[Futurework] Real Estate Bubble: Hot Market vs Rise in Foreclosures

[Karen Watters Cole]

Consequence of aggressive Fannie Mae policy or predatory lendors?   Excerpts from A Bane among the Housing Boom: Foreclosure Rate rises sharply http://www.washingtonpost.com/wp-dyn/content/article/2005/05/29/AR2005052900972.html   Philadelphia, its suburbs and indeed much of Pennsylvania have experienced a foreclosure epidemic as low-income homeowners take on mortgage debt they cannot afford. In 2000, the Philadelphia sheriff auctioned 300 to 400 foreclosed properties a month; now he handles more than 1,000 a month. Allegheny County, which includes Pittsburgh, had record auctions of foreclosed homes, and officials speak of a "Depression-era" problem. The foreclosures fall particularly hard on black and Latino families.   For some American homeowners, the greatest housing boom in U.S. history has delivered riches. They repeatedly tap their homes for equity and use the cash to purchase granite countertops, a BMW, even a trip to the Super Bowl. But there's a dark side -- a sharp rise in foreclosures that is destroying the single greatest generator of personal wealth for most Americans. ~~~~~~~~~~~~ At first glance, the high foreclosure rates in Pennsylvania seem paradoxical. The average Pennsylvania homeowner has one of the highest credit scores in the nation, saves more than the average American, and is less likely to be unemployed or divorced.   But the Reinvestment Fund, a Philadelphia-based think tank, analyzed 22,979 foreclosures for the state Banking Department and found a more problematic profile. Those homeowners, most of whom are blacks, Latinos or working-class whites, live close to the economic margin.  They have low incomes and little or no health insurance -- 40 percent of those who sought emergency foreclosure help cited medical costs as the cause of their distress. ~~~~~~~~~~~~ Foreclosure rates rose in 47 states in March, according to Foreclosure.com, an online foreclosure listing service. The rates in Florida, Texas and Colorado are more than twice the national average. Even in New York City and Boston, where real estate markets are white-hot, foreclosures are rising in working-class neighborhoods.  Virginia, Maryland and the District have relatively low foreclosure rates -- analysts say troubled owners in those booming markets can still sell their homes before facing foreclosure.   Should the nation's housing bubbles deflate, as many economists and federal officials expect, the foreclosures could prefigure a national crisis. Americans now shoulder record levels of housing debt -- more than 8 percent of homeowners spend at least half their income on their mortgage. "We are clearly seeing a spike in foreclosures in a number of our major urban areas," said Julie L. Williams, acting U.S. comptroller of the currency, whose agency regulates the nation's banks. "It can lead to a downward spiral for neighborhoods. If we are not careful, the American dream can quickly turn into the American nightmare."   A recent study in Chicago found that rising foreclosures, and attendant social dislocation, fuel increases in crime rates.   State and federal regulators place much of the blame for the foreclosure problem at the feet of mortgage brokers and bankers, who have crafted ever-riskier ways for Americans with poor credit to buy homes. Interest-only and adjustable-rate mortgages account for 63 percent of new mortgages. But many policymakers say the rise in foreclosures leads to a larger question: Is the push to boost homeownership -- successive presidential administrations have strongly promoted it -- backfiring? As home prices and personal debt rise to record levels, they note, homeownership has become an albatross for millions of Americans, destroying rather than creating wealth. ~~~~~~~~~~~~~ Losing a home is particularly destructive of personal wealth. A foreclosure often costs upward of $10,000 in various legal, sheriff and bank fees. And people who have gone through foreclosure end up paying more for insurance and credit card interest and can get turned down for jobs that require good credit.   Fannie Mae, the home loan giant, has devised several programs to help distressed homeowners. It also has started its "American Dream Commitment," which aims to drive the percentage of homeowners still higher. Spokesman Alfred King acknowledges that many lower-income homeowners are experiencing trouble but says his company has no plans to temper its homeownership push.

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