The barn-door problem

News that the national foreclosure rate is higher than at any time since the Great Depression is obviously not good. But, it has one positive side. It reveals the driving force of the whole finance, insurance and real estate sector of the economy, the "lending industry," as the Fresno Bee put it in the editorial below.

In the growing subprime-load debacle, in which Merced has the dubious distinction of leading all other jurisdictions in California with 22-percent subprime loans (nearly twice as high as the national average), the press sets aside the environmental damage done to Merced and the San Joaquin region by the building boom -- air quality, water quality and quantity, endangered species taken -- the amount of farm land paved over, the failure of elected local land-use authorities to in any way compel development to pay for itself, and the general scoff-law attitude of elected officials and city and county staff toward any laws that stand in the way of development.

Almost every lawsuit filed on these issues in the last seven years has had a provision asking for a county General Plan update. Last year, Merced County agreed to one, guided by a secret steering committee, and the process lumbers along with hand-picked "members of the public" to validate the deal. Meanwhile, the existing General Plan, the document that was supposed to have guided development in the county, was never updated even to account for UC Merced, much less for the development boom the campus caused. It was, instead, constantly "amended," which by statute it must be to accommodate major development projects. The present General Plan is a shapeless mass of amendments documenting chaotic growth.

Even those who have not followed the development process in Merced during the past seven years must see that the present General Plan update process is no more than a pretense of pushing an open barn door toward a closed position long after the horses have left the barn, the corral and the ranch.

Among the many public lies the Merced development boom entailed was that UC Merced was immediately necessary to accommodate the "Tidal Wave II" of UC students. That deception has also been revealed.

A cabal of politicians, developers (some of them UC regents), UC administrators, large local landowners, local insurance interests, the UC/Great Valley Center, and enabled by the "lending industry," local realtors and planning staff, created this unfortunate situation, unprecidented since the Great Depression.

We cannot predict how it will all come out except to say, based on past experience, that the situation will not be faced honestly in Merced. The consequence of the growing need for "leadership" to conceal what it has done. If the past is any guide to the future, this political need will result in a combination of rewriting history, choosing distracting targets and that old favorite, arrogant posturing. It looks like local public discourse will consist of the "haves" blaming the "have-nots" for not having, while the haves await the next speculative boom to get more.

Bill Hatch
-------------

Notes:

4-6-07
Subprime meltdown...Editorial
http://www.fresnobee.com/274/story/40173.html

California should provide stronger mortage protections. What seemed an impending home foreclosure crisis when the Legislature held hearings in January is now a full-blown meltdown.A big part of the problem is the widespread use of subprime loans -- high-cost loans to people with weak credit. The Valley is especially thick with such loans. Almost 22% of home loans in Merced were subprime, highest in the state. Bakersfield, Modesto, Visalia and Fresno were close behind, all with rates above the national average of 14.7%. The result is costly: Three of the five U.S. regions with the highest projected foreclosure rates for subprime loans made last year are in the Valley, including Fresno. California should lead in providing solutions. But it's not... Most borrowers once got their loans directly from a lender; today a majority go through a mortgage broker. Too often, these brokers steer buyers to a higher-rate loan because they get rebates from lenders. So the broker gets a perfectly legal kickback and the lender gets a more profitable loan. But the borrower gets stuck with a higher interest rate.
California should fix this. Legislators also should look at the strong laws in North Carolina, New Mexico, New York, West Virginia, Ohio, Massachusetts and New Jersey, emulate them and improve upon them.Legislators must have the courage to stand up to the lending industry, which continues to oppose stronger California laws, and protect consumers from reckless, abusive loans. The home mortgage crisis in California is not going to be self-correcting.

Fresno Bee
UC Merced tops in diversity...Farin Montanez
http://www.fresnobee.com/263/story/40214.html

UC Merced is leading all UC campuses for minority admission rates, university officials said Thursday. Thirty-one percent of students admitted to the freshman class this fall at the University of California at Merced are Hispanic, black or American Indian -- groups considered "underrepresented" by the University of California system. UC Merced may be leading the way in diversity, but it has been struggling to enroll enough students. Officials hope this is the year that the Merced campus, which opened in 2005, hits its enrollment goal of 2,000 students after missing the target for its first two years. Nineteen percent of UC Merced's applicants are from the San Joaquin Valley, Ruiz said, bearing out a major argument for establishment of the campus. University of California total admissions hit a record high...But UC Merced -- now with an enrollment of 1,286 -- has failed to grow as expected. Still, the campus is not a first choice for many...than 12,000 freshmen were offered fall 2006 admission to UC Merced last year, only about 4% -- slightly more than 450 students -- signaled their intent to enroll.

Boston Globe
The Housing Squeeze ... Robert Kuttner
http://www.commondreams.org/archive/2007/04/07/369/
...the latest financial scandal, the meltdown in sub prime mortgages. This is the private sector’s “solution” to high-priced housing. Offer loans to borrowers who would not ordinarily qualify, based on their incomes and credit histories. Make the mortgages seem affordable by giving low, temporary “teaser” terms — very low interest for the first two years and much higher costs afterward . Not surprisingly, as the teaser period expires and people face the real costs, defaults increase — about 15 percent of all sub prime mortgages at latest count, and rising. Many lenders and borrowers gambled that housing prices would keep rising, allowing borrowers to refinance. But with housing values now in a temporary pause, upwards of a million sub-prime borrowers are likely to lose their homes before this latest financial debacle unwinds...There’s no real money to subsidize new construction, either of rental housing or owner housing. Nor is there federal money to underwrite low-interest mortgages for first-time home buyers, leaving them to the tender mercies of the sub prime loan sharks...And, as Amy Anthony, former Massachusetts secretary of communities and development, testified, upwards of $60 billion of federal money spent between 1965 and 1990 to subsidize private developers to build affordable housing for the elderly, the poor, and the disabled, is now being squandered. Thanks to a loophole in these programs demanded by for-profit developers as a condition of participating, once the initial loan is paid off, they are free to sell or rent the housing to the highest bidder. An entire sector of affordable housing built at taxpayer expense served only one generation of renters and is now being irrevocably lost. There is a common thread here. Affordable housing requires social investment, plus public-minded regulation. The profit motive can sometimes serve public purposes, but most mortgage bankers and most developers are in it to make a buck and will achieve social goals only with careful government rules and monitoring. In many cases, it’s more efficient for government to provide subsidies directly, not through tax gimmicks, not through bribing private developers or expecting private bankers to be do-gooders. This is not just about housing “the poor.” The default of housing and mortgage lending policy makes life harder for much of the working middle class and for the economy...