From Insult to Injury and Back to Insult… A New Twist on the Demolition Derby

MandelmanMatters, August, 2011

From Insult to Injury and Back to Insult… A New Twist on the Demolition Derby

You know, I had never considered it before, but do you want to know what I’ve just decided is probably the most personally insulting act in the world?  I mean the ultimate in callous and disrespectful?  Like the best way to say you are entirely meaningless to your society and community?  I’m serious about this… it’s certainly not a joke by any means.

Okay, ready?  They jerk you around for a year, teasing you about a loan modification, making you send the same paperwork in over and over again as they question you about why you spend $70 a month on meat, when you could be eating chicken, and then they foreclose on you anyway, without any notice really… and then evicts you and says you must be out in 30 days… no way can you have 60…

… and then some number of months later… the bank comes along and bulldozes your home to the ground.

Oh, betch!  No you did not!  You did?  No you did not!

And this didn’t happen to Jews in Nazi Germany … this is happening today in Cleveland and will be happening soon in Chicago and Detroit, and my guess would be just about everywhere else you can think of, with the possible exception of Wyoming and North Dakota, although I couldn’t even be sure of that without checking it out.  It certainly wouldn’t surprise me.

I’ve written about this day coming, so I can’t claim to be totally shocked, but there’s a big difference between envisioning it and actually seeing it happen.

Am I wrong?  Is there something even more insulting than that?  Get out of that house in 30 days or the sheriff will carry you out… and then so the home can be razed to the ground… and not because something else had to be built there right away either … just because.

Bank of America is kicking off the festivities by donating 100 foreclosed homes located in and around Cleveland, Ohio and the money to fund their demolition.  Bank of America plans to work with a local agency that handles “blighted property” to dispose of the properties.

Next, BofA’s Glut Cutting Tour will be be destroying 150 homes in Chicago and 100 in Detroit, and spokesperson, Rick Simon says the bank expects to announce additional nine cities soon.  With Wells Fargo, Citigroup, JPMorgan Chase and Fannie Mae already either conducting housing destruction programs of their own, someone should be tearing down homes near you sometime this year.

Wells Fargo and Fannie Mae have both already started destroying homes in Ohio.  According to the bank, since 2009, Wells has made 800 such “donations.”

P.J. McCarthy, who’s in charge of “alternative disposition programs,” for Fannie Mae says that Fannie made its first deal with the Cuyahoga land bank in 2009.  He says Fannie “sells” houses to the organization at a “very nominal value,” which means about $1… with an additional $200 to cover closing costs.  P.J. also says that Fannie Mae sold 200 foreclosures to the Cuyahoga organization in 2010 and has similar programs in Detroit and Chicago.

P.J. must be very proud of his work.  He’s probably one of the only department heads at Fannie Mae doing something constructive… buy destroying homes.  Is it just me?  Because I feel like I’m living in “Dr. Strangelove – Or How I learned to stop worrying and love the bomb.”

Apparently, Cleveland is the only city where Fannie Mae contributes $3,500 toward the demolition of the homes.  P.J. call it an “economically justifiable transaction.”  He explains that…

“Holding on to a property that might sell for $1,000 or $2,000 or $5,000 for several hundred days is not in anybody’s best interest.”

No, I guess it’s not, P.J.  I reckon it’s not, at that.

Now get this… Jim O’Donnell, who is the manager of community revitalization at JPMorgan says the bank has donated or sold at a discount almost 1,900 properties in more than 37 states since late 2008, including 22 in Cleveland, said.  Total value of the properties… over $100 million.

And Mr. O’Donnell says… “The majority aren’t demolished.”

Excuse me?  Not demolished?  Just given away then?  To someone else?  Just given away?  The majority of $100 million in homes just given away by JPMorgan since late in 2008?  Oh, Holy Mother of God, are these people serious?  Is this really happening?  I’m starting to feel light headed… not sure how much longer I can write this.

Oh, and Citibank’s been doing it since 2008 too.

So, who would have ever thought that fixing the housing market was just a matter of finding the right tool for the job… a bulldozer.

Gus Frangos, president of the Cleveland-based Cuyahoga County Land Reutilization Corp. said…

“There is way too much supply. The best thing we can do to stabilize the market is to get the garbage off.”

Is that really the best thing we can do to stabilize the housing market, Gus?  The very best thing?  You see, I’m not so sure about that, Gus, and I’d be willing to continue this conversation with you except that I’d have to lower my IQ by 70 to 80 points in order to do so… instead how about if I just say the following: You’re a real tool, Gus.  As in a screwdriver or maybe a wrench… as in you have the IQ of a screwdriver or maybe a wrench.

According to Frangos, demolishing all of Cleveland’s foreclosed and abandoned properties might cost $250 million, which I have to tell you is making me nauseous as I write this.  Case Western Reserve University in Cleveland and Neighborhood Progress, a nonprofit whose website says is “working to counter the effects of foreclosures in six Cleveland areas” say that there are as many as 13,000 properties that need to be destroyed in Ohio.  Currently, the Cuyahoga County land bank owns about 899 properties and plans to demolish 700 this calendar year… again, according to Mr. Frangos.

So, Bank of America and the rest are struggling to deal with thousands of foreclosed and abandoned homes that can’t be sold.  Not only is disposing of these homes a headache for all of the mortgage servicers, when you consider that when banks foreclose they become responsible for taxes and maintenance costs, it’s also a costly headache.  And with roughly 1.7 million homes in some stage of foreclosure today, according to RealtyTrac, it’s also a headache that’s certain to worsen.  In the first quarter of this year, Bank of America alone foreclosed on 40,000 homes.

BofA is slated to pay up to $7,500 for demolition of a home, unless it’s in an area eligible to receive funds through the federal Neighborhood Stabilization Program, in which case it will only pay $3,500.

Once a given home has been demolished, the land may be used for development, as an open space, or for urban farming, according to Bank of America’s official statement, but spokesperson Simon declined to mention how many foreclosed properties Bank of America holds, or how many the bank plans to raze.

Also according to RealtyTrac Ohio ranked among the top 10 states with the most foreclosure filings in June, with 71,617 foreclosed homes.  I wonder how many of those are ever going to sell again… and how many are going to be used as an “open space” or for “urban farming.”

To be fair, the homes being torn down are in varying states of disrepair, and Simon says “some are worth less than $10,000, and it would cost too much to make them livable.”  Well, as long as Simon says it, I suppose it must be true.

See, these are homes that live on the Island of Unwanted Homes, according to the banks and as echoed by many in the media.  It’s easy to find that island, by the way, just head towards the Island of Misfit Toys and turn left when you see the Abominable Snowman.

It’s funny… these homes sure became “unwanted” fast, because I’m pretty damn sure they were WANTED BY SOME FAMILY just a year or two ago.  Wanted, until Bank of America, or one of the other banking families, refused to modify a mortgage, foreclosed and then kicked the old owners out into the streets, isn’t that right, Bank of America.  I wonder what Simon says about that little at least slightly relevant fact, don’t you?

Some guy, Christopher Thornberg, who is apparently a founding partner at Beacon Economics LLC, a forecasting firm based in Los Angeles, had the following to say:

“No one needs these homes, no one is going to buy them… Bank of America is not going to be able to cover its losses, so it might as well give them away and get a little write-off and some nice public relations.”

I know everyone appreciates that I don’t swear on my blog, they tell me that all the time… it gives my message more credibility, is the general consensus.  But this makes it hard to give a rat’s petute about any of that… damn hard.  I don’t even know who to start railing about… who to call a jackass first.

Mr. Thornberg… there’s so much wrong with the way you think, I can’t think of anything to say except, shut up, shut, shut up!  Think about what you’re saying, before you open your mouth, and you’ll avoid having said something so stupid next time.  I’ll break it down for you, so maybe you can understand it.

You said:

“No one needs these homes, no one is going to buy them.”

Someone did though, right?  Someone WAS living in these homes, right Chrissie?  So, someone “needed” them at some point in the fairly recent past, isn’t that correct, you economic genius for our times?  But, if no one did need them, and since you are most assuredly correct that no one is going to buy them… then WHY DID IT MAKE SENSE TO FORECLOSE ON THEM IN THE FIRST PLACE, Dr. Thornberg?

Why didn’t the bank modify the loans?  Are you telling me that the investors who actually own these loans came out ahead by tearing them down and giving them away?  Is that what you’re saying?  Tell you what… show me the numbers that back-up that assertion and I’ll not only apologize profusely for what I’ve said in this article, but I’ll write a glowing article about how you’re brilliant in your field every day for a year.

(I’ll await your email… it’s mandelman@mac.com, in case you’re interested.  I live in Southern California, so with you being right here in L.A. I can drive on up to take a look at those numbers anytime.)

Then you said…

“Bank of America is not going to be able to cover its losses, so it might as well give them away and get a little write-off and some nice public relations.”

I’ll get back to the issue of the bank’s “losses” in a moment.  First, let’s talk about that “little write off,” you refer to.  How much of a “little write off” were you thinking the bank might get as a result of giving away and demolishing these homes, Thornbug?  I only ask because Robert Williams, an independent accounting analyst based in New York was quoted by the press as saying that a bank “might deduct as much as the fair market value assuming the home wasn’t acquired with the explicit intent of knocking it down.”

Wow, fair market value?  That seems like more than a “little” tax deduction, don’t you think CT?  Because 100% of fair market value is… why that’s… let’s see… why that’s just about what the bank could hope to receive were it to be able to SELL THE HOUSE, am I right?  (The suspense is killing me, am I… am I?)

And just who do you suppose is going to be determining the “fair market value” to be used to calculate the bank’s write off, Mr. Thornburg?  Here’s a hint, Thorny… it’s not going to be you or me.  So, getting back to the bank and its inability to cover its losses… which losses might those be specifically, sir?  Are you sure the bank is even taking losses here, all things considered?  I’m not.

And as far as the prospect of “nice public relations” goes… well, let’s just say that I’m going to have something to say about how well that works out, so maybe best not to count on too much more of that.

Positively Surreal…

I remember a year or two back when Warren Buffett quipped that one solution was to “blow up a lot of houses — a tactic similar to the destruction of autos that occurred with the ‘cash-for-clunkers’ program.’”

He was joking, I thought… and I think he thought at the time.

But, don’t worry… according to RealtyTrac’s Rick Sharga, foreclosures are likely to accelerate so the knockdowns aren’t going to outpace foreclosures… not even anywhere close, so…

“These sorts of programs will basically only be nibbling on the edges.”

Which I assume is a euphemism for “accomplish very little if anything as far as mitigating damage cause by the foreclosure crisis” is concerned.

Well, good then.  As long as we’re not going to be accomplishing anything… then I guess I’m for it.  By the way, however, aren’t there just going to be more and more homes that need to be destroyed as time goes by?  I mean, with the huge shadow inventory of homes just sitting there doing nothing, aren’t we just going to see more and more homes beyond repair, economically speaking?

Because I don’t think empty homes do all that well over time, isn’t that correct?  I’m not home construction expert.  I’m just saying…

And I hope people don’t get too upset about being tossed out of their homes in a hurry only to find out they ended up tearing them down… giving them away…

© MandelmanMatters, August, 2011.