Despite what people are saying, things are getting worse. As foreclosures continue to creep closer to major metropolitan areas, and out of outskirt areas, more and more people will be bit.

Even if some talking (or yelling) heads like Jim Cramer suggest that the we’ve “hit bottom” and that the real estate market is now poised to improve and we can consider the bubble popped, the numbers show otherwise.

RealtyTrac® (realtytrac.com), the leading online marketplace for foreclosure properties, today released its Q2 2008 U.S. Foreclosure Market Report™, which shows foreclosure filings were reported on 739,714 U.S. properties during the second quarter, a nearly 14 percent increase from the previous quarter and a 121 percent increase from the second quarter of 2007. The report also shows that one in every 171 U.S. households received a foreclosure filing during the quarter.

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“Although much of the fallout from foreclosures is being driven by rampant activity in a few states, such as Nevada, California, Florida, Ohio, Arizona and Michigan, most areas of the country are seeing at least some increase in foreclosure activity,” said James J. Saccacio, chief executive officer of RealtyTrac. “Forty-eight of 50 states and 95 out of the nation’s 100 largest metro areas experienced year-over-year increases in foreclosure activity in the second quarter.

“Bank repossessions, or REOs, accounted for 30 percent of total foreclosure activity in the second quarter, up from 24 percent of the total in the first quarter,” Saccacio continued. “This shift in the distribution of activity indicates that there is a progression toward purging the problem loans out of the system — at which point the housing market can regain some sense of normalcy. Of course if another surge in defaults occurs, which could well happen later this year, it would refill the foreclosure pipeline and prolong the recovery.”

Nevada, California, Arizona post top state foreclosure rates

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I’ve worked in real estate for several years during the boom as a side hobby. I was introduced to some of the kindest and most sincere people I’ve ever met in addition to the kind of filth that you’d imagine would occupy the bottom of an industrial septic tank. An old coworker sent me a link to a post on a forum where mortgage brokers hang out and complain about the daily struggles in life. While what I saw was nothing new, it reminded me of who was really behind the current economy and housing bubble.

Yes, predatory lending and unqualified home buyers were to blame. But at the root of everything, stood the middleman who brokered the deal and was paid for his “troubles”.

Here is what one broker (who goes by “HMDApproved”) had to say about the appraiser he liked to use, “Fat Slob Rob The Dirtbag”:

I must say, every appraiser in this part of town is a money hungry, bottom feeding, low life swindler that would charge their own mothers for an appraisal.

I had an incident where I told the appraiser (his name is “Fat Slob Rob”), that the only way the loan would work is if the house was worth $400k, I specifically told him to comp it out and let me know BEFORE he went to do it. This was a rate/term refi and the borrower was strapped for money and could not afford to pay $475.00 for an FHA appraisal if the refi would not go through.

Fat Slob Rob said that $400k was no problem, he had plenty of comps and to put him in touch with the borrower to schedule. Fat Slob Rob did the appraisal and charged the lady $475.00 at the door in cash. He took 5 days to send me the appraisal and when I got it, he appraised the house at $365k. When I asked him why he did that he said that what I asked him to do was illegal and he had to do the actual appraisal to get a “real value”. He did this knowing that the loan wouldnt work.

Am I wrong for thinking this guy is scum or was I asking him to commit a crime???

I’ve also worked as a director for a company who arranged appraisals and I can tell you that this sort of mentality is not unheard of. Our people on the phone were routinely informed that if a certain value would not (or could not) be met, they would not pay for the service. The laws for real estate appraisal in Arizona dictate that there’s no way to truly give an indication as to where the value will be found. Until the appraiser sees the property and conducts his research, there’s no way to absolutely say, without risking their appraisal license, that a property will appraise for a certain value.

As a result, real estate appraisers are left doing a careful dance in order to obtain work while trying not to alienate their clients and customers.

Now, I agree that it sounds like “Fat Slob Rob” was out to collect a check regardless. In this case, the victim is the borrower who’s out almost 500 bucks.

However, that mortgage broker reminded me of my time in that office and the types of conversations I heard. The complains from agents and brokers about appraisers who wouldn’t play ball and instead stuck by the letter of the law. It also reminded me of the appraisers who were just in it for the money (and there was plenty of money to be made), who would appraise the property at whatever price was needed to get things done.

As prices continued to inflate and inflate, $200,000 homes were being appraised for half a million dollars or more. After the mortgage broker, appraisers, and agents were long gone, there was a homeowner caught up in the whirlwind of paper, who was left holding the monthly payment on the loan they probably couldn’t afford after all.

Thankfully, it seems some of the brokers on that forum disagreed and called the original poster out:

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Growing up, I always heard, “Go with a credit union. Credit Unions are better than banks“. After getting pinched with one too many fees due to money being IN my account, but not posted yet, I began to agree with this. The little things that credit unions in Arizona like Arizona Federal Credit Union, or Desert Schools Federal Credit Union did for their members like immediately posting funds, being more personal and caring than banks, and offering more competitive rates in many cases, were very appreciated.

For over a decade, I’d found it was great dealing with credit unions and was happy to see our local credit unions grow. While they’re still experiencing a big boom in business, it does seem that even the credit unions aren’t immune to the market.

Several months ago, Marketwatch touched on why the credit unions were not tripping over themselves like the banks were:

However, despite instability in the mortgage-banking arena, America’s credit unions remain strong and safe for homeowners seeking solutions to their woes. The simple fact is conservative and prudent management policies kept credit unions out of the subprime mortgage mess.

What’s even more important in these uncertain times is that credit union mortgage loans are as good as or better than what’s being offered by banks.

With millions of homeowners falling into foreclosure, and millions of others not sure exactly what to do or whom to trust, many people believe the mortgage industry is at fault. So what’s it going to take for the public to start showing some respect to the credit union mortgage industry?

With all the talk of the mortgage crisis, home loan applications are up, interest rates are still low, and housing finance continues and that’s where credit unions come in.

Many foreclosure victims were duped into bad loans by unethical mortgage brokers, but how many of those originated at credit unions? We know that number would have to be tiny. In fact, newly announced regulations look like the Credit Union loan origination manual of recent years.

“Our slogan is, ‘Credit union’s stick to traditional credit union values, a world where people are worth more than money’” said Bob Dorsa, President/CEO of ACUMA. “This may be a slogan but it is also true. Even a casual study of U.S. economic history will ascertain, a turn-around is inevitable — and when it comes, credit unions that skillfully managed the crisis will be in an excellent position to prosper in the coming recovery.”

I’m inclined to agree here as well. I remember when applying for my first home, it was the home builder who approved me for my “nothing down” 100% financing. When I approached the credit unions, they simply showed me their packages and explained that they currently don’t offer a “nothing down” financing vehicle.

I left in a huff and a bit perturbed, but in retrospect, I can see how it has paid off in spades for them.

Did they lose my mortgage business and that of many others? Sure.

Did they regret it? I don’t think so.

Especially after they saw how many of us were defaulting on those very loans for one reason or another. While I was safe, it seems that most others in the same pool as me were not.

But as foreclosures, bankruptcies, short sales, and other signs of a failing economy grow closer to the larger more immune city populations, growing out of a problem in “the outskirts” of town, things have a habit of creeping up on you.

And it seems that while the credit unions are still following riding on solid foundations, they are feeling a slight pinch:
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There’s been a lot of talk lately about “Jingle Mail”, or simply yelling “Uncle!” and walking away from a mortgage that is doomed to fail. The primary discussion revolves around the ethics of whether treating the loan document as a simple piece of paper rather than some blood-bound promise is appropriate. Many people close to foreclosure have had to weigh options. With mounting legal fees, repayments are no longer the amount past due but now several times that amount. Being 4 months past due with a total of $5,000, may mean that you need to pay upwards of $10,000 or the bank will foreclose. Expensive legal fees are often the back breaker there. The problem seems to be growing deeper into the larger metro areas as well.

At 53 years old, wife and mother Carlene Balderrama decided that she couldn’t take it anymore. She would shoot herself and end her life.

A 53-year-old wife and mother fatally shot herself shortly after faxing a letter to her mortgage company saying that by the time they foreclosed on her house that day, she would be dead.

Police said that Carlene Balderrama used her husband’s high-powered rifle to kill herself Tuesday afternoon, shortly after faxing the letter at 2:30 p.m.

The mortgage company called police, who found Balderrama’s body at 3:30 p.m. The auction was scheduled to start at 5 p.m. and interested buyers arrived at the property in Taunton, about 35 miles south of Boston, while Balderrama’s body was still inside, according to Taunton police chief Raymond O’Berg.

Police did not immediately release the name of the mortgage company. O’Berg said Balderrama’s fax read, in part, “By the time you foreclose on my house I’ll be dead.”

Truly sad. Suicide is such a final and permanent option that while few could possibly condone it, most sympathize with it. The epic proportions of futility that must be felt to feel that pulling that trigger is worth a life cut short… The magnitude of the basis for that feeling is enormous indeed.

As the article goes on to say, the motivation here was to provide her husband with the life insurance Read the rest of this entry »

Foreclosure has usually been a problem in the newer outer areas of Phoenix. Cities that are new or had new development that sprawled further and further away from infrastructure, jobs, and paved roads.

Many who bought late in 2006 got bit by this when home prices started to fall, incentives and discounts got larger at new home sales offices, and mortgage rates started rising. Add to that fact that real estate simply wasn’t selling at all and you get a perfect storm for a recession/depression.

Though we’re waiting on the latter, it doesn’t appear that you can stop foreclosure just by living in an established neighborhood anymore. It seems that the metro areas have now been hit by the struggling economy, and hit hard.

Metropolitan Phoenix’s foreclosure problem has spread. Many Valley neighborhoods closer in, particularly in south, west and central Phoenix, now have the highest foreclosure rates, according to an Arizona Republic analysis of real-estate data from the Information Market.

Foreclosures across metro Phoenix number 16,647 for the first half of the year compared with 9,966 during all of 2007 and 1,070 in 2006.

Last summer, when foreclosures were just starting to climb, the highest rates of home defaults were found on the Valley’s more affordable fringes. The problem worsened, hitting a wider swath of homeowners who bought at the peak of the housing boom through subprime loans. Although some of the Valley’s fringe areas such as Surprise, Anthem and Buckeye continue to have high foreclosure rates, the problem has moved inward.

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Many of the homes going into foreclosure were bought or refinanced during the peak of the housing boom in 2006, according to property records. Home prices are down almost 30 percent from that time, so many people struggling now owe much more than their home is worth.

Now with Phoenix ending its “peak” season Read the rest of this entry »