ECONOMY– The Forgotten Foreclosure Crisis
August 09, 2010, 2:00am

The economic meltdown of 2008 grew out of a foreclosure crisis, as Wall Street banks drove lenders to make loans that were then securitized and sold around the world, in an unregulated slew of credit products. This inflated a housing bubble that, when it burst, severely damaged an already weak economy, sent millions of homeowners into foreclosure, and put millions more out of work, leading to even more foreclosures as unemployed workers began to miss mortgage payments. Many homeowners who were able to stay in their homes now find themselves underwater — owing more on their mortgage than their home is currently worth. But so far, the foreclosure prevention efforts undertaken by Congress and the Obama administration, while well-intentioned, have failed to produce widespread results. This not only hurts homeowners but undermines economic recovery. Proposals for a variety of more aggressive, and potentially more effective, measures have so far not been taken up, as the programs unveiled have often lagged behind the heart of the problem. According to analysts at Morgan Stanley, “Without more intervention, the housing market will continue its ‘slow motion’ adjustment that will continue to inhibit economic growth and drag down consumer spending.” “It’s certainly a weight on the economy,” said Mark Zandi, chief economist at Moody’s “Nothing works all that well in the economy when house prices are falling.”

FORECLOSURES RISE WITH UNEMPLOYMENT: Nearly three million homeowners received at least one foreclosure filing in 2009. As of July 2010, one in seven mortgages is delinquent or in foreclosure. According to the Mortgage Bankers Association, one in 10 homeowners missed at least one mortgage payment between January and March, which is an all-time record and a 9.1 percent increase from last year. The number of homes foreclosed upon set a record for a second consecutive month in May, while banks had an inventory of approximately 1.1 million foreclosed homes as of March. According to the latest report from Realty Trac, foreclosures rose in 75 percent of the country’s metro areas during the first half of this year, and about 3.5 million homeowners have stopped paying their mortgages, but have yet to be foreclosed upon. “We’re not going to see real price appreciation probably until 2013,” said Realty Trac Senior Vice President Rick Sharga. “We don’t see a double dip in housing but we think it’s going to be a long painful recovery for the next three years.” And while subprime loans drove foreclosures early in the crisis, now high unemployment is the culprit behind missed payments. “Look at a place like Salt Lake City,” said Sharga. “The foreclosure rise there appears to be entirely related to the economy.” At the same time, almost 25 percent of homeowners are underwater.

HAMP DISAPPOINTS: The Obama administration’s signature foreclosure prevention program — the Home Affordable Modification Program (HAMP) — was meant to keep 3 to 4 million troubled borrowers in their homes by lowering their mortgage payments to a sustainable level. However, according to the latest data, fewer than 400,000 borrowers have received a permanent mortgage modification, while more than 500,000, 40 percent of the total, have dropped out of the program. As the Huffington Post’s Shahien Nasiripour and Arthur Delaney laid out, HAMP “has fallen short of its goals — rather than significantly and permanently reducing home foreclosures, it is only delaying them,” as borrowers make lower payments for a few months but ultimately get dropped from the program. “HAMP has not put an appreciable dent in foreclosure filings,” noted a report from the Special Inspector General for TARP, the program that funds HAMP. “Foreclosure filings have increased dramatically while HAMP has been in place, with permanent modifications constituting just a few drops in an ocean of foreclosure filings.” HAMP’s problems stem from banks’ inability to process enrollments in a timely manner and a lack of incentive for banks to ensure that borrowers successfully complete the program. So far, only $250 million of the $50 billion available for HAMP has been spent.

TAKING SMALL STEPS: The Treasury Department has acknowledged that HAMP has shortcomings and has launched new measures in an attempt to deal with the realities of today’s housing crisis. Last week, it announced, “As many as 50,000 struggling homeowners in five U.S. states with high unemployment may receive help from a special $600 million federal fund,” called the “Hardest Hit fund,” which will “help unemployed or under-employed people keep up with their mortgage payments…[and] try to assist homeowners who are facing negative equity by reducing the principal of loans that they owe.” The Department of Housing and Urban Development has also announced $79 million in grants for foreclosure mitigation. These initiatives, while aimed at the right outcomes (as only 0.1 percent of HAMP modifications actually lower loan principle), are, as Firedoglake’s David Dayen noted, “not nearly enough to deal with the scale of the problem.” “Maybe with several of these droplets, you can actually start to fill the ocean,” he wrote. “But $79 million, while helpful to a targeted set of families, isn’t going to solve this mess.” Last week, the Cleveland Federal Reserve Bank released research showing that the implementation of judicial loan modification — known as “cram down” — is a good way to incentivize private loan modifications. Legislation giving judges the ability to modify mortgages in bankruptcy has come up for a vote in Congress multiple times, but has yet to become law.

Under the Radar

ECONOMY — DEFICIT FRAUDS BOEHNER AND PENCE CAN’T ANSWER HOW TAX CUTS FOR WEALTHY WILL BE PAID FOR: Yesterday on NBC’s Meet the Press, House Republican leaders John Boehner (R-OH) and Mike Pence (R-IN) had a tough time answering host David Gregory’s questions about how they would pay for extending the Bush tax cuts for the wealthy. Gregory asked Boehner to respond to former Fed Chairman Alan Greenspan, who said last week that extending the tax cuts without offsets would be “disastrous” and that they do not pay for themselves. “The only way we’re going to get our economy going again…is to get the economy moving,” was all Boehner could muster in response. When Gregory repeatedly pushed Boehner on whether the tax cuts were paid for, the Minority Leader could not answer directly, replying “I am not for raising taxes,” and “what you’re trying to do is get into this Washington game and their funny accounting over there.” Later in the program, when asked how touting spending discipline and extending the tax cuts that aren’t paid for is “a consistent and credible message,” Pence also struggled to answer, responding, “I understand the credibility problem” and “I don’t acknowledge that” the tax cut extension is not paid for because “it’s apples to oranges.” The reality is that extending the Bush tax cuts for the wealthy will cost $830 billion over the next 10 years. But many conservatives — who have made bringing down the deficit one of their signature issues — are deficit peacocks who are proving that they neither know nor care how they will pay for them.

Think Fast

The current death toll in Pakistan’s ongoing flooding is estimated at 1,600 people. As of Sunday, the impact is reported to have affected more than 15 million people. The U.N. said Monday that the number affected could exceed that of the 2004 Tsunami, 2005 Kashmir earthquake, and 2010 Haiti earthquake combined.

“A piece of ice four times the size of Manhattan has broken away from an ice shelf in Greenland,” American scientists are now reporting. The ice island, which is 100 square miles in size, broke off from the Petermann Glacier Thursday.

Although the Obama administration has deported “a record number of immigrants convicted of crimes,” it is sparing “students who came to the United States without papers when they were children.” Immigration and Customs Enforcement head John Morton said that with limited resources, the agency’s “time is better spent on someone who is here unlawfully and is committing crimes in the neighborhood.”

Social Security “is facing a rare shortfall this year as more people opt to collect payments before their full retirement age.” The safety net is also facing strain from reduced tax collections due to high unemployment. “More people filed for Social Security in 2009 — 2.74 million — than in any year in history.”

White House energy adviser Carol Browner said on NBC’s “Meet the Press” yesterday that it “makes a lot of sense” that a large portion of any monetary penalties BP pays for its oil disaster are given to Gulf states affected by the spill. Many “Gulf-area politicians have suggested that 80 percent of the money be returned to the states affected by the worst oil spill in U.S. history.”

Letitia “Tish” Long becomes “the first woman to head a major intelligence agency” today when she takes over as director of the National Geospatial-Intelligence Agency (NGA), “the office responsible for collecting and analyzing overhead imagery and geospatial information.” Former CIA deputy director John McLaughlin said that having a woman heading a major intelligence agency “is a long overdue step.”

Tea party activists are “concerned” that their movement is running out of money, thanks to a “deep ambivalence within the movement’s grassroots over the very idea of fundraising,” and an “inability to win over the wealthy donors who fund the conservative establishment.” Many groups have “failed to live up” to their fundraising goals, while others are funded by their founders’ personal bank accounts.

Multiple bombings and shootings this weekend across Iraq left 69 people dead, intensifying fears of escalated violence as the August 31 deadline for U.S. troop drawdown approaches. Many Iraqis attribute the violence to “political gridlock that has failed to produce a new government” five months after the March national elections.

In a New York Times op-ed today, Paul Krugman noted that, due to state and local budget deficits, “basic government functions” like streetlights and paved roads “are no longer affordable.” Because “a large part of our political class” is prioritizing “tax cuts for the very affluent, at a budget cost of $700 billion over the next decade,” they are allowing the “nation’s foundations to crumble.”

And finally: Things got “awkward” when musician and Haitian presidential candidate Wyclef Jean got CNN host Wolf Blitzer to speak creole on live TV. There was a “call-and-response in creole between Jean and Blitzer,” followed by Wyclef saying, “Alright Wolf, you my man, we love you in Haiti.”

Blog Watch

Rep. Paul Ryan’s (R-WI) plan to balance the budget doesn’t balance the budget.

Same-sex marriage and the role of the state.

How TARP and the stimulus reduced the deficit.

Climate change denier Lord Monckton likes to make things up.

The irony of Liz Cheney.

U.S. troops can’t read WikiLeaks.

The rift on the right.


Daily Grill

“There is not conclusive evidence to suggest that children who grow up with two moms or two dads fare as well as children who grow up with a mom and a dad.”
— Family Research Council President Tony Perkins, 8/08/10


“Research indicates that optimal development for children is based not on the sexual orientation of the parents.”
— The American Psychiatric Association, 11/01/02