Over at WalletPop, they’ve looked closer into a big recent auction of foreclosed properties in Detroit, and it’s an even bleaker situation than first reported.

The Wayne County auction of some 9,000 repossessed properties last week resulted in more than 80 percent of them failing to draw a single bid. And that’s even with the minimum bid starting at just $500.

The fact that Rust Belt cities such as Detroit and Cleveland are plagued with foreclosed properties isn’t a new development. But what happened at that Detroit auction gives a glimpse into how acute the problem is. WalletPop explains:

The auction didn’t go smoothly, however. Out-of-town speculators cherry-picked prime properties in areas such as the Boston-Edison district, while locals who showed up too late for registration weren’t permitted to take part.

That’s the scandal. One of the reasons distressed communities have begun fighting for tools such as land banks — public enterprises that allow a community to quickly acquire abandoned and foreclosed properties, so they can be cleaned up and put to use – is to prevent speculators from playing games with foreclosed properties, while local officials watch helplessly. But as we’ve reported, getting a land bank together can be a lengthy and complicated process. Communities like Flint, Mich., are spearheading the shrinking cities movement, which tries to deal with the problem of foreclosed properties by cordoning off abandoned areas of the city and letting the land return to nature. It can be a great idea for some communities, but to achieve it, local officials first need that land bank or some other way to gain control of abandoned and foreclosed homes and land.

Otherwise, you can end up with a situation like the Detroit auction, where out-of-town speculators with money and experience can out-bid any local community groups or investors who might want to actually rebuild neighborhoods, rather than just play real estate games.

As Virginia Tech urban planning expert Joseph Schilling told TWI last spring, ““We do a pretty good job in this country of recycling cans and plastic bottles. But we do an awful job of recycling and reusing vacant properties.”

Until our national housing policy turns more aggressively toward encouraging and allowing more local control of foreclosed properties — and to providing some financial support for that effort — expect to see more sad situations like that Detroit auction. We have some of the answers to this, in innovative policies like land banks. Why aren’t we moving with urgency to use them?

CHICAGO–Angenita Tanner faces tough times. Her home-based child care business is threatened by potential Illinois state budget cuts to programs subsidizing care for children of low-income workers. Already her clients have found it hard to pay for her services, leading her to fall behind on her mortgage. But her bank refuses to re-negotiate the mortgage, even though losing her home would also end her business and income.

“America has bailed out the banks, but the banks aren’t bailing out the people,” she told a crowd of about 5,000 unionists and organized community activists on Tuesday as they protested outside the American Bankers Association conference on the third and final day of what was billed as the “Showdown in Chicago.”

It was the common theme of the protest, the largest focused on the financial industry since the banking crisis pushed the whole economy into deep recession, echoed in marchers’ chants: “the banks got bailed out, we got sold out.”

The protest, which relied heavily on unions–especially the Service Employees (SEIU)–and Chicago community groups fighting foreclosure, delivered a strongly worded but programmatically diffuse message calling on banks to serve real needs of people, not the greedy speculative aims of their executives.

Against a backdrop of giant cut-out figures of leading “robber bankers,” SEIU Secretary-Treasurer Anna Burger called for investigation of big bank CEOS, adding, “and, if necessary, we have to prosecute them for what they’ve done to our country.”

And AFL-CIO president Richard Trumka said, “We are not going to let bankers rule our lives or our country.” Addressing the ABA members inside the hotel, he said:

You work for us-not the other way around. Your job is to be stewards of our savings-to put and keep working families in homes, to lend the money companies need to create jobs. And you have failed. You’ve turned the American economy into your own private casino, gambling away our financial future with our money, driving us to the brink of a second Great Depression, then sticking out your hand for taxpayers to bail you out.

And Bankers, let me tell you this: We didn’t put you back in business so you can pay billions in bonuses to the suits; those bonuses have to go. And we didn’t put you back in business so you could pile money and lobbyists into Capitol Hill to fight the financial reform we so desperately need-while we’re losing jobs, losing our homes, losing our retirement savings, losing it all-because you treated the money we worked so hard to earn like Monopoly money.

Trumka called for establishing a consumer financial protection agency, reforming the Federal Reserve or creating a new agency to stop systemic risk, regulating shadow financial markets (like hedge funds, private equity funds and over-the-counter derivatives), and reforming corporate governance and executive pay).

Other speakers called for stopping foreclosures and breaking up big banks. They demanded more and lower-interest loans for public needs and job creation. And they told the ABA to stop lobbying against much-needed reforms.

There was broad agreement on anger at the banks for providing so little, if any, public benefit for the massive bail-out, and for so quickly returning to the greed and abuse that precipitated the crisis.

Stoking anger at the banks is not only justified, it is politically important and beneficial. But the variety of demands hint at the problem of organizing that anger. It’s often hard to educate people about important but complex initiatives–like reforming the Fed or regulating derivatives–or to link those reforms to their personal experiences.

Other reforms–like judicial modification of mortgages–make sense to people facing foreclosure, but may not move others to action. But it may still be possible to build an overarching movement around the idea that the banks should serve the real economy, not their own speculative greed, mobilizing constituencies on as many of the items on the broad agenda as possible.

After all, many Americans now share the sentiment of janitor Maria Guerra, now facing bank refusal to renegotiate a mortgage she co-signed with her brother-in-law, who has exhausted his unemployment benefits.

“Bankers are recovering,” Guerra told the crowd, “but what about everyone else?”

In a scathing report out Wednesday, a government watchdog blasts the Treasury Department for its handling of a $700 billion bailout program and for not adopting all of its earlier recommendations.

Special Inspector General Neil Barofsky, who is in charge of overseeing the Troubled Asset Relief Program (TARP), said Treasury’s failure to provide more details about the use of TARP funds has helped damage “the credibility of the program and of the government itself, and the anger, cynicism, and distrust created must be chalked up as one of the substantial, albeit unnecessary, costs of TARP.”

BAILOUT BACKLASH: Watchdog excoriates execution of TARP

Barofsky has made 41 recommendations to better implement the program, of which Treasury has executed 18 and partially adopted seven.

One proposal calls for Treasury to require all of the hundreds of TARP recipients to report how they use the funds, which the Treasury has applied to only three of the largest recipients —American International Group, Citigroup and Bank of America.

Barofsky also describes at least nine unimplemented proposals, saying their adoption “could help bring greater transparency to TARP and answer some of the criticisms of the program.”

Several recommendations dealt with the Making Home Affordable program, which has access to $50 billion of TARP funds.

The program’s objective is to help up to 4 million homeowners in danger of losing their homes to foreclosure obtain modified or refinanced mortgages.

Treasury has not adopted three recommendations that Barofsky’s office has made for that program. They are:

•Treasury should keep track of everyone who participates in a mortgage modification transaction and keep the information in a database. “Treasury has refused to adopt this significant anti-fraud measure designed to detect insiders who are committing large-scale fraud,” the inspector general complained. “This represents a material deficiency in the MHA anti-fraud regime.”

•To prevent fraud, Treasury should require mortgage servicers to compare the income that borrowers report on the mortgage modification application with the income they claimed when they applied for the original mortgage.

•Treasury should defer paying mortgage servicers $1,000 bonuses for making mortgage modifications until after homeowners have made a minimum number of payments following a three-month trial period for a modification.

I have a question in regard to debt. My wife and I are currently in the process of modifying our mortgage. However, as soon as we started the modification process, our credit card limit was reduced significantly. Will a mortgage modification affect our credit? If so, for how many years?

– Jes

Dear Jes,

I know how you feel. Based on detailed scientific observations over a number of years, I know that washing my car causes rain. The link between the two events seems irrefutable to me. Similarly, the link between a need to modify your mortgage and decreases in other credit lines may look like a clear case of cause and effect. Actually, I think that if you look a little deeper, you’ll find there is a bigger force at work here.

The same conditions that have caused you to need to modify your home loan are at work on your credit overall. A horrible economy, large lending losses and an uncertain future have everyone trying to insulate themselves from what I call a credit winter by tightening their belts and doing what they can to reduce risk and further losses. You are modifying your loan; bankers are cutting credit lines and raising interest rates.

Let me suggest that you find out for sure what is affecting your credit by reviewing your credit reports. You can get free copies annually from the three major credit bureaus at www.AnnualCreditReport.com. Because you are in the process of modifying your mortgage and have not completed the process, my initial reaction is your credit card limit is being reduced due to environmental issues and not because of your modification.

However, if you are modifying your mortgage because you could not make your mortgage payment and paid late once, twice or more, then your credit card limit may have been decreased due to that negative activity on your credit report.

Looking at your credit reports will tell you how your mortgage loan is being reported. The modification, once completed, may negatively affect your credit score. It all depends on how the lender reports the change. For example, if the modification is considered a new loan and your principal was decreased, the lender may report your original mortgage as “settled” or “charged off,” which would be a fairly big negative for credit scoring. But if by modifying the loan you are avoiding a foreclosure, then you are avoiding a much larger negative entry on your credit report that would be far more devastating to your credit.

If the modified loan is not considered a new or settled loan by your lender, then the only negative affect on your credit associated with the modification should be any late payments you made on the loan. I suggest that you have a chat with your loan underwriter about how he will be reporting your modification and ask for your answer in writing so there is no misunderstanding.

Should you end up with a negative entry on your report due to the modification, it’s not the end of the world. Although the negative data will stay on your credit report for seven years, it will decrease in importance with every month that passes. New positive payment information can stay on your record for much longer and will help rebuild your credit, usually in a year or two. Finally, be aware that credit may continue to tighten, meaning you will need a better credit record than usual to keep your credit lines in place. This will make saving for that rainy day or emergencies all the more important.

Good luck!

Loan modification is quite similar to mortgage refinance as both have an objective to make payments simpler for people who may be facing financial hardships. Loan modification can also be called as modified refinance. The line of difference lies in the fact that one has to get the loan refinanced in case of mortgage refinance that is look up for a new loan. In case of loan modification, one doesn’t have to look up for a new loan. Simply it is modified to make it affordable for the consumer. Loan modification is for people who have been unable to make their monthly mortgage payments due to financial hardship.

Modifying your loan? maybe debt consolidation /credit counseling can help you pay off your unsecured credit card debt and you WILL NOT need to modify your loan.

If you have a lot of credit card debt and this is why you want to modify your loan so you can make your monthly payments, you may want to consolidate your UNSECURED debts into one payment and you then may not need to modify your loan.Loan modification is not an act of kindness, it is an act in the best interest of the bank. Modification of current loan is a product of current economic condition. According to Obama’s plan “Making Home Affordable” million of homeowners get into affordable monthly mortgage payments, either by home mortgage refinance or loan modification

What debt management benefits that you might not be aware of:
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A New Horizon can help you:

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* When necessary, suggest the appropriate Financial Solution Program that fits your particular need
* Learn how to track spending, set aside money for emergencies and special occasions, and manage the repayment of your previous debts. Debt relief is just a phone call away.

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