Briefly Considered: Scrimp and Save, Make Your Payments ... And Lose Your Home Anyway

We're going to see a lot more of this: Iraq War vet Shawn Howell worked two jobs but still couldn't keep up with his ARM payments and had to sell the house to avoid foreclosure. Thousands of families who made payments on time stand to lose their homes as their mortgage lenders go bankrupt.




Just for a minute imagine that you're a thrifty, responsible homeowner. Unlike many people, you've been conscientious in protecting your credit. Your mortgage payments have always been on time, and your property tax payments have been made through the mortgage company. With price inflation steadily worsening and your household income remaining stagnant, things are tight but manageable.

But then your mortgage lender goes bankrupt after being mortally wounded by the bursting housing bubble. As a result, the property tax checks issued by the lender start to bounce -- and now you stand to lose your home to tax foreclosure as a result.

This is the situation facing thousands of home "owners" whose mortgages were financed through American Home Mortgage Corporation Inc. (AHMC), which filed for bankruptcy in August. Like most mortgage companies, AHMC issued thousands of loans backed by Freddie Mac and Ginnie Mae, which are "government-sponsored" lending agencies.

When the company filed for bankruptcy, AHMC's corporate leaders hoped to auction its loans to other private investors in order to raise money to pay its creditors. But just before the company went under on August 6, Freddie Mac obtained a judicial order permitting it to seize the files on some 4,547 mortgage loans, as well as $7 million in escrowed "custodial account funds" that had been sent by home "owners" for mortgage, insurance, and property tax payments. A subsequent agreement between AHMC and Freddie Mac allows the mortgage company to continue "servicing a crucial portfolio of $5.2 billion in government-backed mortgage loans," which is just fine for both parties in that arrangement.

Meanwhile, thousands of home "owners" face economic ruin. Late mortgage insurance payments will cause their premiums to skyrocket. Late tax payments will result in late fees and penalties. The Wall Street Journal (sub. required -- but see here) reports that "Thousands of homeowners face an `imminent risk' of losing their homes" because property taxes are going unpaid."

With the clinical detachment to human suffering that typifies the bureaucratic mind, Freddie Mac's commissars note that while the agency remains in control of the contested mortgage loans, it can't sort out the details to make the required insurance and tax payments. "Therefore, there is the imminent risk that borrowers' insurance policies may lapse for nonpayment, subjecting the borrowers to a risk of loss of their mortgaged properties," observed a statement from the agency. Likewise, the non-payment of property taxes will result "in increased tax liabilities and possible tax-foreclosure sales."

Some of the affected home "owners" are fortunate enough to live in counties with relatively accommodating treasurers. A dozen residents of Frederick County, Maryland, for instance, have been told that they can make partial tax payments until the checks arrive from AHMC. As if they would.

Freddie Mac's corporate motto asserts that the federally-created agency "makes home possible." The agency boasts of financing some 50 million homes since 1970. I have no idea how many American households today have been "helped" by Freddie: In my home state of Idaho, one of the more thinly populated states of the Union, Freddie has helped to finance over 160,000 homes over the last ten years. (.pdf)

Given the extent of Freddie's entanglement in the housing market, it's reasonable to believe that the predicament faced by the 4,547 households caught in the AHMC bankruptcy is just a foretaste of sorrows to come.

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Briefly Considered: Here Comes the Wrecking Ba'al

"Then they [the prophets of Ba'al] called on the name of Ba'al from morning till noon: `O Ba'al, hear us!' they shouted. But there was no response; no one answered. And they danced around the altar they had made. At noon Elijah began to taunt them. `Shout louder!' he said. `Surely he is a god! Perhaps he is deep in thought, or busy traveling. Maybe he is sleeping and must be awakened.' So they shouted louder and slashed themselves with swords and spears, as was their custom, until the blood flowed. But there was no response, no one answered, no one paid attention." I Kings 18:26-27 (NIV)


It is fortunate that some conscientious soul removed all of the sharp objects from the studio before CNBC's Jim Cramer, who is among the most histrionic evangelists of the Fed's loose money policies, suffered the following breakdown:





Cramer -- like the pagan priests of Ba'al -- is overwrought with anguish because of the indifferent silence from his deity, in this case the Federal Reserve and its current avatar, Ben Bernanke. The Fed has the power to conjure "money" from the ether (in the digital age, most fiat "money" remains purely ethereal anyway), and Bernanke has expatiated on the supposed virtues of official counterfeiting at great length and with considerable passion.

Yet the divine Fed withholds the much-desired benison, even as the sub-prime mortgage industry collapses like a federally constructed highway bridge, crushing lenders and borrowers beneath the weight of its accumulated corruption, and wreaking collateral damage on the entire consumer economy.

As with everything Cramer does on his "Mad Money" program, his August 3 seizure was largely theatrical, and inspired by a desire to cover his posterior. He "went outside of character" to "talk about the humanity of the situation" -- specifically, the 7 million people who accepted former Fed Commissar Greenspan's invitation to take out mortgages on "teaser rates" beginning in 2005. Cramer believes that they will soon lose their homes and suffer ruination.

"I want my conscience clean ...when -- I think `when' not `if' -- things unravel in the way that I've spoken," Cramer explains. Having staged his perfunctory fit of conscience, Cramer has since returned to form, hymning the praises of loose money and speculative investment.

I suspect that Cramer remembers what happened to the original Prophets of Ba'al at Kishon Valley. His fit of conspicuous agony for the "forgotten man" would thus be meant to immunize himself against the possibility of being pitched over the precipice with the other pagan Fed-worshipers when the ruination he foresees really gets underway.


And awaaaaaaay they go: The Prophets of Ba'al experience a brief and invigorating lesson in applied physics before suffering death through deceleration trauma.


















A brief personal note....

I wish to offer my thanks, once again, to those who have contacted me to express their care and concern for Korrin and our family, and particularly those who have generously donated to us; as time permits I intend to express my thanks to each of you personally.

Korrin has been hospitalized for a month, and she has been relocated to a more distant facility to get specialized treatment. I won't be able to see her as often, but her prognosis is very good. I wish to emphasize that her condition, while life-changing, is not directly life-threatening. It has been very difficult for our children to spend nearly the entire Summer without their mother. Once again, to those who have offered prayers and offered financial and material help to our family, thanks and God bless you.

It is because of the developments mentioned above that I have been somewhat austere in writing new posts. This will soon change, and I appreciate your patience.

Please be sure to visit The Right Source and the Liberty Minute archive.

The Bubble Collapses, The Police State Expands (Quick Update)

I want to thank Jerri Lynn Ward for inviting me on her program "I Object! Justice Examined" to discuss (along with Dr. Herb Titus) the right to keep and bear arms. Those interested in listening can hear the program on Right Talk radio; click on Miss Ward's icon at the bottom of the page. The program will re-start at five past the hour for the next day, and will be available as a podcast after 7:00 PM this evening. As you listen, please bear in mind that I am, once again, battling a bad chest cold -- so I hope the coughing and sniffling aren't an insuperable distraction!



Evicted: Abandoned personal effects were piled on the lawn of this foreclosed home in Colorado's Adams County. The Sheriff's Department emptied the house and changed the locks.

With the Dow peaking above 13,000, the most observers direct their gaze skyward as they wonder how much higher the market can climb. Few are taking the time to examine the market's decayed and crumbling foundation, as they wonder how soon the structure will collapse.

The market is not built on rock or even on sand, but rather perched precariously atop the housing/mortgage/refinancing bubble the Federal Reserve so diligently inflated during the first half of the decade. Wall Street's necromancers have transmuted debt into “wealth” by creating exotic financing mechanisms to encourage mortgage lending to dubiously qualified – or entirely unqualified – home buyers, and then securitizing those loans for investors. This scam – like many others -- works fine as long as the housing bubble continues to expand.

Now that the bubble has burst, defaults and foreclosures on “sub-prime” mortgages are mounting. Hundreds of thousands of families have lost their homes; neighborhoods and communities are being ravaged; and municipal governments face what could be called “gentrification in reverse” -- the creation of vacant, deteriorating urban areas that become magnets for crime.

The last to suffer will be those who most richly deserve to – the Fed-allied financial interests who have facilitated the entire scam by luring people into unmanageable debt.

In Cleveland, reported the New York Times on March 23, “Hundreds of houses are vacant because they are caught in legal limbo, have been abandoned by distant banks or the owners cannot find buyers.” In suburban Euclid “more than 600 houses have gone through foreclosure or started the process, many of them the homes of elderly people who refinanced with low two-year teaser rates, then saw their payments grow by 50 percent or more.”

Euclid's city government, which claims an annual property tax shortfall of $750,000 from the vacant houses, has hired new building inspectors and has taken out a $1 million loan to pay for “rehabilitation, demolition, and lawn care at the foreclosed houses.” The city anticipates recovering those costs through tax assessments when the renovated buildings are sold.

What if, in an ever-softening real estate market, they don't sell?

Well ... the one constant here, from the municipal government's perspective, is the need for more revenue. So homeowners who have kept up with their mortgages, or own their homes outright (as opposed to renting them from the bank, which is what a mortgage amounts to), will see their taxes go up – dramatically, I'll bet.

I suspect this process is behind yesterday's (April 25) USA Today headline: “Property taxes up as house prices fall.” The story explains that despite the housing downturn, “the market value of millions of homes still exceeds their assessed value used for tax purposes.” Many homeowners are caught in an interesting predicament: The value of their homes hasn't declined quickly and steeply enough to help them avoid a tax increase, or an abatement in their taxes corresponding to the reduction in their equity.

“To get a tax cut,” comments Dan Goodwin, a tax assessor for California's Ventura County, “you have to buy a home at the peak and have it lose value quickly. You can't enjoy double-digit increases in you home value and then expect a tax cut when the market dips.”

Well, why not? With household budgets already under stress from increases in non-discretionary spending – food, energy, and housing – why can't county governments bite the bullet and take in a little less?

There are countless ways to answer that question, but they can all be easily digested into this simple proposition: County governments have constituencies to feed, and they have Sheriff's Departments to command.

So you pay what they tell you to pay, or wind up like the Sundsmos.

A rising tide lifts all boats, and (to alter the metaphor) a collapsing nation-wide real estate bubble is likely to drag everybody down – beginning with those who are trying to get out of mortgages they can't afford to pay.

As an earlier USA Today story pointed out, foreclosures on sub-prime mortgages depress housing values in entire neighborhoods. “Why pay full price for my house when you can pick up a foreclosure for $30,000 or $40,000 less?” asks Dannice Clark, a postal worker from Atlanta who is trying to sell her home.

Among those who are seeing their equity evaporate, warns Dan Immergluck of the Georgia Institute of Technology, are homeowners who qualified for interest-only mortgages, which are poised to re-set. “I'm concerned that could really tip some of these middle- and upper-income neighborhoods, in terms of high foreclosure rates,” Immergluck warns.

In Georgia' Gwinett County, as in Ohio, Michigan, and elsewhere, many abandoned homes have been neglected by the banks or other lending institutions that own them. Some of them quickly fall prey to vandalism, or attract squatters. This, in turn, leads to an increased police presence, often carried out by “Quality Of Life” (QOL) units, who are tasked to enforce building codes and ordinances dealing with graffiti and vagrancy.

The creation of QOL patrols was inspired by the “broken window” premise -- that is, a broken window, littered sidewalk, or unattended home "sends a signal" that a neighborhood is fair game for reprobates. One commentator summarizes that theory thus: "[T]he smallest symptoms of antisocial behavior will, left to fester, breed greater and greater crimes, all the way down to murder."

While there may be some merit to that theory, in practice -- as in New York City under the reign of Il Duce Giuliani -- "quality of life" policing has sometimes led to replacing the anarchic violence of street criminals (or merely the unsightly spectacle of street beggars) with state-sanctioned violence -- such as the unpunished murder of private security guard Patrick Dorismond by undercover New York narcotics officers.


(Dorismond, the father of two, was accosted by the officers, who asked where they could buy drugs. He took offense, and a scuffle ensued in which Dorismond was fatally shot in the chest. As public outrage mounted over this needless death, Giuliani illegally unsealed Dorismond's juvenile delinquency record, and released a toxicology report showing that the victim had smoked marijuana shortly before he was killed -- none of which has anything to do with his summary execution at the hands of police who, according to eyewitnesses, provoked the fight and then spat profane invective at the young father as his life bled away.)


Taken in the abstract, QOL-oriented policing seems like a good idea, if only because it addresses the age-old complaint that there's never a policeman around when you need one. The problem, once again, is found in the practice, rather than the principle. In practice, QOL policing means the ever-increasing presence of armed government agents in the employ of revenue-starved governments, there to enforce often obscure ordinances regulating how you cut your grass, care for your lawn, paint your house, maintain your car, and even feed your dog. And intrusions of this sort can now be justified as a way of helping to keep property values up in your neighborhood -- as if anything you can do would have a bigger impact than the Fed's manipulation of the money supply.

In prosperous and stable times, this is a formula for trouble. What happens when the prosperity (or at least the illusion of the same) is gone?

Think of it this way: Quality of Life policing is a creative way of weaving armed agents of the state into the fabric of a community, just as the unwinding of the housing/mortgage/refinancing market causes that social fabric to become undone.

Video extra:

In this clip from Boston Legal, Alan Shore -- the high-viscosity uber-lawyer played by James Spader -- peels the skin off an attorney representing the credit card industry. Shore's soliloquy is filed under "Things I Wish I Had Written," and, in fact, it does remind me a great deal of at least one essay I did write.

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