Friday, December 23, 2005

Merry Katrina Christmas: New Orleans home foreclosures expected to increase

The BizNewOrleans newsletter is reporting that of 419,243 home mortgage loans in Louisiana, 24.63 percent were delinquent 30 days at the end of September. This compared to a 6.69 percent delinquency rate at the end of June.

Although lenders didn't initiate any foreclosures during the grace period which ended December 1st, many lenders are demanding that postponed payments now be paid in full. As a result, the number of foreclosures is expected to dramatically increase.

What many homeless and jobless Louisiana residents will do to make payments is anyone's guess. The situation for Louisiana residents this holiday season is incredibly bleak. BizNewOrleans is reporting that personal income in Louisiana fell $32.7 billion from the second quarter to $97 billion in the third quarter, and a separate BizNewOrleans article reports that the total number of storm-related job losses is 603,000.

Need it bear mentioning again ... and again ... and again, to a nation that fails to appreciate the gravity of the situation, we're talking about perhaps 400,000 residents from New Orleans alone who can't return to their flood-damaged homes, who remain in hotels across the country, or guests in other people's homes.

Is anyone listening? Where's the outcry!

All of this bad news comes on the heels of the defeat in Congress of the Baker bill which would have created a Louisiana Recovery Corporation to buy damaged homes -- a bill which I didn't support.

Why? Fundamentally, I don't think the Baker bill was being scrutinized well enough. I hope to be corrected, but until I hear evidence to the contrary, I think the bill would be bad for homeowners, transferring their hard-earned wealth in home equity to developers.

I've been withholding judgment on the Baker bill, mostly because I've been pretty drained lately making appeals for relief to finally arrive for residents of New Orleans and Louisiana, but after four months of delays by the Bush administration and Congress, the situation seems pretty hopeless.

Sure, Congress is about to send to Bush's desk a $29 billion budget for hurricane relief, but there is little in that budget that would lead anyone to believe that Washington understands how unspeakably dire the crisis is. I'm happy to see that Congress is allocating $11.5 billion to help homeowners without flood insurance to rebuild their homes, but my understanding is that the money will only help people who lived in areas that weren't zoned as flood areas. By why would taxpayers want to invest any money at all when the only funding for levees in that bill is about $2.9 billion to repair the miserably-engineered levee system that rings New Orleans? Contrary to what President Bush said, that ain't enough to assure business owners (or homeowners) that their investments in rebuilding will be secure in the future. New Orleans needs an IMMEDIATE, IRONCLAD COMMITMENT TO BUILD CATEGORY 5 STORM PROTECTION, and the first ribbon-cutting on some significant portion of that project should be the Louisiana 2012 bicentennial celebration.

Rather than re-compose another argument against the Baker bill, I'll just post here what I said in a YRHT comment:

I haven't had the emotional energy left to finish a post I was working on about the Baker bill. But I'll speak up here. Do you really like a bill that turns property over to developers after giving homeowners and banks 60 percent equity -- so they can retain the right to buy back their property at a higher value? Remember, Baker made his money as a developer. Who would benefit? It always looked to me like this was a publicly financed get-rich-quick scheme for developers, paid for on the backs of hard-working New Orleanian homeowners. Okay, so I'm not in the real estate business -- I may not know what I'm talking about -- but why hasn't anyone else asked this question? I don't disagree that homeowners need some help -- like, YESTERDAY -- but I never thought this was the right approach -- not at 60 percent equity. How about trading homeowner equity for shares in developer companies? Why not just buy out people's homes outright? Why not help finance their reconstruction? Why should they lose 40 percent equity? You can do the math -- 200,000 homes at an average of $200,000 per home = $40,000,000,000. That's $40 billion to buy those homes outright, but Republicans in Congress were trying to limit spending on the Louisiana Recovery Corporation to $30 billion (if I remember correctly). Why would Congress need to allocate any money to a plan that turns over equity to developers?

Obviously, I don't know enough about the bill to answer any of these questions, but the fact that I'm not hearing anyone else ask these questions really makes me wonder about the investigatory skills of reporters covering the bill, and the intentions of the bill's sponsors.

I know that time is critical. I know that the 90-day mortgage-payment grace period has passed. I suspect that the better mortgage companies would rather negotiate with homeowners than foreclose their homes -- especially if, with all of the present uncertainty, the future value of those homes is uncertain.

Please prove me wrong. I would truly like to believe that something good can be done for New Orleans homeowners, but I remain extremely suspicious of anything that sounds too good to be true, when nobody has any alternative views or plans.

Here are a few more bits of information to inform readers about the Baker bill.

The Times-Picayune reported on December 20th that bankers may be willing to negotiate rather than foreclose:
Banking associations said Monday that it's not in the interest of financial institutions to foreclose on seriously damaged or destroyed homes because they have little value and carry significant cleanup liabilities.

"Borrowers should talk to their banking institutions and I think generally there will be a willingness to work with them and try to accommodate their situation," said Joe Pigg, senior counsel for the American Bankers Association.

A December 15th Times-Picayune article described the 60 percent equity payment to homeowners and mortgage lenders, and cited that an estimated 205,000 homes were damaged by flooding in the New Orleans area:
According to the latest version of the bill, homeowners could get no less than 60 percent of the equity they had in their home before the hurricane hit, based on various factors. Lenders would get no more than 60 percent of what is owed to them.

Oh, by the way, I don't think I mentioned who we can thank for this major fuckup. Sure, you can point the finger at Ray-Ray, Guv'ner Blanco, the Louisiana legislature, Congress, blah blah blah ... but everyone knows that if he made it his priority, our pissbrained chickenhawk-in-chief monkeyboy preznit could fix the problem.

Instead, Bush is leaving New Orleans victims of Hurricane Katrina the equivalent of a sack of coal -- to which I respond by calling on Louisiana residents to protest by hauling their soggy, moldy sheetrock and furniture to Washington and dumping it in a big stinky pile in front of the White House and on Capitol Hill.


At 12/23/2005 07:57:00 AM, Blogger oyster said...

Here's a reprint of what I said over at my place:

I like some aspects of the Baker bill at least insofar as it is a realistic option that might pass in the next year or two. Please consider it within the context of the available legislative alternatives.

Homeowners receiving 60% of equity that (in most cases) no longer exists seems like a good deal to me. (Or, at least as good a deall as their gonna get from this Congress.)

You're absolutely right about this being a potential boondoggle for (out of state) developers. But, the homeowner can refuse to participate and the community is suppposed to direct how the development proceeds-- for whatever those assurances are worth.

The ones who get screwed are the banks. Settling for under 60% on a first mortgage is pretty rough, although they avoid the expenses of mass foreclosures.

Now, as I've alluded to earlier, the rather rigid constraints within this bill open up a window for enterprising real estate investors.

At 12/23/2005 06:05:00 PM, Blogger Rob said...

I agree that it needs more scrutiny, and I hope it gets it. I rent, so it's a concern only because I don't want New Orleanians (and friends who own flooded homes) to get screwed. Thanks for the overview.

At 12/24/2005 02:49:00 PM, Blogger Tim said...

I think you made a point of this in an earlier post, that you have to pay attention to the details. They keep saying $29 billion and $13 billion and $67 billion--but it's just a shell game! For instance, a big chunk of the that $29 billion is just a re-appropriation of money from FEMA that those goons have failed to put to good use.

Also, the new money for the Gulf Coast includes several billion to repair federal facilities like Stennis and Michoud. They aren't doing us any great favor there--wouldn't the feds fix their facilities anyway?

What you end up with, after all the bleeds from the budget, is about $2 billion to fix the levees. Okay, $2 billion is provided when the best estimates right now are that we need $13 to $30 billion to give us real hurricane protection.

Yeah, Merry Christmas, Louisiana. No gold for you, just myrrh.


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