The news is full of tornadoes and natural disasters. The process of recovery is being fouled by some banks and mortgage companies. What’s happening? (More)
North Minneapolis had a tornado the same day that Joplin, Missouri did. While the Minneapolis tornado was much smaller, over 200 homes were destroyed in Minneapolis. There is no count yet of destroyed homes from either Joplin or Tuscaloosa, Alabama which was damaged by a tornado on April 27th. What happens to people facing foreclosure, the foreclosed homes and what are the implications for recovering from a disaster? What happens to the people and the community?
Who owns the property? (Part 1)
North Minneapolis is an older and poorer section of the city, with a large minority population. Many of the destroyed and damaged properties were in foreclosure. This raises the issue of who actually owns the damaged property.
Mark Kulda, vice president of public affairs for the Insurance Federation of Minnesota said many of the mortgages that have gone into foreclosure were packaged and sold to multiple owners. One of the main problems of this whole picture is that the actual ownership structure of all these mortgages is very unclear.
This is the same problem that many owners facing foreclosure faced when trying to figure out whom to deal with to find a solution. Once again the slicing, dicing and repackaging of home mortgages rears its ugly head. Do you remember how those being foreclosed upon were called irresponsible and dead beats and lazy? Do you remember how irritated the banks were and the outraged the Republicans were that people were just walking away from their obligations? Hold that thought.
How are foreclosure rates calculated?
In trying to compare Joplin, Missouri (Jasper County), Tuscaloosa, Alabama (Tuscaloosa county) and Minneapolis, Minnesota (Hennepin County) my googling skills were sorely tested. Foreclosure rates are calculated many ways depending upon who’s doing the calculating and what picture they want to paint with the numbers. The local chambers of commerce speak of .01% improvement over last month’s rate without ever saying what last month’s rate was.
RealtyTrac calculates the total number of Households and then reports by county that 1 of every XXX households is in foreclosure. It doesn’t tell us how many have been foreclosed on already. Hennepin County has 505,749 households and 1/383 are in foreclosure. Jasper County has 49,617 households and 1/1,306 are in foreclosure. Tuscaloosa has 84,628 and 1/4,978 are in foreclosure. Also impacting the foreclosure process is the unemployment rate and the median household income. They give us some idea of what kind of resources the community can draw on to rebuild. At one point in Nevada 1/13 households was in foreclosure. That was the most extreme statistic I found.
Eventually I found an interactive map on NPR. It lists number of households, 1/xxx in foreclosure (from RealtyTrac), unemployment rate and median household income by county for the entire United States. Clearly these statistics give some idea of how well a community and its people are equipped to recover from a large natural disaster. It doesn’t tell us, of course, what happens to unemployment when a whole town is demolished as was the case in Joplin.
Who Owns the property? (Part 2)
The trail of proper documentation was clearly missing in some of the foreclosures. Banks could not show who actually owned the property they intended to foreclose upon. Here’s a couple of headlines and links to articles dealing with the actions of banks as a reminder:
The Maine Supreme Judicial Court overturned the foreclosure of a Maine homeowner after concluding that the supporting documentation filed by the foreclosing bank was “inherently untrustworthy.” The decision, handed down Friday, underscores the potential for more delays in foreclosures as banks are unable to foreclose on borrowers after being challenged in court for using questionable paperwork.
State attorneys general told five of the nation’s largest banks on Tuesday they face a potential liability of at least $17 billion in civil lawsuits if a settlement isn’t reached to address improper foreclosure practices, according to people familiar with the matter.
There are homes in New Orleans where lawsuits are still pending over actual ownership six years after Hurricane Katrina.
Is the property insured?
Another issue is whether or not the property is insured. State chartered banks in Minnesota are required to carry insurance on foreclosed properties but nationally chartered banks and mortgage companies are not required to carry insurance in Minnesota. They can claim to be self-insured. In other words, they have enough capital to cover the losses that insurance would cover.
If ownership can’t be determined or if the owner has not insured the property, the banks and mortgage companies walk away leaving city taxpayers to bear the cost of bulldozing the wreckage. It leaves the city or cities to pay for cleaning up the mess and it leaves them with less money for rebuilding the community. It is not like most cities are rolling in spare cash. Need I add that many large banks are sitting on their cash? According to RealtyTrac senior vice president Rick Sharga:
Even if a lender has insured a foreclosed property, that doesn’t necessarily mean it will want to pay for tornado-related repairs, Sharga said.
“The real question becomes the costs of building the property versus what it would be insured for,” he said. “It really comes down to an economic decision. The more it’s going to cost the lender out of pocket, the less likely they are going to invest money in hopes of recouping something.”
Under those circumstances, some lenders may walk away from the properties, potentially leaving the city to deal with them.
This is another example of what political science professor Jacob Hacker called The Great Risk Shift, socializing the losses of big corporations by shifting the risks onto communities and citizens.
After the disaster, then what?
If a home wasn’t in foreclosure before the disaster struck, the combination of delays, repair rip-offs and expiring government help can leave people who have struggled to save their homes facing foreclosure anyway. A look at New Orleans four years after Katrina gives a hint at what may be in store for Joplin, Minneapolis, Tuscaloosa and other cities hit by tornadoes, floods, hurricanes, or other natural disasters and man-made disasters like the Gulf oil spill.
For foreclosures: New Orleans ranks 119th on a list of cities with most foreclosures. In hardest-hit Las Vegas, one in every 13 homes is in foreclosure. New Orleans was 1 in 167 houses.
Blight: The number of unoccupied residences (65,888 in March 2009) was nearly equal to those in Detroit. Indeed, the New Orleans landscape is dotted by weed-filled lots and molding houses.
Foreclosures have hit nearly every pocket of the U.S. hard, so mortgage problems are everywhere. But they’ve hit particularly hard here because so many Gulf Coast residents have set aside so much of their incomes and financial aid for repairs made necessary after Hurricane Katrina.
Self-imposed moratoriums on mortgage payments by banks in Louisiana and Mississippi expired last year, and there are fewer sources to turn to for aid.
The Road Home program has allocated more than $7 billion for Gulf Coast storm victims who are trying to rebuild their homes.
“We think as time goes on the problem is only going to increase,” [Mark Moreau of the New Orleans Legal Assistance Center] said.
Lanita Johnson, 47, refinanced her home in Hammond, La., in 2006 to start repairs on her storm-ravaged home while she waited for Road Home money. Since then, her mortgage payments have climbed from $789 to $1,889 a month, she said.
Some Minneapolis officials said they feared the damage to the North Side will intensify pressure on an area where housing options have dwindled because of foreclosures and boarded housing. Minneapolis mayor R.T. Ryback said the tornado damage “is a huge blow to the people of north Minneapolis, a place where people have real needs.” Rybak is a solid Democratic mayor who rode his bike through the devastated area the day after the tornado.
In a rental market already racked by foreclosure and the boarding of hundreds of homes, the storm damage rendered even more housing useless, said Minneapolis City Council President Barbara Johnson, who represents Ward 4, a portion of the city heavily damaged by the storm.
A “pretty large number” of the battered homes were bank-owned foreclosures, many of them on the city’s boarded property list; those that were badly damaged will probably be demolished, Johnson said.
There has to be a better way for disaster relief to provide a realistic bridge to recovery. In Joplin, the “stay or leave” debate is now being discussed by residents. I wonder what they would say if they looked to New Orleans. Or maybe they’ll look to Greensburg, Kansas, which has a better story. Is the difference one of scale or are there a host of factors that make large scale recovery more difficult?
1. How do we as progressives address the banks that are walking away? How do we hold them accountable? How do we make banks and mortgage companies part of rather than an obstacle to recovery?
2. Does the NPR interactive map give you any insights into the implications for a community’s ability to recover from any type of disaster? If we are all in this together, how can we best help those affected?
3. House Republicans insisted on a $1.5 billion cut to a federal loan program to encourage production of more fuel efficient vehicles, to offset a $1 billion emergency appropriation for FEMA. Should emergency relief funding have to be offset by cuts to other programs?
4. Is FEMA enough? Often the National Guard is called in to help in such disasters. Do we need an economic equivalent of FEMA or the National Guard to hold banks and insurance companies accountable?