Cities scramble to help distressed homeowners

This article in the Sacramento Bee details how cities in and around the Sacramento area -- one of the areas hardest hit by the housing downturn -- are trying to reach out to homeowners threatened with foreclosure. They are responding to the rapidly rising number of bank-owned homes and for-sale signs flooding their communities.

According to the article:

Their initiatives so far are limited to offering advice. Nobody's opening up the checkbook to bail out homeowners. But with city officials worried that homeowners aren't seeking help after receiving notices of default -– the first step in the formal foreclosure process -– the moves have taken on a keen sense of urgency.

"We don't know how far this is going to go," says Jim Lynch, community enhancement manager in Citrus Heights. "We've had housing setbacks over my 35 years, but I've never seen this many bank-owned properties and so many foreclosures."

More than 6,500 homeowners in the Sacramento region have lost their homes to foreclosure this year, according to DataQuick Information Systems.

In the six counties of Southern California, more than 13,000 homes were repossessed by the bank in September alone. Meanwhile, Dr. Housing Bubble has done research showing that short sales, or homes on the market at prices for less than the balance of their mortgages, are more than 10% of listings in Riverside County, and are on the rise everywhere else.

Some communities are exploring government funding for nonprofit loan counselors. One such group in San Diego called Neighborworks has begun sending notices to borrowers in default urging them to call their lenders or meet with advisers.

Question: What are some specific programs launched by Southland communities to help homeowners on the bubble?

-- Posted by guest blogger Annette Haddad

Photo credit: Los Angeles Times file

Comments

[mike]

i don't think the people who are losing homes know any more about losing a home than about buying one.

[Toby]

All of this is just so Politicians wont look like Hoover. They are all just a big waste of time.

The only thing that help these people is high paying jobs. That's it. Nothing else really.

[Tombstone Realty]

How many homes were owned by speculators, who don't give a damn about the community they bought into? Half those places may just be numbers on a balance sheet, and once it turned red, the owner just walked away.

Look at Summerlin in Las Vegas - half that place is now empty.

[Mousebender]

During the runup in housing prices, did the cities try to reach out to *prospective* homeowners and young families threatened with unaffordability? Did they respond to the rapidly rising prices and unafforability flooding their communities?

I didn't think so.

[Keith]

I love headlines like that, then of course the fine print says it all "Talk is cheap".
I agree with Toby that a lot of it is politicians trying to do the smoke and mirrors magic. The fate that awaits most is to turn over the keys and walk away. All the hand wringing, blah blah blah, teeth gnashing doesn't do anything really.

[ace]

How many homes were owned by speculators, who don't give a damn about the community they bought into? Half those places may just be numbers on a balance sheet, and once it turned red, the owner just walked away

I couldn't agree more...these people just don't care.. all they know is the house is worth less than what they owe on it....it doesn't take a rocket scientist to figure that out...With or without the city getting involved...

BTW where were the cities/counties and the town councils/planning commissions. when they were dishing out all the PERMITS to build these cracker boxes.... " it starts at the Top"

[Teresa]

Both Toby & Tombstone are right. The vast majority of distressed homeowners fall into one of two categories:

1) People who bought houses WAY over what they could afford at their income level (i.e., if you make $30k/year, you've got no business buying a $350k house).

2) Investors who bought these units as rentals or flipping opportunities.

The only thing that could help owners in category (1) would be for them to get jobs paying two or three times what they're currently making. They plain can't afford their houses. There is no "help" for that.

The investors in category (2) aren't living in those houses, so it's a lot easier to walk away from them...especially if they were smart enough to incorporate and bought the house under that corporation, which means only the corp's credit will be ruined, not their personal credit. They don't WANT to be "helped," because they don't feel they've got much to lose.

[Susan]

Where were these city officials when people were getting displaced during the bubble? Not just the very poor, but middle class families struggling to find affordable housing?

[Tex]

Mousebender and Susan are exactly right. The newspapers are full of sob stories about people who overpaid and are now losing their homes, but where is the sympathy for the thousands of young families who can't afford to buy because speculators and sub-primers ran up the prices to unaffordable levels? There are thousands of young families who (1) have been stuck in rentals, (2) get no mortgage tax deduction, and (3) whose frugality and attempts to save for a down payment are "rewarded" with low interest rates. Why are they any less sympathetic than people who overpaid for their homes, lived high on the hog, are now being foreclosed upon, and will merely have to go back to renting just like everyone else?

Over the past 3 or so years, young families who are just starting out have had 2 choices: (1) overpay for a home using an exotic mortgage product or (2) rent and save until they can afford to buy the conventional way. There are a lot more people in category 2 then the media and politicians seem to acknowledge. Someone should study this! In my experience, whenever you put 2 or more thirty-something professionals in a room, the conversation inevitably turns to the unaffordability of the housing market. I know young couples with six-figure incomes who have put off having kids, or who have kids and are living uncomfortably in a small apartment, waiting for the market to return to normal so they can buy a home without committing financial suicide. Why are their stories any less sympathetic or newsworthy than those of people who overpaid and are now in foreclosure? At least the foreclosed homeowners had the benefit of "owning" property and getting a tax write-off for a few illusory moments.

Why are the politicians ignoring the sentiments of the young families who need this housing correction so they can finally afford a home? My theory is that it is based on the conventional belief that homeowners are politically more valuable and likely to vote than renters. Renters are traditionally believed to have the following demographic qualities: younger, poorer, less educated, less likely to be registered to vote, less politically active, etc., while homeowners are traditionally believed to be wealthier, involved in the community, middle class, educated, politically active, etc. I believe the housing bubble has changed these trends; nowadays, there are a lot more renters in California who are educated, middle class, politically involved professionals, and there are a lot more homeowners - particularly those facing foreclosure - who are working class, less educated, and less politically active. Thus, to the extent politicians think they will get more votes by elevating the needs of foreclosed homeowners over those of the "priced out" renters, they might be mistaken.

[Ann]

Counseling.....uh huh...... talk is cheap and it is a facade of 'doing something.'

I do housing counseling as a volunteer. (they were delighted to get a retired lawyer/economist to volunteer.) Having had decades of experience in breaking the news to clients that 'they can't always get want they want' and knowing that people close their ears to bad news and seize on any attempt to soft-peddle as 'hope', the conversations are pretty to the point:

Them: We have an ARM that is resetting and the payment is going up (20,30,40%...). We paid XYZ in 2004/05/06. Our income is $$ We can't make that kind of payment

Me: How big is the house, how many square feet, how much land .... We have to look at what has sold in your area . {break to check the numbers which are always bad and they are always upside down}

Them: The realtor said that houses always went up so we figure it is woth more than we paid by 10/20/30%.

Me: Here is what has sold near you - within a block or so. Thie house is bigger, has more land and/or a garage ...... andit sold for less than what you paid. ROugh number is that you have lost $50K, 75K etc since you bought it. You have no equity in it.

Them: BUT But BUT But......

Me: Here are your choices:

(1) cancel the cable TV, sell the SUV to get rid of the payment and get a $1000 car to drive, no more eating out, no movies, no vacations and you both get 2nd jobs plus you take in a roomate or 2.

(2) You can refinance if you can come up with the cash to (a) cover the difference between what you owe and what it is worth now plus (b) 10-20% of its current value for a regular loan or , if you go FHA, then it would be another 3% plus (c) closing costs. It has to b real money - not money from a loan (unless a fmaily member will help .)

(3) Try for a short sale which means selling it for what it will bring now - not what you paid or want - and getting the lender to agree to take less to release the loan plus coming up with the money to pay the income taxes on the difference between what it sells for and what you owe

(4) End up defaulting and the lender forecloses.

(5) File for bankruptcy - probably be Chpt 13 since income is above the state median. You have to make the house payments just as they are and make up the ones you missed, the court will put you on a budget and it takes 5 years or so. If you can't make the payments - which can reset again even in bankruptcy - you lose the house.

That is it. Those are the options.

See? Counseling is easy.

Option 1 rarely works - they just can't bring themselves to do it.

Option 2 is a 1 in 1000 shot. They can't raise the cash.

That leaves options 3 -5 all of which mean that pretty much they end up losing the house and spend a lot of money in the process

Mousebender and Susan are absolutely right. Local gov'ts were thrilled to see property prices rising because it meant higher tax revenues. If you said "what about affordable workforce housing" to them, they had panic attacks unless the local businesses were screamng that they couldn't get employees because of the cost of housing.

[BetterVillage]

As the cities scramble, here's how the federal govt. is scrambling:

http://www.cnbc.com/id/21694647

Yes! That's the ticket. Bump up the maximum on agency loans (fannie, freddie, ginnie (?)) to $1,000,000. Get that Jumbo market back in gear. Are we scrambling to solve the problem, or scrambling to keep people in very expensive houses to keep the whole creaking machine going? Bernanke *was* joking, right? Right?

And while we're on the subject... why do we need both fannie mae and freddie mac if they do ostensibly the same thing? And since private industry usually performs better than government, shouldn't ginnie mae be merged into the resulting entity?

[tthgcontractor]

Hey I just got a brain storm!!! Let's give the upper 1% another trillion dollar tax cut to trickle down to the masses and send more mercenaries to the middle east to attack Iran!!!!!

[tarbubble]

thank you Tex, Mousebender, Susan and Ann. i have seen some news stories over the last few years about the effect ridiculous home prices have had on people in my demographic (30-somethings) and the even worse effect on younger adults, but what ever got done about that? did government ever sit up and take notice that LOTS of young, educated, contributing members of society were completely unable to afford owning even the most basic homes? At the peak, the CONDOS in my area (inland south OC) were going for over $500k. half a bloody million dollars for a condo that maybe had a 1-car garage. insane.

i don't know what the solution is, though. this market correction looks to be hard on everybody. i hope that the reckless, heedless, greedy insanity of this bubble doesn't result in a full-scale recession. after all, if my husband loses his job, it doesn't matter how cheap houses get.

[Enlightenment]

Housing is so over-priced in California, that for the same amount of money that I waste in California, I could:
- Buy a cheap house in another state, and move there.
- Work 50% of my time offsite at that house.
- Fly to California every 2 weeks, arrive on monday, leave on 2nd friday.
- Work 2 business weeks and stay one weekend, including a total stay at a hotel for 11 nights.

[Minnesota Nice]

Enlightenment:

Sure you could. But you're violating the Realtor talking points.

By spending all that money on plane tickets and hotels, you're just throwing your money away. And since California real estate always goes up, you're missing out on all that appreciation by owning in flyover country.

BTW, for everyone, the builders association here in the Twin Cities have created their own blog to tell everyone what a great time it is to buy a house. The ads for the blog are all over the buses and the TV. For a good look at astroturf activism, look here.

htto://www.openthedoortc.com

It's good for a few chuckles anyway.

[TakeFive]

Enlightenment wrote:

“Housing is so over-priced in California, that for the same amount of money that I waste in California, I could:
- Buy a cheap house in another state, and move there.
- Work 50% of my time offsite at that house.
- Fly to California every 2 weeks, arrive on monday, leave on 2nd friday.
- Work 2 business weeks and stay one weekend, including a total stay at a hotel for 11 nights. “

So why don’t you do this? I’m not being facetious – what keeps you in Cal when you have this solution? That’s the reason Cal real estate is expensive – people really want to live here. Low cost housing? All it will do is create more congestion in the stores, on the freeways, etc. Right now, high home prices are the ONLY limit on this state’s population growth.

Sucks for people that grew up here and now can’t afford a home of their own. I hope during this downturn I can buy another house or two for my kids, so they have a chance when it’s their turn to set up a household.