Opinion: Foreclosure crisis reflects media faults

It seems that everything has become a “crisis.” That is the most used (overused) word now spoken in the media. We have the global warming crisis, the oil crisis, the banking crisis, the airline crisis, the refining capacity crisis, the unemployment crisis, the economy in crisis and, of course, the crisis of confidence. This was just from one evening in front of the tube, so if there are more crises that I should be aware of, please e-mail me. (I don’t want to miss any.)

And, of course, there is the foreclosure crisis. But wait, things may not be exactly as reported. The foreclosure “crisis” appears to be fueled largely by exaggerated, misleading, erroneous, and at times contradictory reporting of “statistics” on the subject.

How many times have you heard about the thousands (hundreds of thousands) of “families losing their homes” and being kicked out on the street due to foreclosure? That indeed would be alarming if it were true. But the truth is that the numbers that we generally hear reported are not “families losing their homes,” but instead are “properties” going into pre-foreclosure (i.e. having missed sufficient payments to warrant initiating foreclosure proceedings). What you won’t hear is more important, and that should include how many don’t involve “families” at all and those pre-foreclosures that are resolved and removed from the foreclosure process.

By one source (foreclosures.com), Florida recorded nearly 258,000 pre-foreclosures during the first six months of 2008, representing about 4% of all home mortgages in the state. Comparable numbers for the Metro Orlando area over the same time-frame are: Orange County, 15,388 (4.6%); Seminole County, 4,626 (3.3%); and Osceola County, 6,678 (10.9%).

But again, these are not “families” that have had their homes foreclosed but are properties in the foreclosure process. The magnitude of the real problem would be better identified with the answers to the following:

- How many of these property pre-foreclosures will be resolved between the borrower and lender long before foreclosure?

- How many of these properties were bought as second or vacation homes? This is particularly relevant to Florida and Central Florida. (Do vacation homes count as “families losing their homes?”)

- How many of these properties were purchased by investors hoping to turn a profit with a quick resale or as a rental? This is also quite relevant to the Orlando area, where investors bought into thousands of units speculating that prices would continue to soar. (Do investors also count as “families losing their homes?”)

- How many of these properties were purchased by overseas buyers for vacation use and short-term rental units? This greatly affects Osceola County, where over the last five years nearly 20% of all units sold were of this type. (Do overseas investors count as “families losing their homes?”)

- How many of these properties consist of condos and condo conversions that ended up on the downside of the market curve and failed? An Orlando condo conversion recently returned 140 units to its lender. Is that 140 foreclosures? Is that 140 “families losing their homes” - despite the fact that they were all empty? Multiply this by the dozens if not hundreds of large-scale condo and conversion properties throughout Florida that are in trouble, and the resulting large number dramatically distorts foreclosure stats.

Within the numbers that are being reported, there are indeed families who will lose homes that they can’t afford (they, of course, will then move into something that they can). But the hype that we hear is several magnitudes beyond where the real number is, and therefore the image of thousands of families becoming homeless will be perpetuated. The good news is that wherever there is a crisis, even a false one, there will be a Washington politician eager to provide a government solution to it - with your money. The second-most frequently used word these days … “bail-out.”

Get your wallets out!

Jim Lewis is president of Charles Wayne Consulting in Orlando.