What Was the Deal With That Turkey?

There must have been something about that Thanksgiving Turkey...The past 48 hours have spawned one of the most far reaching discussions that I've ever read on Activerain about the foreclosure crisis in different parts of the country.  The value of this discussion is enormous...both from an educational perspective and the ability for a professional forum to hash out some much needed analysis.  It's also extraordinary to watch Realtors, Lenders & Appraisers add insight...Kudos to Gena Reide, Lenn Harley, Ed Rybczynski, Bryant Tutas, Carole Cohen and others who have added so much Value!  Broker Bryant has compiled a list of related blog posts so far. 

The inital thread was sparked by Gena Reide's reporting

about what the governor of California, Arnold Schwarzenegger was proposing to deal with the widening crisis in his state.  Apparently, an agreement was made with four lenders which had 25% of their portfolio in sub-prime loans to preclude any re-set at least for a time.  This was when Lenn Harley began asking some questions about the implications of this approach to dealing with the crisis.  This sparked the tinder of wild fires here so quickly that even Active Rain falling down hard could not contain them!

Carole Cohen's Post struck a cord...

As I read through the posts...the article which resonated most with the situation which we face in Michigan was Carole Cohens post about Cleveland, Ohio.  Like Cleveland, West Michigan and Grand Rapids, Michigan in particular did NOT participate in the real estate boom in the same way that many other areas of the nation did. Our appreciation rates were modest...3-5% in most areas through the boom years which saw 100% escalation in equity values in other parts of the country. In fact, I worked with several families who migrated from California over the past 7 years.  They ALL expressed shock by what their dollars could purchase once they got here.

Why Is Michigan Not More Like California...

Normally, this should have created a windfall.  Great prices, attractive inventory.  But there was another issue that started to slowly drain away any potential gains.  Michigan began to loose jobs.  At first, we all thought it was temporary.  Just a bad set of announcements timed ironically just before Christmas.  It started in the late 1990's and year after year, thousands of lay-offs were announced.  New business was not coming into the state at nearly the rate of loss. 

Our governor took to travelling abroad and around the country to convince companies to stay in Michigan.  At one point, city officials from one small west Michigan community pulled out all stops to prevent Electrolux, a major employer from leaving.  Pfizer pulled out of Ann Arbor leaving a gaping hole where major research facilities had existed.  Then Comerica Bank which had been in Michigan for 150 years decided to pull out its' headquarters and move to Dallas this March. It's been rough.  Jobs continue to leave...And not just the lower echelon.  This hit to the job sector was felt deeply within the managerial ranks...engineers, mid-level managers...even schools were putting hiring freezes in place.

We Can Give You the Answer...with or without the Turkey...

But those of us who live in Michigan know all that.  We watched the State plummet to 50th place from the top third tier in a number of significant economic indicators. Severe corrections were forestalled by the entry of increasingly aggressive options for financing.  Ten years ago, a FHA mortgage with 3% down was standard.  But as the nation flirted with innovative financing, Michigan added this layer to its economic woes.

 Here the story diverges. There are two Michigans... 

and they don't wear the same size of pants.  Although the entire state has suffered significantly, the West Side of the State has weathered the storm so far, much better than the east side of the state. According to an article published by Lisa Lyons of the Grand Rapids Association of Realtors, Michigan has ranked within the top tier of 5 States for foreclosures with 14,000 homes going into foreclosure in August 2007 alone!  However, what is hidden in those numbers is that less than 700 of that total was from West Michigan. 

Currently, approximately 1 in 10 homes FOR SALE on our local Board in Grand Rapids, Michigan is in a short sale or foreclosure situation. This is a dramatic increase in the dollar volume of Total Sales since the beginning of the year... from 8.77% of our dollar percentage of sales to 24.83% in November so far.  But, this number pales compared to what is transpiring in metro Detroit where one report indicates that  1 in every 80 homes in the area is in some stage of the foreclosure process.

So, we have 2 different situations within the same state.  The economy of the West Side is more diversified and has been more resilient in this crisis.  The East side of the State was heavily affected by the misfortunes of the top 3 automobile manufacturers. The major corporations who have moved out have also had a disproportionate effect on the east side of the state. In addition, predatory lending was rife in Detroit communities. Earlier this year, the FBI made several trips to the state to educate local lenders and real estate agents across the state about the situation. Detroit, Michigan was ranked at the top for Mortgage Fraud.

Unique Factors Create Unique Issues... 

So while Michigan was affected by the problems faced by the nation as a whole, there were other factors which created unique issues.  The State lost so many people who had to move out for lack of jobs that if there had not been substantial immigration, the situation would have been much more dire according to a report by the United Way.  This, in addition to losses across the manufacturing sector took a real toll. 

The federal government has not come to the aid of our state with special funding.  Nor did our governor negotiate a special deal with mortgage companies.  Over the past several years, we've been digging out of this hole, step by step.  Those who stayed are going back to school to get more education or are starting their own businesses.  A lot of people have taken on 2 or 3 jobs.  And people are selling their homes or renting. We've noted that mortgage companies in some cases have become tougher to deal with...often pursuing judgements rather the writing off loans that are in default.

Which is Why We Benefit Most from Uniquely Local Solutions....

Michigan is a prime example of why it would not be wise to institute federal law regarding the foreclosure crisis.  The foreclosure crisis, like most things real estate related is LOCAL.  Different communities and areas have different reasons for the way in which this crisis is impacting them. The solution in California is geared to assist homeowners who are living in their homes.  But what sort of qualifiers will be in place particularly if the crux of the problem is that homes were bought for speculation and investment?  Will borrowers have to prove the integrity of their purchase to qualify for assistance? 

Most of the mess in the state of Michigan was NOT a result of investors flooding the market and hoping for a quick flip. Most of the people who are loosing their homes are loosing them because they have lost their jobs and can no longer afford them.  Many of these people have been fighting a loosing battle for several years...draining saving accounts and working whatever jobs they can to stay afloat.  It has simply become too much.

When the Pant Legs are Two Sizes...

Simply concocting a one size fits all solution will over shadow the necessity of examination to reveal the systemic flaws which caused chaos in the real estate market. Unravelling the crisis in Michigan will require an economic overhaul and a comprehensive approach to finding ways in which the state can compete in the global economy.

Unfortunately, the bundling of mortgage securities makes the examination of the true issues very challenging.  This may prove to be too time consuming an analysis...one which will not play well for quick sound bites within a campaign commercial. My concerns it that the solution may become so intricately locked up in the bureaucracy of examination that the lesser of two evils may be to do Anything...even if the Result is not the best thing.  

In a somewhat related aside...the following post was unearthed about another segment of society which is being impacted by the foreclosure crisis...Pets are victims of foreclosure crisis too.

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