Misunderestimating homelessness and the mortgage mess

The problem is real and the perpetrators are stealing billions. Some industry insiders continue to try to divert the blame onto some of the very people who were scammed, swindled and even left homeless by a trail of high thievery, which has hit nearly every community in the nation.
Despite the efforts in some quarters to “misunderestimate” the size and scope of mortgage fraud in the United States, the extent of the problem is huge. So huge, that one real estate pro in Atlanta says fully 40 percent of the homes in his neighborhood are vacant due to foreclosure.

There is an eight-fold increase in the number of mortgage fraud reports since 2005. That means, according to statistics, that the 5,600 reported cases of suspected mortgage fraud that were reported in 2005 have now jumped to nearly 48,000. Reports of suspected mortgage fraud have doubled since 2005 and increased eightfold since 2002. Banks filed 47,717 reports this year, up from 21,994 two years ago, according to statistics from the Federal Bureau of Investigation and the Financial Crimes Enforcement Network of the Treasury Department. In 2002, banks filed 5,623 reports. (New York Times, 12-25-07)

Mortgage fraud has become the new business of choice for former drug kingpins, according to law enforcement officials from Chicago to Miami. Document deception, forgery, straw buyers, inflated appraisals, foreclosure and entire neighborhoods of vacant, foreclosed homes are turning the American Dream into a nightmare all across the country.

In some parts of the nation, builder bankruptcy has turned proposed housing developments into snow swept ghost towns. Those who are unfortunate enough to have been early purchasers, now live in a dangerous ghost town, where vagrants and wild animals shelter in the shells of half-finished homes.

Across the country, many people will not admit that their dream home is beyond their reach. They will mortgage their future, break their retirement plans, rob Peter to pay Paul, anything to get into that overpriced, now depreciating dream house. In many of the nation’s cities, police, fire and teaching personnel simply can not afford to buy homes in the localities they serve. Even worse, is the fact that mortgage fraud has increased so much that investigators can’t keep up with the flow. In many small communities, police agencies have neither the time, the manpower, or even the funding to make a dent in the level of real estate fraud in their communities.

A Georgia official told the New York Times that his staff is only scratching the surface of the mortgage fraud in his state. “I could hire a dozen investigators and a dozen prosecutors and only scratch the surface,” said David McLaughlin, a senior assistant attorney general in Georgia who coordinates prosecutions of mortgage fraud. (NYT)

The mortgage fraud epidemic, combined with dropping real estate values and abandoned property is becoming a major problem for many local governments, which depend on property taxes to fund schools, fire departments and police protection. A drop in property tax revenues generates lay offs, decreases in police and fire protection and school funding. The vicious circle of decreased revenues, decreased services, loss of population creates more of the same—more of the same headaches for municipal governments that were already dealing with decreased state and federal funding.

As we move forward in the New Year, our cities and states will face new challenges. They will have to deal with increases in homelessness, and vagrancy, a rise in vacant houses, a decrease in tax revenues, and less funding from the state and federal government. Middle and working class neighborhoods in many cities are shell-shocked, as foreclosure sale signs pepper the city blocks like so many weeds. Even so, this is only the tip of the iceberg according to many analysts. Billions of dollars of real estate has been foreclosed on and the end is nowhere in sight.

In 2006, a San Francisco newspaper called mortgage fraud ‘the worse crime no one has ever heard of.’ According to the San Francisco Chronicle:
It's the convoluted world of mortgage fraud, a crime in which it's sometimes hard to disentangle victim from criminal, and crime from business as usual. …Mortgage brokers play the "We'll get you that loan no matter what" game of social engineering. (How else can schoolteachers buy a home?) (ibid)

And, herein is where much of the foundation for mortgage fraud and foreclosure lie. Home prices in many of our cities are beyond the average person’s means, unless creative financing and more creative documentation are used. How else can a police officer, teacher or mid-level professional afford a home in some of these places? A young teacher in Florida left the state and moved north. She got a $6,000 raise and had access to more affordable housing as well.

“I was looking at one-bedroom places for $1,000 a month, and that’s half my pay,” the 27-year-old teacher said. So, she packed up in 2005 for Montgomery County, Md., where she got a $6,000 pay raise and could stay in a cottage behind her folks’ home. (Daily Business Review, 10-03-07)
Nationwide, housing has become beyond the reach for many professionals. Simply put, affordable housing is out of reach for many people in a lot of the nation’s cities. A study undertaken several years ago cuts to the heart of the matter;
Housing affordability is largely a function of income. One of the best available measures for determining affordability is the Housing Opportunity Index (HOI). This index simply states the percentage of homes sold in a given area that would have been affordable to a household with the area’s median income. Affordability is defined as a house payment no greater than 28 percent of gross household income. (Chris Fiscelli, New Approaches to Affordable Housing, Reason Foundation, April 2005)

How, then, can a teacher in the “high rent district” in California, or a social worker in Chicago afford a home, when a 900 sq. ft.“house” goes for half a million dollars? The people in the middle of today’s urban housing crisis are real. They are not nameless, faceless entities, who exist only in a loan file. Simply put, they are people we grew up with, people we work with—they may even be the person who looks back in the mirror every day. By what ever label we affix to them, they are real and they are part of a growing housing affordability catastrophe in the United States, a country which, purports to be the freest nation on earth.

Even before mortgage crisis became a household word, researchers were analyzing the American housing market. And, what they found, even 4 years ago, sounded a warning:
The nation faces a growing crisis of housing affordability. The National Low Income Housing Coalition's (NLIHC) Out of Reach report found that the national "housing wage" stands at $15.21 per hour or $31,637 per year. The group defines the housing wage as the amount a person working full time has to earn in order to afford a market rate two-bedroom rental unit, while paying no more than 30 percent of his or her income in housing costs. The current housing wage stands at three times the federal minimum wage and is rising at twice the rate of inflation. According to the annual NLIHC studies, the housing wage has increased a whopping 37 percent in less than five years. (W. Paul Farmer, Affordable Housing Crisis: The "Silent Killer")

Many young professionals come out of college already staggering under massive student loans. Now, add housing costs in the “go to cities’ of Atlanta, Chicago, LA, Miami and elsewhere to the mix and we have the makings of a nightmare. No matter how we slice and dice it, the nation’s citizens were in financial quicksand in the housing arena before the housing market collapsed and generated the current “mortgage crisis.”
Despite indications of a frightening trifecta of dwindling supply of affordable housing, increasing costs of affordable units, and growing percentage of income devoted to housing costs, the response from government has been less attention, not more. Although housing accounts for fully one-fifth of total gross domestic product in the United States and is the largest source of wealth generation, the percentage of federal resources aimed at addressing the affordable housing problems actually has been in decline. (Ibid)

According to a Rhode Island housing specialist:
… 97,000 Rhode Island households already devote more than half of their incomes to housing. No more than 30 percent of income is typically recommended. The state is expected to add up to 40,000 households this decade, which will require new construction and renovations of existing units. (AP)

In California, the problem is acute. Many people live in motel 22—that’s an all night ride on a bus route. According to the California Housing Law Project, here’s what it costs to “live and rent” in some parts of California:
• $250/month in Fontana provides a shed for a home.

• $500/month rents a Orange County garage; 40,000 garage rentals in Los Angeles are without heat, toilets or cooking facilities.

• "Motel 22" is a $3 all-night bus ride in South Bay.

• $200/month to share a basement in Watsonville with 10 other people.

• More than 132,000 rentals in LA have problem toilets, and 108,000 units are infested with rats.

• Silicon Valley companies check homeless shelters for space availability for new hires. About 1/3 of the people in shelters work, but cannot afford apartments. (California Housing Law Project)
Renters are getting evicted because their landlords fell behind on rental property mortgages. Families are losing their homes and becoming homeless, because they cannot pay conventional, or adjustable rate mortgages. Some employers check the availability of homeless shelter space for new hires. Unless there is a miracle, or serious government intervention into the housing finance industry, millions will join them if the economy takes a nosedive.