Archive for the 'Foreclosure Crisis' Category

Regulators have ordered Colonial BancGroup Inc., a lending company based in Montgomery, Alabama, to stop the operation of its banking unit until such time that it has increased its capital and reduced problem and non-performing assets. Colonial blamed the increasing bank owned foreclosures on its portfolio on the financial woes that its banking unit is currently experiencing.

The order to cease-and-desist was signed by the Alabama State Banking Department and the Federal Deposit Insurance Corp. (FDIC).

According to Colonial, the order also provides oversight and management of the unit and improvement of capital and earnings.

Upon news of the issuance of order to stop operation, Colonial’s shares dropped by almost 59 percent or 50 cents. The company is waiting for a federal approval to its capital infusion of about $300 million from a group of investors led by Taylor Bean and Whitaker Mortgage Co.

In 2008, Colonial had a memorandum of agreement with regulators which requires the bank to increase its capital ratios early this year. The growing number of bank owned foreclosures on its construction-loan portfolio in Florida continues to put pressure on the finances of the company.

More than 50 percent of Colonial’s branch operations are located in Florida. Construction loans comprised 60 percent of the company’s loan portfolio which is now swamped with bank owned foreclosures.

According to industry experts, banks and lending institutions with heavy exposure in Florida were severely affected by the housing market crisis. For the last 12 months, Colonial saw its stock value dropped by over 75 percent.

Colonial claimed that the order to stop operation will not affect loans or customer deposit accounts. The Alabama company has more than $26 billion in assets and majority of its income is sourced from its banking unit.

Meanwhile, 3,669 properties in Alabama received foreclosure filings in the first quarter of this year, representing a 74 percent rise from the fourth quarter of 2008 and a whopping 116 percent increase from the first quarter 2008 total.

In March, Alabama’s foreclosure filings went up by 217 percent to 2,260 compared with February figures and 248 percent higher from the March 2008 total.

One out of 582 houses in Alabama is in danger of becoming bank owned foreclosures.

Businessman Peter Dvorak disclosed that the planned conversion of former Robert Hotel in Muncie, Indiana to luxury apartments has been delayed. He cited the increasing number of properties on Bank Foreclosure Listings and tough lending practices as reason for the delay in the opening of luxury apartments which is scheduled on August 15, 2009.

Dvorak said that the original opening schedule is no longer feasible, adding that most likely, the new luxury apartments will be opened to its first tenants on August 15, 2010. A week before Dvorak announced the delay, there were speculations that his project was delayed or cancelled and that Pinnacle Properties, his company, had gone bankrupt.

Dvorak denied any report that Pinnacle filed for bankruptcy but admitted that commercial properties he owns in Brown and Hamilton counties are on Bank Foreclosure Listings.

Mayor Sharon McShurley acknowledged the fact that construction work at the Roberts Hotel stopped, but she is hopeful that the project will be continued.

Meanwhile, Mike Mitchell of the Mattingly Corporation, the project’s contractor, said that he did not encounter any financial problem with Dvorak during the course of the project. Both Mitchell and Dvorak said construction on a model unit on the second floor of the building had been completed.

According to Dvorak, the current financing challenges are to be blamed for the delay. He pointed out that lenders require that at least 50 percent of luxury apartments have been pre-leased before he could avail of a loan.

He added that nearly 12 units have been leased while 73 are pending for lease. Those who paid deposits for the finished apartment units will be contacted by Pinnacle.

In October 2006, the Roberts Hotel was closed after Dvorak failed to secure funding for the rehabilitation to attract hotel franchisees. Then in December, Dvorak decided he would convert the Roberts Hotel into luxury apartments. The conversion project is estimated to cost $10 million.

On the other hand, Dvorak’s properties in Brown and Hamilton counties are facing Bank Foreclosure Listings. The Hamilton property facing foreclosures is a medical office building, while Old National Bank filed the foreclosure proceeding against a Dvorak property in Brown.

Dvorak pointed out that several of his properties are no longer considered economic assets and because lenders refused to cooperate for a mutual beneficial resolution, he decided to allow these properties to be placed on Bank Foreclosure Listings.

Another lawsuit has been filed against Wells Fargo for its role in subprime lending and bank owned foreclosures crisis. The city of Baltimore, Maryland has filed a lawsuit against Wells Fargo for instigating the subprime mortgage lending in the black community which led to thousands of homeowners facing bank owned foreclosures.

Some former Wells Fargo loan officers have testified against the bank’s policy of focusing its subprime lending operation in black communities.

In her testimony, loan officer Beth Jacobson said that Wells Fargo systematically singled out black homeowners in Baltimore and suburban communities in Maryland for subprime mortgages with high interest rates.

According to officials in Baltimore, subprime loans have caused thousands of homeowners to lose their homes to foreclosures and cost the city millions of lost taxes and revenues.

Jacobson pointed out Wells Fargo considered the black community as a fertile ground for its subprime lending operation because black families were desperate to become homeowners. She recalled that Wells Fargo loan officers encouraged black customers to take out subprime loans when they could have been eligible for prime loans.

Another loan officer Tony Paschal testified that Wells Fargo employees used to call black borrowers as mud people and to refer to subprime mortgages as ghetto loans.

Jacobson, who used to be the number one subprime loan officer nationwide, disclosed that Wells Fargo had operated an emerging-markets unit that targeted black churches. She added that the bank believed that church leaders had a considerable influence over its congregation and they could convince them to avail of subprime loan mortgage.

Data released by the city showed the extent of the damage caused by subprime lending on the housing market in Baltimore, with more than 50 percent of properties taken out on a Wells Fargo mortgage from 2005 to 2008 facing foreclosures and are now vacant. And the worst is, 71 percent of these foreclosed properties are located in black neighborhoods.

Meanwhile, Federal District Court’s Judge Benson E. Legg is still undecided whether the lawsuit filed by the city has merits to progress. He asked the city to submit and file additional paperwork.

On the other hand, both Jacobsen and Paschal claimed that Wells Fargo had given loan officers bonuses each time they refer a borrower who was eligible for prime loan to the subprime lending division.

On her part, Jacobsen said that for a year, she received a total of $700,000 and had traveled to several resorts across the country courtesy of Wells Fargo.

With the foreclosure crisis still considered to be a major housing problem, tenants have become more and more vulnerable to the horrors of foreclosure as their landlords default on their mortgages and the rental homes end up in listings of bank owned homes.

Bank forclosure homes have already wreaked havoc to the lives of thousands of homeowners and communities. Now, the foreclosure crisis has added health issues as among its effects.

Before 2010 ends, 940 small and medium-sized banks across the country would have lost $100 billion from foreclosed bank owned commercial properties if the economic downturn worsens further, according to a Wall Street Journal study.

As the economic and foreclosure crisis continues to sweep across the country, the U.S. federal government finds itself the owner of over 50,000 forclosed homes for sale. The number of foreclosed properties on the government’s inventory is said to be enough to populate the city similar in area size of Riverside, California or Miami, Florida.

U.S. House Committee on Oversight and Government Reform Chairman, Representative Edolphus Towns and Representative Tom Perriello met with several distressed homeowners in Virginia to discuss the rapidly increasing number of bank forclosed homes, particularly in the 5th Congressional District which covers the Charlottesville area to Danville and Martinsville.

A rising number of commercial buildings nationwide are now following the fate of foreclosed condos, putting into uncertainty the fate of regional banks which provided the money to build the buildings.

Home prices across the nation fell by a record rate in the first quarter this year compared to last year’s first quarter as banks sold their foreclosed bank owned homes, according to the National Association of Realtors. California and Florida led the other states in home price declines.