A Pair of Tucker Mortgage-Meltdown Incidents

Tying the big picture to the home front

In these times of struggle and travail regarding finances, few locations have a happier lot than does Tucker.  , readers saw, for example, that the rate of foreclosure seems much lower in Tuckerian zip codes than in many of those adjacent to it.  The same tilt toward Tucker would likely prove true among other social indicators as well--so that unemployment would be less, income more, job security greater, and so on.

At the same time, no community can wholly escape a general crisis--the very universality of a problem causes its tentacles to extend to every corner of the socioeconomic firmament.  Thus, at a minimum, many dozens of Tucker homeowners have faced seizure of their domiciles, and virtually all property owners have witnessed a moderate-to-severe diminution in value over the past two years or so.

Empirical reality confirms this.  Tucker's roughly 12,500 housing units, just in the past year, declined an average of 5% or more in value.  This is more than $9,000 per house, as a mean, suggesting that $112,500,000 of evaluated wealth simply disappeared over the past twelve months.

Furthermore, the overall economic context, at best, does not suggest a significant upsurge any time soon.  On occasion, devastation--homelessness, suicide, divorce, and similar mayhem--inevitably accompanies these numbers that are otherwise easy to view as mere 'statistics.'

Love in the Ruins

This litany of loss does not always mean personal tragedy, however.  As the previous account on this subject noted, a lively marketplace--some would say one of the few such now extant, here or elsewhere--has sprung up in foreclosed or otherwise distressed properties.  Folks will seek to make a silk purse out of sow's ear, or to concoct some lemonade when only lemons are available, in such times as ours.

Last week, for instance, one of those who had confronted a Christmas catastrophe managed to arrange a deed-in-lieu of foreclosure with the bank, after the owner's repeated offers for a short sale or loan modification received no attention.  This particular occupant thereby avoided lawsuits and kept, in the way of furnishings, whatever was desirable from the home. 

Not only that, having met a suitable match in the neighborhood, the narrative takes on the quality of a love story.  The happy couple speak of engagement, marriage, and making a life together, none of which might have come to pass in happier economic circumstances.

Making Lemons From Lemonade

This week, another opportunistic success story unfolds for readers' consideration.  It lacks the romantic elements of what happened in last week's developments, but it demonstrates the businesslike arrangements that homeowners are capable of creating when, as the saying goes, 'the chips are down.'

Here, as many others can attest, decades of prudent residence in Tucker did not forestall the loss in value that has so generally obtained.  "It didn't bother us too bad," said the homeowner (who wishes to remain anonymous) because the property was free and clear in the possession of the couple who occupied it. 

But the gentleman in question, an entrepreneur and local trader in all sorts of goods and services--odd jobs, cars, and more--did wonder whether he wanted to sit idly by and watch money--even if it only existed on paper and in theory--evaporate.  The home in question, a tidy and well kept 2,200 square foot ranch that is the common Tucker model, went up for sale, "just to see what would happen," he said.

Even in the slowest markets, some exchange is likely to take place.  This happy householder was, in the event, able to close a deal that minimized the present loss of equity, which is certainly a better outcome than many have had little choice but to accept was their lot in life.

Meanwhile, having begun to cast about for some way actually to benefit, as a player in the poker-game of real estate, this savvy participant found another home--"actually, it was over 5,000 square feet, more than twice as big"---that was bank-owned and on the market for "not a lot more than we sold our house for."  Thus, Tucker's loss is Jackson County's gain.

The owner of that exurban property, solvent and responsible, had received a magnificent offer--higher pay, greater responsibilities, and a stake in his new company--of employment in coastal Georgia.  In the present residential real estate environment, though, selling his mansion between Atlanta and Athens was out of the question. 

He tried everything he could to get the bank to do some sort of deal that would let him off the hook.  When the response was, 'we only even contemplate anything like that if you're four months behind on the mortgage,' the fellow scoffed that he wasn't waiting around four months to have a chance to salvage his credit rating.

"He just walked away."  Thus, the bank's bureaucratic recalcitrance served only to diminish its own equity in this instance, since the financial wizards hardly cottoned to the notion of trying to rent out a semi-rural seven bedroom estate halfway from everywhere relevant.

All's Well that Ends Well?

One might muse about a story like this that it represents a silver lining of the current cloud hanging over America's economy.  After all, only the big-business stakeholders would even need to voice a bit of an 'ouch' as things played out.  Such a rosy outlook, however, misses several important points. 

First of all, basing an economy--and the society that eats and spends as a result of such day-to-day workings of labor and money--on such a scenario is, at best, nonsensical.  Eventually, everything of worth will drain away if something doesn't plug up the leak in value, not to mention that nothing worthwhile actually transpires out of these opportunistic transactions.

Second, despite the allure of remaining upbeat, accentuating the positive and all of that, such a point-of-view all-too-easily finesses seeking any comprehensive comprehension of what has taken place in the richest nation on earth, the bulwark of capitalism, the home of deal-making and a broadly obtainable middle-class lifestyle.  Given the incontrovertible truth of proposition number one, proposition number two has to make an observer pause and ponder: "Maybe figuring all of this out might be a good idea."

Plenty of data and inquiry are available, though even the Wall Street Journal tends more toward euphemism than analytical acuity in these matters, so one has to have a dogged commitment to following the money to get the story even in America's official organ of business.  Still, for those willing to dig a little, certain components of the contemporary economic landscape command attention.

An Initial Accounting About the Present Pass

First, the mortgage-and-foreclosure melee has played a large part in the over two trillion dollars added to the debt in the past year or so.  "Among key differences between the operating deficit and the cash deficit," for instance, according to a December Reuters release, "were sharp increases in costs accrued for veterans' compensation, government and military employee benefits, and anticipated losses at mortgage finance giants Fannie Mae and Freddie Mac."

Second, in various ways both insidious and invidious, sub-prime shenanigans likely played a role in the entire cascading collapse.  Financial attorney Tom Adams reported on one aspect of this, pertaining to Credit-Default-Swaps and the concomitant Credit-Default-Obligations, in an account from the beginning of the month.

"As reported in the Financial Times, Senator Carl Levin of the Senate permanent investigations released damaging e-mails in which Goldman traders discuss "killing" some mortgage-related CDS shorts in May 2007.  Levin understood the implications, that damaging the shorts would allow Goldman to buy CDS even more cheaply, but did not tease out the logical conclusion.  This move was a likely a major step that allowed Goldman (and fellow dealers not under investigation who likely pursued parallel strategies) to package its remaining mortgage dreck into CDOs, which were launched as the reported squeeze evidently took place, and unload as much toxic inventory as possible before the wheels came hopelessly off the subprime bandwagon."

Third, a lack of honest analysis threatens both to drag out any downturn and to let wrongdoers with means to escape meaningful consequences.  Zack's Investment Research makes essentially these arguments in one of its Autumn, 2010 reports.

"Foreclosures have slowed recently, but that is only because of the 'fraudclosure' scandal, where the banks have proved to be exceptionally incompetent in handling the paperwork related to securitized mortgages.  Basically, they can't really prove that they hold the mortgage, and thus don't have the right to foreclose.  It remains to be seen just how big a problem that will prove to be.  It could just be a technical glitch that will gum up the works for a few months, or it could be a HUGE problem that once again undermines the solvency of the entire banking system.  What is clear is that what [Bank of America, Wells Fargo and other big banks] were doing was illegal and at least technically constituted fraud and misrepresentation to the courts."

Fourth, and finally, as the intrepid promulgator of "Naked Capitalism" makes clear, significant, and perhaps primary responsibility for the entire mess rests with the institutions that have come away from the stinking business 'smelling like a rose,' as the saying goes.  In his article, "Servicer Distrust as an Obstacle to Mortgage Mods," site founder Yves Smith proffers a compelling commentary:

"Many commentators have pointed out that mortgage servicers are the big reason mods aren't happening.  Most mortgages in recent years were securitized, and the servicers are not the investors.  With loss severities (finance speak for losses on the original investment amount) at 70% and higher on a foreclosure, a principal mod in the 30% to 50% range is a clear win-win.  But servicers have lots of reasons not to go there.  First, they get lots of fees upon foreclosure and have organized streamlined processes to make it a profitable activity for them. ... Not only do their contracts not allow for them to collect fees to do mods, but for a mod to have any hopes of success, you need to do some borrower assessment.  Servicers are factories, highly routinized, so doing anything on a one-to-one basis is difficult given their operating parameters."

Vastly more remains to assess for anyone who would undertake the task of dissecting the present devolution of value and capital that has taken place, and, quite likely, is all set to continue in a downward spiral.  Taking a few steps to gain a better grip on what's taking place is within everyone's reach, however, and it represents the purpose of articles like this.

The upshot of all of this is not that every Tucker citizen needs to obtain an MBA so as to monitor the fiscal friskiness now taking place in all of our names.  Rather, it is that some application of common sense to these matters is essential.  The only way to bring sense to bear, though, common or otherwise, is in a context of an increased citizen awareness, an expanded local involvement, and a general willingness to deal with reality instead of insisting that long standing beliefs, no matter how dearly held, must take precedence over what is actually occurring in the world.

Moreover, a necessary conclusion about the entire situation would be that far too much secrecy and far too little reporting occurs about these critical monetary concerns.  Finally, an absolutely crucial idea to grasp is that understanding local events, for example foreclosures and loss of property value in Tucker's environs, absolutely requires the capacity to integrate the big picture into the local community's events and experiences. 

A Promise to Patch Followers

Readers may rest assured that Patch will continue reporting this unfolding drama, with its next-door incidentals and its far-flung, worldwide elements as well, in stories to come.  In particular, we will be seeking to gain some insight into why all of this has ended up in such traumatic upheaval.

 Several attorneys-general have recently clamored for "comments and ideas on the inquiry underway by the attorneys general of all 50 states into foreclosure 'improprieties,' to use the term of art, and other mortgage market abuses.  Given that real estate is a state law matter, and some state governments are less captured that Washington DC, this seems to be one of the best avenues for effecting change."

Readers can muse about this call for input.  Iowa's A-G is especially interested in hearing from folks.  Here in the Peach State, Attorney-General-elect Sam Olens might appreciate some voter input on this centrally important matter of economic prosperity and social justice.


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