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City grapples with foreclosure rescue, $2.27 million federal grant

By Emanuel Cavallaro, Staff Writer
Springfield News Sun

Springfield, Ohio — Last year was the first time this decade the city's foreclosure rate actually decreased. That may sound like good news, but it probably isn't.

Until 2007, the number of home foreclosures had been rising annually since 1997, and there are only so many houses in Springfield. So the city may have just reached a tipping point, according to Shannon Meadows, the city's Community Development Director.

"Foreclosures have been scaling up for about 10 years, and we've got a lot of houses sitting vacant as a result," Meadows said.

In an effort to deal with the effects of rampant foreclosures – vacant units, declining property values, blight – the U.S. Department of Housing and Urban Development is doling out nearly $4 billion in grants to all states under its Neighborhood Stabilization Program.

On Dec. 1, Springfield will apply to receive $2.27 million of that money – a tiny amount given the scale of the problem. The city's Community Development Department is scrambling to figure how to make the most out of it.

Strings attached to grant

The funding would arrive in the form of a Community Development Block Grant, and is on top of the city's entitlement. It's more money than the city would usually get, but it would come with strings attached.

Could the city rehab houses? Demolish houses? Give people money to buy houses? All of the above, evidently.

• One thing the city can't do, though, according to HUD regulations, is use the money to prevent foreclosures.

"This program is designed to help the neighborhoods that are affected," said Jackie Sudhoff, Housing Program Coordinator with the CDD. "It isn't designed to help folks that are in bad loan situations right now."

• Another condition tied to the money is that at least 25 percent of the funding must be used to provide housing for persons making not more than 50 percent of the city's average median income.

In deciding how to use the money, Meadows and her staff have been looking hard at the city's housing situation, using data from HUD and the Clark County Sheriff's office.

Where to invest it

They have decided to invest the $2.27 million in four areas of the city with the largest concentration of vacant units from foreclosures of the last two years, and where the rates of high cost loans and the risk of future foreclosures are the highest.

In 2006 and 2007, there were 2,172 new foreclosure filings and 1,334 default judgments, according to the Clark County Common Pleas Court Foreclosures provided by Ohio Supreme Courts Reports.

There are many more units throughout the city that are vacant from previous years' foreclosures, but the CDD is targeting areas suffering from the most recent foreclosures.

The theory is that a house that has been vacant and on the market for less than two years will be cheaper and easier to rehab than one that has been on the market for many years.

"(Vacant units have) been vandalized, the pipes have frozen," Meadows said. "Those are homes that, with this money, we're not going to be able to make an impact."

Last month, the CDD met with major players in the local housing market: building contractors and people from banking, real estate, non-profits and neighborhood associations.

"We began to formulate ideas about what uses were a best fit for the different areas," Sudhoff said. "The areas we were looking at were vastly different. What floated to the top was the idea that different areas needed different strategies."

Plan presented

No one is sure yet exactly how the money is going to be invested in each of the four areas or how many houses will be dealt with, but Meadow's staff has worked out some basic strategies. These strategies are subject to change.

The plan they came up with has already been presented to the city commission, and entered public comment period on Nov. 10. The commission will consider it for adoption at its Nov. 25 budget meeting. The plan is online at www.ci.springfield.oh.us.

Voros: Feds Fiddle as Foreclosures Burn Stronger

Drew Voros: Business Editor
Mercury News, San Jose, California

In abandoning the core idea behind the $700 billion bailout that would purchase defaulted mortgage-related debt and securities from banks and financial institutions, Treasury Secretary Henry Paulson, with the assuring nod from President Bush, made clear his intention that the government will not attempt to extinguish the foreclosure fire burning in all parts of our country's economy.

Treasury Secretary Henry Paulson and Fed Chairman Ben Bernanke

For the next 50-odd days that he and President Bush will be in power, their great financial fix will not be about preventing foreclosures, reviving a housing market drowning in distressed properties or launching a "shock and awe" loan modification attack.

That whole idea presented last month to Congress and the American people is out the window.

A little more than a month after Paulson pled for — and got — $700 billion to clean up the financial meltdown by buying toxic debt, he testified Tuesday in Senate hearings that now the bailout "was not designed" to attack the housing and mortgage industries key to our economic recovery.

Paulson has not articulated the real reason why he took this 180-degree change, but it comes down to the simple idea that it would be painfully damaging to the bank and financial firms.

The banking industry that Paulson came from and to which he will return, wanted nothing to do with the feds buying their bad debt and securities. If that happened, huge losses would have to be recorded.

Paulson and his financial world colleagues quickly agreed that the debt and toxic securities in question would be difficult to value. The lower the amount the feds would pay, the higher amount of loss the bank must declare, which would damage their stocks prices.

Some losses may be so large it might even bankrupt a handful more than the already fallen.

So instead we get a plan that sends profitable banks like San Francisco-based Wells Fargo $25 billion in cash for non-voting shares. A total of $125 billion has been delivered to the country's nine largest banks, whether or not they wanted it, in exchange for more non-voting shares that give taxpayers no say. This has certainly stabilized the banking industry, but not much else.

Ironically, the same day Paulson was shifting gears, fresh evidence came in that the our financial problems will intensify as the foreclosure fires burn brighter.

Across the country, foreclosures increased by 25 percent in October. Considering the lag time of about nine months between a homeowner's decision to halt house payments and the official foreclosure and eviction, today's news is a snap-shot of last February economy, long before the market meltdown began.

Since the beginning of September, job losses have accelerated almost as fast as the losses registering in personal retirement accounts. Freshly unemployed homeowners who have been current on their mortgages will be added to the mix of foreclosures as job losses quicken.

There is no reason to expect next month's foreclosure numbers will show anything but continued increases, pulling down median home prices beyond the 50 percent plummet experienced in parts of the Bay Area.

Without a national plan to prevent or mitigate foreclosures, confidence cannot return to the economy.

Fannie and Freddie Suspend Foreclosures thru Jan. 9

By Dawn Kopecki
Bloomberg.com

Nov. 20 (Bloomberg) -- Fannie Mae and Freddie Mac , the mortgage-finance companies seized by the U.S. government, will suspend foreclosures and evictions over the holidays.

The six-week halt will begin Nov. 26, a day before the U.S. Thanksgiving holiday, and last through Jan. 9, the companies said in separate statements today. The hiatus is designed to give servicers more time to implement a streamlined loan modification program for struggling borrowers.

“It's a giant time out,” Paul Miller , an analyst at FBR Capital Markets in Arlington, Virginia, said today in a Bloomberg Television interview. “I wouldn't be surprised to see this across the board.”

Fannie and Freddie, government-sponsored enterprises that own or guarantee $5.2 trillion of the $12 trillion U.S. home mortgage market, were placed under federal control Sept. 6. They have since been pushed to work harder at modifying troubled single-family and multifamily mortgages to curtail foreclosures.

Until a streamlined modification program is up and running, “we felt it was in the best interest of both borrowers and Fannie Mae to take this extra step to ensure that homeowners with the desire and ability to prevent foreclosure have an opportunity to stay in their homes,” Fannie Chief Executive Officer Herb Allison said in a statement.

Fannie and Freddie have partnered with HOPE Now, a government-organized coalition of the largest U.S. mortgage servicing companies, to offer borrowers who are at least 90 days delinquent and have high loan-to-income ratios the chance to modify mortgage terms to cut their monthly mortgage payments.

Incremental Steps

The companies plan to reduce interest rates for up to five years and lengthen repayment terms to as much as 40 years to trim monthly payments to roughly 38 percent of a homeowner's monthly pretax salary. In some cases, borrowers may qualify to temporarily reduce the principal amount of the loan, which would be due without interest if the house is sold or refinanced.

“The Hope Now program is not going to be enough. It's an incremental step,” said housing advocate John Taylor , president and chief executive officer of the National Community Reinvestment Coalition in Washington. “Obviously, we're pleased that they're doing this, but absent a substantive foreclosure program, I wonder if this is this just another problem they're leaving for the Obama administration.”

Fannie and Freddie posted record third-quarter net losses totaling $54.3 billion last week. Freddie said it needs $13.8 billion from the U.S. Treasury by Nov. 29 to stay solvent, and Fannie said it may need federal aid early next year. Treasury Secretary Henry Paulson set up $200 billion in backup financing for Fannie and Freddie in September, saying the companies were failing and threatened the safety of the broader U.S. economy without federal intervention.

Foreclosures

The worst U.S. housing slump since the 1930s is being compounded by a recession that began in the third quarter and may last a year or more, according to Jay Brinkmann , chief economist for the Mortgage Bankers Association. Home prices in 20 U.S. metropolitan areas fell in July at the fastest pace on record, and sales of previously owned homes in August were 32 percent below the peak reached in September 2005.

A total of 765,558 U.S. properties received default notices, which warns of a pending auction, or were foreclosed on in the third quarter, the most since records began in January 2005, according to default data from Irvine, California-based RealtyTrak. Filings rose 3 percent from the second quarter and fell 12 percent in September from August as state laws created to keep people in homes slowed the pace of defaults.