Bank Talk explains “bank walk-aways,” or abandoned foreclosures

Bank Talk had a very informative post yesterday explaining the problem of the ‘bank walk-away,’ otherwise known as an abandoned foreclosure. This is, as the post describes, a “real and present danger” for many neighborhoods. Here is the full post:

The next issue in the housing crisis will be bank walk-aways.

A bank walk-away (“BWA”), also known as the abandoned foreclosure, occurs when a servicer forecloses and then declines to take the risk of owning a house through REO sale. The result – a defaulted property slowly but surely degrades.

Normally, the next step after a foreclosure is to sell the property at auction. The GAO(pdf) says that an REO sale is the next step, except in about 1 of every 100 foreclosures. But when it doesn’t, the effects can be severe and long-lasting.

Sometimes a property never generates a serious offer from auction. In those cases, the lender takes possession. When that seems like a strong possibility, some decision-makers are choosing to abandon homes rather than sell them. Limbo makes financial sense to a bank when it concludes that the remaining equity will not cover the cost of an REO exit.

This leads to a stinging surprise for the former borrower. Although he or she has already lost their home, ownership remains in his or her name. As a result, the liability for maintenance or vulnerability to municipal code enforcement actions remain with the borrower.

Once a home is put in limbo, it is hard to get it back out. Absent a sudden recovery in the value of the property, the bank’s disinterest is likely to only grow stronger.  The next best step is sale through a tax foreclosure. Logically, a person who lost a home to foreclosure is unlikely to feel a commitment to pay its ongoing property tax assessments. If that is the case, then the municipality has the power to put the property up for auction as a tax foreclosure. But that process can sometimes take two or three years if the assessment is very low. The municipality faces the cost of paying lawyer’s bills and unless they can build up the outstanding tax obligation, the gain from the sale of the property may never pay those costs.

A state representative in Ohio’s General Assembly has introduced a bill that would require servicers to put a foreclosed home up for auction within a reasonable amount of time.

“We’re saying fish or cut bait,” State Rep. Dennis Murray tells the Cleveland Plain-Dealer. “You can either take it to sheriff’s sale . . . or if you’re going to walk away from the property, do it now so the land bank process and the reclamation can get started.”

This is clearly a problem that is probably going to be limited to a finite number of neighborhoods. If you live in a neighborhood where home prices are generally higher than $40,000, then this is not going to touch your community. However, if urban blight has manifested itself, it is a “real and present” danger.

What the farm bill expiration means

NPR tries to answer the question, “So what happens if the farm bill expires?” Their answer: “Not much, right away.”

Once the 2008 farm bill expires, it would revert back to the permanent provisions set in the Agriculture Adjustment Act of 1938 and the Agriculture Act of 1949. The farm bills that have been passed since are five-year measures that suspend these former acts. But without a new five-year bill, what would a reversion to the 1940s look like? These laws were passed in a very different era, and as the Omaha World-Herald puts it, “Imagine farmers dumping tons of corn and wheat on the federal government at wildly inflated prices.” Some commodities farmers would benefit significantly because of the way price supports were set up back then; but others, whose crops were added on in later bills, would get nothing.

However, as NPR reports, these changes wouldn’t take effect until January 1. The 2008 farm bill covers crops through 2012. Once the new year begins, these administrative and policy questions will kick in, and could cause much chaos.

The Supplemental Nutrition Assistance Program (SNAP, or food stamps) will continue through March, as it was included in the six-month spending bill passed by Congress.

Will Congress act in the nick of time? Probably, and it will be during the lame duck session– and that’s what certain legislators were hoping for all along. This is certainly not the first time the farm bill has lapsed. In 2007, the farm bill also lapsed and Congress didn’t pass the first extension until December 26th.

SBA responds to questions about increased lending by biggest banks

A few weeks ago we posted about the difficulty in tracking progress of the  commitment made by 13 banks last September to increase lending by $20 billion. With no specific goals outlined for each bank, and with a fairly high revenue threshold defining ‘small business,’ it seemed that many large businesses were in line to get some of this increased lending. Meanwhile, the Small Business Administration (SBA) reported that small loans– those under $1 million or $100,000– have been on the decline.

It appears that the SBA was listening, and has now responded in the Huffington Post. Karen Mills of the SBA writes:

I’m pleased to announce that the 13 banks have already increased lending by more than $11 billion, putting them more than halfway to the goal in the first year of a three-year commitment. The continued success of this commitment serves as an important example of what is possible when the public and private sectors work together to assist America’s small business owners and entrepreneurs.

While she correctly highlights the important role of small businesses in the economy, citing that small businesses have created 2 out of every three jobs in the last few decades, she does not address any of the concerns raised in the original article. $11 billion has been deployed, which is great– but to who? How big are these small businesses that have benefited from this new capital? Which of the 13 banks have increased their lending? The post lists a few examples– first time business owners, family businesses– but if there are no clear definitions of ‘small business’ then the question of measuring progress remains.

 

USDA awards $9 million to increase connections between producers and farmers markets

The U.S. Department of Agriculture (USDA) announced that it will be awarding $9 million to 39 states through the Farmers Market Promotion Program (FMPP). This program is designed to help facilitate more connections between agricultural producers and consumers. The funding includes:

• More than 40 projects that connect farmers and ranchers to new customers by establishing new markets and other retail outlets, community supported agriculture programs or extend the market season;
• Seventeen projects that will support the use of new delivery approaches such as online and mobile markets, broadening the customer base for several businesses;
• Thirteen projects that reinforce USDA’s commitment to new and beginning farmers and ranchers, increasing opportunities, training and support for those just getting started;
• Twelve projects that focus on initiatives that support American Indian and Alaskan Native communities, and new opportunities for Latino, refugee and immigrant farmers;
• Ten projects that will help hospitals and health care organizations improve eating habits in their communities through education and the direct marketing of fresh local produce; and
• Nine projects that support agritourism, bringing visitors and consumers to farms and ranches.

The 2012 award includes $115,000 for North Carolina for the following projects:

• $62,770 to WakeMed, Raleigh, NC, to improve food access in Wake County by: 1) purchasing EBT equipment, 2) providing training to farmers, and 4) hiring EBT management staff at two farmers markets that serve low‐income residents of Wake County.
• $44,768 to Foothills Farmers Market Inc., Shelby, NC, to expand production, storage, and distribution of perishable food in a food desert by equipping a market facility with refrigeration and starting a multi‐farm Community Supported Agriculture (CSA) operation.
• $57,750 to Town of Huntersville, NC, to enhance the Huntersville Farmers Market with new infrastructure and signage at the market, to promote the market with an advertising campaign, and to educate consumers about healthy meals with local produce.

These programs will certainly help expand access to healthy foods, particularly with the emphasis on EBT usage, food deserts, and education. Further discussion of healthy foods access will be happening at the healthy foods forum, NC Grown, on October 9 in Greensboro. Information and registration can be found at http://www.thesupportcenter-nc.org/NCGrown.

Women and minority owned businesses slow to receive agency contracts

Picking up from last week’s post on the experience of women and minority owned businesses in Charlotte, the Washington Post reported yesterday that some federal agencies have also been slow in increasing their procurement contracts with women and minority owned businesses. The Small Business Administration (SBA) has established a program last year that allows agencies to set aside procurement in industries where woman and minority owned businesses are underrepresented.

Prior to this program, 18 out of 24 of the agencies were already meeting their goal of awarding 5 percent of contracts to minority and women owned businesses. Recently, however, these awards have decreased– by almost $1 billion in 2011. One reason is that not all industries are included in the list of ‘underrepresented’ industries, including some of the biggest ones such as information technology and professional services. On the other side, businesses often have difficulty figuring out whether or not they qualify.

From http://www.washingtonpost.com/business/economy/minority-contracts-fall-for-first-time-in-decade/2012/05/13/gIQA5GPKNU_story.html

Increased competition also has played a role– with fewer government contracts, minority and women owned businesses face even more formidable barriers. As the president of the National Black Chamber of Commerce stated, “When the masses catch a cold, we get pneumonia.”