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November 2007

Communities in Crisis: Pushed Beyond the Economic Limit

Contact: Stephen M. Apatow, Director of Research and Development, Humanitarian University Consortium GraduateStudies Center for Medicine, Veterinary Medicine and Law.  Email: s.m.apatow@humanitarian.net

In the Spotlight
  • Miller tells Congress: Loan crisis just starting (Des Moines Register, 3 November 2007): Iowa's attorney general testified Friday before the U.S. House Committee on Financial Services.Miller testified before the U.S. House Committee on Financial Services. "We are at the beginning of this foreclosure crisis, not in the middle, and certainly not at the end," he said.
  • New York Sues First American Unit In Probe of Home-Loan Appraisal (Wall Street Journal, 2 November 2007): Appraisers' complaints about pressure to inflate property values have risen, studies suggest. In a survey of 1,200 real-estate appraisers released this year, 90% reported being pressured by real-estate agents, lenders, mortgage brokers and consumers to adjust property values in order to allow deals to go through, up from 55% in 2003, according to October Research Corp., of Richfield, Ohio.
  • Inflated home appraisals? Rings a bell (2 November 2007): New York Attorney General Andrew Cuomo is charging Washington Mutual and a major real-estate appraisal firm with inflating home values nationwide. Bob Moon reports Marketplace looked into this -- over two years ago.
In The News
 Center For Responsible Lending: From 1998 to 2006, subprime lending enabled 1.44 million people to become first-time homeowners - but it led to 2.37 million foreclosures, a net loss of nearly 1 million, the center reported.Set up for a fall, New York Daily News, 28 March 2007.

Mr Dodd accused the Fed of being aware three years ago that lending standards were slipping amid the credit boom fueled by historically low interest rates. Yet the central bank encouraged the spread of precisely the sort of adjustable mortgages whose rates are now jumping higher, forcing overstretched borrowers into default and foreclosure. -- Fraudulent lenders blamed for US crisis, Belfast Telegraph, 23 March 2007. --

“This rate is nearly double the projected rate of subprime loans made in 2002, and it exceeds the worst foreclosure experience in the modern mortgage market, which occurred during the “Oil Patch” disaster of the 1980s. -- Losing Ground: Foreclosures in the Subprime Market and Their Cost to Homeowners, Center for Responsible Lending, 19 December 2006.

Overview

Recently, I had the opportunity to hear about senior citizens who are facing unsustainable economic challenges, that include loosing their homes. The recent hyperinflationary period (Wickpedia:  U.S. Housing Bubble)  has encompassed a focus to exploit vulnerabilities, and in the context of senior citizens, the trend appears to be in full swing.

While the U.S. housing market has now prompted a foreclosure crisis (Millions of foreclosures loom, NPR, 2 February 2007), realtors in many regions are positioning offers to purchase foreclosures that cannot be moved by the banks, at 70% of today's inflation adjusted Fair market Value  (price to sell in today's market):

Wickpedia: The definition of "fair market value" is found (in the specific context of U.S. tax law) in the United States Supreme Court decision in the Cartwright case:

The fair market value is the price at which the property would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or to sell and both having reasonable knowledge of relevant facts.[1]
 
[1] United States v. Cartwright, 411 U. S. 546, 93 S. Ct. 1713, 1716-17, 36 L. Ed. 2d 528, 73-1 U.S. Tax Cas. (CCH) ¶ 12,926 (1973) (quoting from U.S. Treasury regulations relating to Federal estate taxes, at 26 C.F.R. sec. 20.2031-1(b)).   
Fair Market Value of homes across the United States are being adjusted to price that would facilitate sale in current market conditions TODAY (abundant available properties, including foreclosures).  For specific market information:

-- Zillow.com:  Real Estate Valuations Online:  Search by Address, Street or Neighborhood,  City, State or ZIP.
-- Foreclosures.com: Search by State, County or Zip Code: Listing of Foreclosures, Preforeclosures, Bankruptcies, FSBOs, Tax Liens.
--  RealtyTrac.com:  Search Foreclosures by City & State or Zip.  Listing of Pre-Foreclosure, Auction, Bank Auction, For Sale by Owner, Resale Homes.


But while this transition is taking place in many regions of the United States, municipalities continue to reference hyperinflated housing prices in reassessments, placing an unsustainable burden on senior citizens, a burden that in some cases will force them to loose their homes.
But, as the Appraisal Institute recently testified to Congress, appraisers are under increasing pressure from lenders, mortgage bankers and real estate agents to "hit their number" when appraising property

Rather than come up with an independent estimate of a home's value, appraisers -- who are typically independent contractors -- say they are being told to base their estimate on a predetermined value.

The problem is so widespread, that more than 8,000 appraisers – roughly 10 percent of the industry – have signed a petition asking the federal government to take action.

--  Appraisal fraud: your home at risk: Appraisers say they're being pressured by lenders to inflate their estimates of home values, CNNMoney, 2 June 2005

See also: Financial Crimes to the Public: FBI 2005 Report - Mortgage Fraud.

Meanwhile, municipal, state and federal programs are being asked to coordinate initiatives to soften the systemic challenges associated with this unprecedented hyperinflationary period.  As some of the most vulnerable in our communities, the needs of senior citizens must be prioritized.

Resources:

--  American Bar Association Commission on Law and Aging: The ABA Commission on Law and Aging (COLA) is dedicated to examining law and policy issues affecting older persons.
-- National Senior Citizens Law Center advocates before the courts, Congress and federal agencies to promote the independence and well-being of low-income elderly and disabled Americans.
-- Consumer Facts for Older Americans: Consumer Law Center.
--  SeniorLaw:  Elder Law & Legal Resources on the Web.


US Federal Reserve Sets Up Crisis Center


In the Spotlight
 Contingency planning and risk management discussions are gaining momentum on the UN finance ministerial level.

[See: Contingency Planning: Year 2000 Conversion Global Infrastructure Analysis: Humanitarian Resource Institute.]

The latest report by the International Swaps and Derivatives Association (ISDA) shows that the total outstanding volume of all over-the-counter credit derivatives increased from $US 3.5 TRILLION in 1990 to $US 63 TRILLION in 2000 and to over $US 283 TRILLION this year. The total amount of exchange-traded and over-the-counter structured financial instruments was 27.3 percent of global GDP in 1990. This year it is 772.8 percent. The BIS has reported that the global market for derivatives has soared to a record $US 370 TRILLION in the first half of 2006, boosted by credit default swaps. - CurrentConcerns.ch: November Issue, 2006.

[Note: 2007 Derivatives discussion encompasses $US 750 Trillion.]

 In January of 1959, the first date in this data series, the money supply stood at $292 billion. By February of 2006, it had grown 3,419 percent to $10,276 billion. Since 2000 the money supply has grown 55 percent and it has grown by $764 billion in the just last twelve months.On March 23, 2006, the Board of Governors of the Federal Reserve System ceased publication of the M3 monetary aggregate and its components.  --  M3 Money Stock: Board of Governors of the Federal Reserve System:

The derivatives challenge (Financial Policy Forum) is now in the spotlight,  Hedge-Fund Borrowing is now being Examined by Fed, SEC and European Regulators (Bloomberg, 8 January 2007) and as noted the following article (US Fed Sets Up Crisis Center, FN Arena, 12 january 2007), the US Federal Reserve is setting up a crisis center.

Senate Budget Committee, 18 January 2007: Federal Reserve Chairman Ben Bernanke was asked when measures would need to be implemented to avoid a catastrophic economic impact in the United States, his answer was 10 years ago.  His bottom line (Bernanke warns of impending fiscal crisis, Times UK, 18 january 2006):
"We are experiencing what seems likely to be the calm before the storm."


Consumer Debt: Families In Crisis

Bankruptcy Statistics: American Bankruptcy Institute

Influence of Total Consumer Debt on Bankruptcy Filings
Trends by Year 1980-2005 - Statistics Resources: American Bankruptcy Institute (ABI)
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