15 August 2010

The Housing Crisis and the News Media

Several months ago I wrote a blog entry about the credit crunch and the news media. I wrote it because of the way the news media was reporting about the credit crunch in a manner that would scare the public. Now with the housing crisis in its full upswing I have been seeing articles about house values which I feel is being mishandled in the mainstream news media including none other than the St. Petersburg Times.

First of all, here’s some background on how the news media handles the housing crisis.

Like the credit crunch, the news media has turned to a kind of journalism called speculative and sensational journalism, which is intended to serve one purpose: Blood sells. You got that right; sell more newspapers and inflate the TV ratings to maximize more profit.

In the newspaper industry, what the newspapers do nowadays to report on the housing crisis is to either write stories using their own reporters (such as Jeff Harrington of the St. Petersburg Times, for instance) or use a story from a news service such as the Associated Press or the New York Times. The idea here is for a story on the housing crisis to be written in a fashion that will place fear in the general public; in other words, to get the public scared about what may happen or has happened. What is this being done for? The answer is simple: Sell more newspapers!

Here in the Tampa/St. Petersburg area, the St. Petersburg Times has a very strong alliance with Bay News 9, a 24-hour local cable news channel which is exclusive to Bright House Networks. (What that means for us Tampa Bay area residents, if you are on Verizon or on Knology (Pinellas County only), you are out of luck). If the St. Petersburg Times wants to spread its scare tactic stories on the housing crisis further, it can ask Bay News 9 to do so practically in a heartbeat.

(By the way, Bay News 9 has a voiceover announcer – not the one that has been there since Bay News 9’s inception in 1997 – it’s the one that does the “sponsored by” TV spots and, in my opinion, speaks rather angry and mean. If you want to believe me, tune in just before :30 past the hour on Wednesdays when this voiceover announcer is doing a sponsorship promo for a Dodge dealership in St. Petersburg. I could go on more and more, but I’ll save this for a possible future blog entry).

On the other hand, in the television news industry stories on the housing crisis are basically done in the same way as newspapers. A reporter will write a story on the housing crisis and interview people such as a bank representative or an analyst and then in preparation for putting the story on the air the reporter (along with their supervisory editor) will take statements made out of context. Don’t forget, that same story has to be written for a television station’s news web page. The main idea here is that a story on the housing crisis is to be presented on television in a way that it will place fear in the general public, just like how it would be written in the newspaper. Again, why does a television news outlet do a story on the credit crunch in order to create maximum fear in the public for? The answer is simple: Increase the viewer ratings! (And maximize advertiser profit too!)

OK. If you want the real truth on the housing crisis, here’s how I look at it.

First, the developers. Here in St. Petersburg, the developers from Miami came into town and turned apartment complexes into condominiums. In the process, these greedy developers jacked up the prices artificially high to begin with in the very first place, and it was done for this major purpose: Run the middle working class out of St. Petersburg. What that meant was to have people live somewhere far and make a 45 to 60 minute commute on Interstate 275 to and from their place of employment daily. In so doing, housing that would be closer to work would become unaffordable. These greedy developers were living the life of luxury while the working middle class had to make do with a new place to live, somewhere out in the countryside.

Second, the banks and their mortgage loan officers. While the housing boom flourished, these mortgage loan officers were told not to even consider a customer’s credit history and income in deciding whether to approve a mortgage loan or not. All these mortgage loan officers cared about was that sizeable commission check plus that all expense paid trip to somewhere in the Caribbean for closing that big loan deal.

The banks took their risk, like at a gambling casino. Then the banks lost when the housing crisis evolved. That meant homeowners were being approved for mortgages that clearly the homeowner could not afford. When the credit crunch ensued, the banks were given United States Government bailout money in the hope of loosening the credit crunch; instead, the banks hoard this money and begin treating their customers like second class citizens.

How about mortgage modifications? How about the person who got laid off through no fault of their own and is struggling to make ends meet? Banks and mortgage companies – according to what’s reported in the media – like to mess up a person’s credit report when it comes to having to modify the terms of a mortgage. In this day and age, if a borrower as a legitimate reason to have his or her mortgage modified to allow for lower monthly payments, he or she should be allowed to do so without any black mark being noted on a credit report. After all, it’s these banks and their mortgage loan officers that approved these loans in the first place, knowing that he or she would not qualify to begin with.

OK, OK. For those of you out there who fear that they may be underwater in their mortgage and if you are trying to sell your home, may I give you some words of advice?

1. Do not believe what your county property appraiser tells you what your home is worth. This figure is used for the computation of your annual property tax bill. There are two values, assessed value and market value. If you happen to have homestead exemption on your home, your assessed value will be less than your market value as your homestead exemption is deducted and there is a cap called the “Save Our Homes” cap. On the other hand, if you do not have homestead exemption then your assessed value will be the same as the market value. Besides, the property appraiser conducts appraisals based on both qualified and unqualified sales and the appraisals are done on a mass appraisal basis.

Now do you know what a qualified sale and an unqualified sale means? A qualified sale is your typical sale of a home from one person to another which takes place at the title company and that there is no undue pressure from either party. On the other hand, an unqualified sale is your typical bank foreclosure sale, but it can mean other factors as well. Unqualified sales typically tend to sell for much less than what a property is worth.

2. There is a website out there that is dedicated to house values, and that is called Zillow. While Zillow is a handy tool that can be used to gauge what house values are throughout the United States, it like your county’s property appraiser should not be believed in what your home is worth. Zillow from what I understand has two methods in determining your home’s value: First, Zillow gets its data from publicly available sources including – where else – your county’s property appraiser. Second, Zillow applies a formula which is kept secret from you and I and then taking these two elements together, Zillow comes up with what they call a “Zestimate”.

Before I go on further, let me say this: Your county’s property appraiser and Zillow are not the gospel of property values, including that of your home.

3. Hire a qualified appraiser and have him or her do an all-purpose appraisal of your home. What an appraiser does is researches the property appraiser records of all qualified sales over a certain time period in the vicinity surrounding where you live. However, the major benefit of having an all-purpose appraisal is that you have an appraisal in your hand which you have ordered, not one that the banks order as part of the mortgage underwriting process as bank ordered appraisals are often times biased. Besides, when you have an all-purpose appraisal in your hand you can show this to prospective buyers showing what your home’s value is really worth. For those of you considering refinancing, you can take this all-purpose appraisal with you to the bank to prove what your home is worth. Appraisals usually cost in the ballpark of around $300, but it is money well worth spent.

OK. Now that you have an appraisal in your hand, you can tell if you are underwater in your mortgage for real. If you find that you are not underwater, congratulations! On the other hand, if you find that you are indeed underwater, there is still hope for you.

If you intend to stay in your home but are struggling due to the mortgage payments, by all means DO NOT STOP PAYING ON YOUR MORTGAGE!!! Instead, contact your mortgage lender and ask for the person responsible for loss mitigation or a similar department. In this day and age of home foreclosures, a mortgage lender would more than likely work with you rather than commence a foreclosure action.

On the other hand, if you intend on placing your home on the market there is what is called a short sale. A short sale is where the mortgage lender accepts for less than what is owed on a mortgage. Short sales are complicated and may have financial and legal implications; therefore, consultation with an attorney is highly recommended before you pursue this route.

There is also deed-in-lieu-of-foreclosure, but this is for homeowners who have had foreclosure proceedings already begun or about to begin. Again, consultation with an attorney is highly recommended.

Now for another thing, if I may have your attention for just a moment.

If you presently do your banking business with a bank, consider taking your banking business to a credit union in your area. You may be able to join a credit union in your area; some have residing in a certain zip code as a membership qualification. Call around or check their websites for more information.

Believe me, credit unions are more better to deal with than a bank as far as customer service is concerned. After all, credit unions treat you like a real person compared to these greedy banks who only treat you like a number as well as pay lip service to courteous customer service. And besides, when you are a member of a credit union you’re not just a member – you are an owner. After all, credit unions answer to their owners, which are its members, while banks answer to their stockholders.

Besides, if you are in the market for a mortgage, the better credit unions have mortgage rates that are often times lower than a bank. Qualification criteria may be a little less stringent than a bank but it always depends on your credit history and your income.

Now if you are having problems with a bank or a mortgage company that you cannot seem to resolve, consider posting your experience on a complaints board or forum out there on the Internet. RipOffReport.com is the better known forum out there for consumer complaints; it’s like creating your own website to let others know of your bad experience so that others don’t fall into the same fate. Besides, it’s free.

The last part of this blog entry will be the last part that I wrote on the credit crunch entry, so I’ll be glad to repost it here:

For the past few months I have seen a billboard on the left side of southbound Interstate 275 in Downtown St. Petersburg just before you approach the exit for Interstate 375, Exit 23A. This billboard sums it all up about the current state of the American economy (unfortunately, this billboard has been replaced since my blog entry on the credit crunch which I posted in September 2009):

“Recession 101: Quit obsessing about the economy; you’re scaring the children”.

The message is superimposed on college rule paper. A wonderful job done by the creator of that billboard.

If I could afford a billboard, here’s what I would say:

“Journalism 101: Quit obsessing about the real estate crisis and the credit crunch; you’re scaring the public”.

What the Tampa Bay area news media ought to do is to write and broadcast or publish stories in a positive manner which would bring the credibility that once was how the news media reports the news. Don’t take stories and shuffle them out of context in a way to create maximum fear and distrust in the public.

Now Mr. Jeff Harrington of the St. Petersburg Times, are you reading this blog entry?

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