There was a BBC documentary a couple of weeks ago about Cleveland, OH, which is the 'repo capital of the USA'. It was really sad to see all these empty homes, vandalised, abandoned, slowly becoming uninhabitable. I don't know how those neighbourhoods will ever recover or regenerate if the houses are unsaleable.

From essexjan's link:

So who is to blame - the borrower, the broker or the lender? Clearly, it is partly the system itself. US subprime lenders were not required to perform stringent checks on borrower's credit ratings. The result is "ninjas" - loans sold to people with "no income, no job and no assets".

Whoahhhhhhhh. No job and you can get a home loan?

That's scary. Very scary.

hmm, and here two months ago, the Denver Post was claiming Greeley, CO as the 'repo capital of the USA'.

And yet, three weeks ago, one of the local developers bulldozed a lovely 25-acre plot of cottonwood-laden ex-farmland nearby to build more of what I like to refer to as '$750K ghettos'; aka huge, sterile, poorly designed and shoddily constructed cookie-cutter McMansions.

this fills me with an inexpressible sort of rage.

oh, and - it's not like the middle-income suburbs here in CO didn't *already* have issues with indoor weed farms & meth labs. Drug house raids in "nice neighbourhoods" have been going on for as long as I've lived here.

I think a lot of this comes out of the 90s when the feds hit on banks for not lending enough to minorities. The banking industry's answer was the subprime loan. Here we see the result.

This is such a huge issue here that city judges stopped allowing banks to foreclose against people. If they have any outstanding judgments against them for derelict properties they can't foreclose.
And they all have outstanding judgments for derelict properties.

I think a lot of this comes out of the 90s when the feds hit on banks for not lending enough to minorities. The banking industry's answer was the subprime loan. Here we see the result.

Well, you think wrong. The problem stems from the deregulation of the banking and mortgage industries, dating back to the '80s -- driven, shockingly enough, by the desire of the rich to get even richer:

Meanwhile, the once staid and socially directed system of providing home mortgages was seized by financial wise guys and turned into another casino. In the early 1980s, exploiting the Reaganite theme of government-bashing, the savings and loan industry persuaded Congress to substantially deregulate S&Ls -- which then speculated with government-insured money and lost many hundreds of billions, costing taxpayers upward of $350 billion in less than a decade.

In 1989 when Congress reregulated S&Ls, the financial engineers just did another end run. Mortgage companies that were exempt from federal regulation came to dominate the mortgage lending business. This loop of the story begins in 1968 with the privatization of Roosevelt's Federal National Mortgage Association. In the wake of that move, investment bankers invented a daisy chain known as "securitization" of mortgage credit. Through securitization, a mortgage broker could originate a loan, sell it to a mortgage banker, who would then sell it to an investment bank like Salomon Brothers, who in turn would package the mortgages into securities. These were then evaluated and coded (for a fee) by private bond-rating agencies according to their supposed risk, and sold off to hedge funds or pension funds. Each of these worthies took their little cut, raising the cost of credit to the borrower. Rather than diffusing risks (a course that economic theory urges on a prudent capitalist nation), however, securitization concentrated them, because everyone was making the same bet on real-estate inflation.

In the sub-prime sector, you could get a loan without a full credit check, or even without income verification. The initial "teaser" rate would be low, but after a few years the monthly payment would rise to unaffordable levels. Both borrower and lender were betting on rising real-estate prices to bail them out, by allowing an early refinancing. But when a soft housing market dashed those hopes, the whole sub-prime sector crashed, and the damage spilled over into other financial sectors.

(Source)

scody: that blockquote goes a long way toward supporting my theory.

The disembodied ghostly head of Ronald Reagan haunts us to this day :-/

This is such a huge issue here that city judges stopped allowing banks to foreclose against people. If they have any outstanding judgments against them for derelict properties they can't foreclose.
And they all have outstanding judgments for derelict properties.

Well, there's a brilliant idea! After all, everyone in a community suffers, and pays, indirectly, when high vancancies degrade the fabric of socitety to the point that crime takes over. And you in particular don't need any more of that. I cruised East Buffalo (out of morbid curiosity) and spotted houses tagged in spray paint, Katrina like, with indicators such as "gas shut off." Most appaulingly, one building bore the lable "house collapsing." Sure enough, the thing looked like it was a few swift kicks away from falling down.

scody: that blockquote goes a long way toward supporting my theory.

No. You stated that the problem derived from demands in the 1990s to make it easier for "minorities" to own homes. The fact is that deregulation happened earlier than you state, and for the reason that Wall Street saw a way to make more money off mortgages in general -- mortgages made to white folks as well as black and brown folks, and mortgages made to middle-class buyers (or debtors, as the case really turned out to be) as well as working-class and poor.

That there was indeed a push in the 1990s for more minorities to own homes is a symptom, not the cause, of the changing system that gave rise to the subprime fiasco. There was a similar push for more women to own their own homes as well during the same period, but that doesn't mean that the subprime mess is actually the result of letting too many women own property.

The whole "Home Ownership = The American Dream" trope was a convenient way to get more and more consumers -- again, of all colors and classes -- to buy a shitty product. But it's not minorities, women, or the poor who devised the shitty product in the first place, nor who pushed through the deregulation that gave rise to it. We have Wall Street and their pals in Congress to thank for that, and if you think they did it out of the kindness of their hearts, then I've got some land in Florida you might be interested it.

What scody says. Counter to the suggestion that subprime loaning was some sort of government initiative toward equity, it was the movement away from government oversight over lending and reduced penalties on gains from interest that allowed the subprime market to flourish and created an environment which encouraged investors to support risky loans for short-term gain, and also encouraged them to trade and sell large groups of such risky loans, creating a secondary market with more opportunity to make gains.

The house two doors down from us was foreclosed upon recently, which was kind of shocking. Fortunately, we live in a "traditional" older (non-development) neighborhood with people of different ages and incomes working in varied industries, so hopefully I doubt it signals an epidemic here. In fact, I'm relatively certain that many of our neighbors own their houses outright.

I worry more about our friends who live in McMansion developments where everyone bought at the same time and is about the same age, etc. If something happens to Merck or Wyeth, all hell will break loose. At the very least, they're in for some trouble at retirement time when everyone in their neighborhood decides to sell at once and there's a glut of gigantic, horribly outdated houses on the market.

Well, there's a brilliant idea! After all, everyone in a community suffers, and pays, indirectly, when high vancancies degrade the fabric of socitety to the point that crime takes over. And you in particular don't need any more of that. I cruised East Buffalo (out of morbid curiosity) and spotted houses tagged in spray paint, Katrina like, with indicators such as "gas shut off." Most appaulingly, one building bore the lable "house collapsing." Sure enough, the thing looked like it was a few swift kicks away from falling down.

Stuff like that is exactly why. The east side started failing because of the collapse of the steel industry in the region, and was compounded by "white flight" into the suburbs, but all the recent issues have come from the lending industry's problems. Flippers buying houses and offloading them as "investment properties" to people out of town who then just abandon them when they realize it was only $15K for a reason, and people who were taken in by the subprime fallout. The banks who own the houses don't keep them up, don't winterize, so within a few months the grass is knee high, and in the winter the pipes burst since there's no heat.

The paint is to discourage squatters- a lot of drug dealers will set up shop in abandoned houses. If they know they can't tap into the gas for heat, or that the building is unsound, they're less likely to break in. Same with the homeless people.

There's a lot of arsonists who target that area... no one knows if it's one lone psycho or just a bunch of kids, but they burn the abandoned buildings. Problem being, fires spread in victorian-era neighborhoods of all wood-frame homes. A firefighter was hurt really bad fighting one last year. Lost a leg, was in a coma for a while. They tear things down a lot more quickly now because of it.

Sooner or later there'll come a time when the firefighters just won't respond anymore, since they're already sick of seeing friends hurt and maimed for life fighting to save an abandoned house when the neighborhood residents won't even talk about who starts the fires.

The real shame is that neighborhood was once no different from the West side where both myself and your sister live. Same era, same beautiful craftsmanship, the same level of wealth went into it, but now they're so rough you'd never be able to tell from looking at them.
Not a thing can be done, really... there just aren't enough people left in Buffalo to occupy all the houses that were built during the canal and factory days, and the people who are here can't even afford to keep the gas on in a 3000 square foot house, much less the upkeep a 130 year old building demands.

But yeah, if you see this in your cities fight it. This is what happens when cities are abandoned.

I love my home town, but it breaks my heart every day. There are streets here where you forget that it is even the US, it feels like a third world nation after a natural disaster. If you see it starting fight it all you can. Once one house is empty people start to leave since they don't want to live near an eyesore. Kids start breaking windows and tagging since no one cares enough to stop them. Then the arsonists and dealers come. And by that point, the neighborhood is lost, and the blight spreads outward.

I wish someone, somewhere, would sue the fucking banks. Their abandoned homes drag down the property values of everything around them. That has to be good for something in court. Maybe then they'll keep up on the homes they own, and will sell them for realistic prices. Here they ask $45K for houses that aren't even habitable (because of the bank's lack of care!) in neighborhoods where a place with no code violations won't sell for more than $25K.

I can tell you exactly what Westview Village will look like in twenty years if something isn't done, and believe me, it's not pretty.

The Evolution of hte Subprime Mortgage Market (a study done for the Federal Reserve Bank of St. Louis)

Basically, they lay its creation at the feet of the 1980 Depository Institutions Deregulation and Monetary Control Act and 1986 tax reform, and its "respectability" to a point in the mid-90s when interest rates rose and borrowing declined. The industry turned to subprime markets to "maintain volume".

The study further notes (as of 2006) that the subprime market grew more respectable, with more blue-chip firms entering, and they have been buying out other firms. This may well have disguised some of the risk, as in a classic bubble timeline, the new money bought out the worthless shares of the old money and thought they had a bargain. Well, now there's nobody left to sell to, like a pyramid scheme running out of marks.

I kind of held off on the recession thread, because I'm a few (or so) years removed from my Economics classes, but isn't there an undercurrent of other lenders doing the *exact* same thing right now all over the US?

Every day I read/see/hear companies that claim "No credit check..no interest until 2009...you have a job, you have $199, you have a Kia!". It pervasive throughout sales at the moment. Cars (lease or buy), furniture, electronics, clothing, eye-surgery. The sub-prime market seems to be just now rearing it's ugly head, and while the housing market may the ugly face of Medusa that turns you to stone, all the snakes sprouting out of it are the ones that *really* make me cringe.

I'm glad that the SO and I have relatively little debt and rent at the moment. And the major debt we have collectively (my car payment, which is nominal...hers is paid off) is fixed rate.

May we live in interesting times, indeed.

You can learn all about the problems with foreclosure in my town by going to Foreclosing Cleveland.

kellydammit:

Your posts and links are heart-breaking. I grew up in the Buffalo suburbs (Tonawanda and Clarence), but haven't been back to Buffalo since I was 18. My dad worked for Hooker Chemical (yes, of Love Canal fame), which was bought by Occidental Chemical - they had a plant and offices up by Niagara Falls. My parents were both born and raised in Buffalo and loved it there. When I was a freshman in college, Occidental moved the entire engineering department to Houston - 60 families! My parents desperately wanted to stay, but finding a mid-high level manager job in engineering was virtually impossible in Buffalo, so we were forced to move.

Thirty years after he started working for them and three years after uprooting my family and moving us to what seemed like another country, Occidental put my dad on the list for early retirement, 10 years before he was ready to retire. He's got a job with another engineering company and the parents are doing well, still in Houston. But it still makes me sad that I haven't been back to Buffalo in 12 years and I want so badly for that town to do well. Unfortunately, I don't see it happening unless there are jobs, and I don't know where those jobs are going to come from.

[this is sad]

My dad worked for Hooker Chemical (yes, of Love Canal fame), which was bought by Occidental Chemical -

Funny... my mom's family originally hails from Little Italy in the Lalls, and my grandmother workd for OxyChem briefly. Still belongs to their credit union, too.

I work in mortgage collections, and I have run into paperwork on loans where the finances sheet literally said "He states he has a job." Not how much he makes, how long he's had that job, no proof of employment, or anything. This is not on a $2000.00 personal loan, but a loan for a $100,000.00 home. The banks were greedy, the borrowers uninformed, stupid and greedy. It is an absolute disaster, but you'd better believe that there are lots of rich people getting richer from all of this.

I have come to think of these loan officers and the banks they worked for as Anti-American, and, I would dare to go so far as to say, actual terrorists on my idea of what America stands for.

I feel like I haven't expressed exactly what I wanted to say about the meltdown, but I hope my disgust comes through. (I work for a company that loans only primes, by the way, though we service some sub-primes.)