Chris Dodd, Barney Frank, Charlie Rangel, Chuck Schumer - they should all be locked up for life and have to pay for the disaster they caused.

[Gaius Baltar]

Judge Ricahrd Posner, in his recent book on the current crisis, A Failure of Capitalism, notes that home buyers were acting in an economically rational manner when purchasing homes they could not afford over the long term. They, like many others, including those who ran investment banks, could rationally assume that housing prices would continue to increase long enough for them the flip and exit--for a nice profit.

So blaming home buyers for not acting rationally is incorrect.

[Edward Ringwald]

Let me tell you who is responsible for the foreclosure crisis:

1. The greedy developers, especially those developers from Miami who came up here to the Tampa/St. Petersburg area and bought up those apartment complexes and turned them into condominiums, selling them for more than what it's worth. At the same time, these developers chased the people that were living in these apartment complexes out - after all, people who were living in these apartment complexes either could not afford a mortgage on a house or do not want to own a house by choice.

2. The mortgage brokers and bankers who knew that a person was not qualified for a mortgage of a certain amount, yet approved an otherwise unqualified person anyway. All of this was done in the name of the banker or broker earning that high commission for each mortgage approved.

Now that's my two cents.

[menckenjr]

Bob3 - With Tim Nickens in charge and the paper looking to scrounge up revenue from real estate ads, why are you surprised?

[Richard Caterino]

Keep up the good work.

[Bob3]

It's amazing the Times found no fault with the developers who literally drove Florida's economy off a cliff by wildly overbuilding. Without the glut of houses, there would still be construction related jobs and we wouldn't have unemployment. The numbers of $700k McMansions built where wages would support $150k mortgages was irresponsible. This bad behavior was obvious at the time. Shame and scorn on the developers to got us into this mess!