Foreclosing on the American Dream

The current "mortgage meltdown" represents a triple whammy or a "perfect storm" for construction workers. Workers who build homes are facing mass layoffs as demand plummets for new homes. In August, the construction industry lost 22,000 jobs. Thousands of construction workers are facing foreclosure on their own homes. And workers' retirement funds may be tainted by misrepresented mortgage securities.

This year, 122 (and counting) mortgage companies have imploded, but it's middle class homeowners who are really feeling the pain. In the first half of 2007, nearly 1 million people are facing foreclosure - a 30 percent increase from 2006. It is estimated that more than 2 million homeowners will be in foreclosure before year-end. Among those are tens of thousands of workers who believed they had achieved the dream of owning their first home. With corporate homebuilders, many of them also mortgage lenders, frantically attempting to slice overbuilt inventory, the workers who build houses in many markets are being cut from payrolls as fast as new home developments sprout.

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Who Knew?

(this post by DMIBlog's Amy Traub) It's just terrible luck. In the last few years, our nation's wise and farsighted public policies have been continually undermined by random events that no one could in any way have foreseen or prepared for.

"I don't think anyone could have anticipated the sectarian violence."

"I don't think anybody anticipated the breach of the levees."

And most recently, Angelo R. Mozilo, CEO of the nation's largest mortgage lending company, on the ongoing collapse of the housing bubble: "Nobody saw this coming."

Of course, in all of these cases, many people not only foresaw the potential for disaster, but made practical suggestions for averting it. Policymakers simply didn't choose to listen. Which leads us to the question of what we might be missing right now, and what we could be doing about it.

Dean Baker, co-director of the Center for Economic Policy Research, is one of those people who saw the bursting of the housing bubble coming years ago and had some ideas about how to mitigate the damage. While many mainstream pundits and analysts are still speaking hopefully of a "soft landing" for housing markets, Baker sees a recession looming, possibly a severe one.  

In a report released in August,  Baker notes that residential construction alone accounts for about 5% of the U.S. economy. Then we have consumer spending, partially fueled in recent years by people borrowing against the value of their homes to sustain a higher standard of living than they could otherwise afford. State and local governments will be harmed by the loss of property tax revenue. Not to mention the vast majority of American homeowners, whose house is by far their most valuable asset, and who planned their retirement based on the widespread assumption that it would hold its value.

Because the fundamental problem is that housing prices are overvalued, Baker notes, it is inevitable the that problems in the sub-prime mortgage sector will spread into the rest of the housing market.

That brings us to what we can do about it. The bad news is that there's no way to stop the bubble from bursting. Overvalued housing prices must come down to earth eventually. From the point of view of home owners and prospective buyers, it's better to get the correction over as quickly as possible. From the perspective of the economy as a whole, it's best if it deflates gradually. But in the meantime, Baker has a proposal for making sure that at least people entrapped by predatory mortgages don't get thrown out of their homes. It would save neighborhoods from the blight of widespread foreclosures and it doesn't involve bailing out the banks that made irresponsible loans to begin with.

Of course, it's possible that we've seen the worst already and actually have nothing more to worry about when it comes to the housing sector. After all, President Bush is confident that the problems are "modest" and "America's overall economy will remain strong enough to weather any turbulence." Perhaps he doesn't know anyone who could anticipate things getting worse.

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california housing defaults double last year

things are not all that rosy w/the housing market in california. the east bay business times reports that mortgage defaults are at an 8 year high:

the number of mortgage default notices filed against california homeowners jumped last quarter to the highest level in more than eight years, a real estate information service reported.

lending institutions sent homeowners 37,273 default notices during the october-to-december period. that was up by 36.9 percent from 27,218 the previous quarter, and up 145.3 percent from 15,196 for the fourth quarter 2005, according to dataquick information systems.

more after the jump:

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Homeless in Houston (Vol 1.)

Cross-posted from Tort Deform: The Civil Justice Defense Blog By Jordan FogalAre you sure your new home is protected? Are you sure your family, will not join the growing ranks of the homeless? Are you sure you understand arbitration and tort reform? Are you sure that the American Arbitration Association hasn't stealthily already entered every phase of your life? Do you think you still have the right to a trial by a jury? Do you still think you can sue anyone who wrongs you? Do you still think people bring too many "frivolous" lawsuits? Do you tire of hearing any more about big business flagrantly squashing your rights? Do your eyes glaze over and your mind shut down when you hear all these things? Are you bored by this rhetoric? Is it all just too complicated for you to understand?

I understand.

But, please read on.  Because you have been completely deluded, confused, and overwhelmed ... these things will slip right by unnoticed.

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My thoughts on the California bond initiatives

Proposition 1B - Bond money for roads - No

First of all, I object to the amount of bonded indebtedness we've already incurred with exorbitant measures that have been pushed and passed at a bipartisan level.  The money isn't free.  The 20 billion the state would borrow for this measure will double in costs over the next 30 years.

Secondly, the money is ostensibly for congestion relief, but the bulk of the funds would go to road expansions which is temporary relief.  The expansions historically lead to more mass housing developments, which quickly fill up the roads again - or to quote my environmental law professor: "if you build it, they will come." Only a small portion of the funds go to public transportation, the only serious way to address traffic congestion.

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