Liddy's Money Part One: Foreclosed

There is a catastrophe taking place in North Carolina right now. It's not as visible or frightening as a tornado or a flood, but the end result of this catastrophe will be very similar: thousands of our fellow North Carolinians steeped in despair and struggling to find a place for their families to live.

And one of the more frustrating aspects of this catastrophe is that it was easily predictable by those who should have been minding things. Instead of following standard, common-sense procedures to assess risk, loans were made with little concern for the future of the investors or the homebuyers themselves. There have been (and still are) a whole lot of opinions flying around about who's to blame, but we're finally beginning to talk about what to do about it and take some action steps. Which is a damned good thing, because the foreclosures are getting out of control:

There were 729 foreclosures in Durham in just the last five months according to state records.

But sometimes the gap between the rhetoric and the reality is so wide Evel Knievel (or his crazy son) wouldn't even attempt to jump across it. From a speech Elizabeth Dole gave to some folks in Greenville last year:

We also must take the steps necessary to curb the high rate of foreclosures, in North Carolina and elsewhere in our country. Unfortunately, our state recently ranked 19th in the nation in the number of home foreclosures (for the month of June). That is simply unacceptable, and we can and must do better. As a member of the Senate Committee on Banking, Housing and Urban Development, I am participating in hearings and closely examining the factors, such as abusive lending practices and so-called exotic mortgages, that have contributed to this problem. Many think revitalizing and modernizing the Federal Housing Administration may be the best hope for keeping distressed borrowers in their homes. I have been working on modernizing FHA, but we don’t know yet what the final product will look like.

That's a really nice thing to say Liddy, but it's the actions of a Senator that count:

The FHA bill is particularly important for high-cost housing markets — California and parts of the East Coast in particular — because it raises the maximum mortgage amounts the agency can insure. It also would cut minimum down payments and allow the FHA to charge lower premiums to applicants with better credit histories and higher premiums to borrowers with less-favorable credit.

The bill was blocked from a floor vote on Nov. 15 by Sens. Tom Coburn (R-Okla.) and Jim DeMint (R-S.C.) after a hold by Elizabeth Dole (R-N.C.). Dole objects to the FHA’s plan to begin pricing mortgages based on credit risk starting in January, whether the reform bill is approved or not. Dole is an ally of the private mortgage insurance industry, which would have to compete with a revived FHA in the low-down-payment segment of the mortgage market.

Okay, so I'm going to talk about the government for a minute, so try not to go to sleep. Keep in mind, I'm far from being a Master of beltway politics; but I do consider myself a "journeyman apprentice", so you might get something useful out of this.

Thanks to the unbelievably huge bureaucracy that is the Executive Branch, about 90% of what actually happens in D.C. is virtually undetectable. The power that runs underground is what directly affects how our tax monies are spent and how our lives are regulated. I think many folks work under the misconception that Congress and this bureaucracy are in opposition with each other, each vying for more control. In reality, they are tied to each other so tightly by appropriations and patronage that separation is close to impossible. And the longer a politician spends in Washington, the more embroiled they get in this relationship, which brings me back to Liddy.

For weeks now, I have been looking at her FEC report(s), and I am literally staggered by the scope of her political influence. It's not really surprising, since she has been playing the D.C. game since before many of you were born. But it's the main reason why I stated on another blog that she was far from ineffective. To say she knows her way around the bureaucracy is a huge understatement.

Back to her FEC report. One of her PACs (she has a few) has some very sizeable contributions from here in North Carolina, which I will be exploring more deeply in some upcoming diaries. One guy in particular named Stephen P. Zelnak caught my eye, because between he and his wife at least $60,000 was donated to her via the Elizabeth Dole Majority Committee.

His occupation is listed as the CEO of Martin Marietta, and I had originally put him on page 5 of my hand-scribbled notebook under "Defense Contractors"; but, like so many of these uber-rich guys, that ain't his only job. He is also a Director for Beazer Homes, a huge developer that has built countless homes in North Carolina.

Which brings me back around to the foreclosure debacle. Numerous complaints have been filed against Beazer:

The Department of Housing and Urban Development, responding to an Observer investigation, will look at lending records from Charlotte and other cities where a large share of Beazer loans ended in foreclosure, officials said Friday.

Beazer's case is different. The company worked as a mortgage broker, matching lenders with borrowers. And almost all its loans were insured by the Federal Housing Administration, which promised to pay the lender if the borrower did not.

An Observer investigation published last week charted Beazer's actions in Southern Chase, a Beazer development in Cabarrus County where 77 buyers have lost homes to foreclosure in a neighborhood of 406 homes.

The Observer found Beazer acted in ways that made a high rate of foreclosures inevitable. It arranged larger loans than some buyers could afford. That allowed it to include the cost of financial incentives in the price of homes.

I want you to pay close attention to this:

The government conducted a limited review of Beazer's lending last year in response to Observer inquiries. HUD decided then to take no action against the company.

I'd like to be able to tie this up with a nice little ribbon, but I can't. I have a damned good idea what this means, and so do you, but that's all we've got. For now.