Foreclosures

James Lockhart, Director and Chairman of the Oversight Board at the Federal Housing Finance Agency (the entity overseeing Fannie Mae and Freddie Mac) joined Ellen Seidman to discuss the conservatorship of Fannie and Freddie. The interview followed an event, "Foreclosures: What are Fannie and Freddie Doing to Stem the Tide?" on November 13.

Before I get on the plane tomorrow, here's a few short items that I missed this week.

THE UNINTENDED CONSEQUENCES OF OPEN PRIMARY: Under Washington state's "top two" open primary law, candidates are permitted to list their own party preference on the ballot. But Democrats, believing that the Republican gubernatorial nominee is obscuring his unpopular party affiliation with a ballot reference to GOP, went to court to demand that the Republican be listed as a Republican.

VOTING OF THE FORECLOSED: In the most important political story of the week not related to the Wall Street bailout, there are signs that voters who lost their homes to foreclosure and haven't changed their address on voter registration documents may be systematically challenged at the polls -- to prevent them from voting -- by Republican operatives.

USDA ADS STOPPED: The U.S. Department of Agriculture had been running ads that seemed designed to oppose Prop. 2, the California ballot initiative to regulate how farm animals are confined. This week, a federal judge told the agency that, as a government agency, it couldn't take sides in a campaign.

This afternoon FDIC Chairman Sheila Bair and her team took the next important step in making good on their promise to treat borrowers whose loans are held or serviced by IndyMac as the Chairman has urged other banks to treat their borrowers. Simply put, the FDIC announced a blanket loan modification program, under which the loans of borrowers in default or having trouble making their mortgage payments will be automatically modified into fixed rate loans whose terms will be set so that housing debt consumes no more than 38% of the borrower's income.

The ongoing foreclosure crisis-foreclosures were up 65% in April from the April 2007 level and are undoubtedly headed higher, as house prices declined a record 14.1% in the first quarter from the first quarter of 2007-is teaching us a lot about the losses that extend beyond the loss of a house.

Take the community losses. Here are just a few examples. The Center for Responsible Lending estimates that each foreclosed property costs the jurisdiction in which it is located almost $20,000 in lost tax revenue and other related costs. Property values for houses near foreclosed properties will decline by almost $202 billion.

Housing prices continued their downward slide in April with a monthly decrease of 2.2%, a decline of 14.4% from last year's levels. In an unexpected twist, monthly home sales actually rose by 3.3%. Some optimists see this as an indication that the market is nearing its bottom and beginning to work its way through a massive glut of unsold homes as sellers cut their overvalued asking prices and buyers open their wallets to bargains. Others point to worsening consumer confidence and tighter lending requirements as evidence that April's sales figures were a statistical blip in a market that has much further to fall.

Snapshot asks, to what degree will further credit turmoil stop buyers from clearing the housing market?

Wall Street Journal - Home Sales Rise in Hard-Hit Areas
Bloomberg.com - U.S. Home-Price Index Fell 14.4% in March
Washington Post - Existing Home Sales Rise as Prices Plummet
New York Times - Home sales post unexpected April increase
Yahoo News - Home sales unexpectedly rise in April

With the drama playing out in the Senate about whether a bill responding to the mortgage crisis as well as enhancing regulation of Fannie Mae and Freddie Mac will get out of the Banking Committee with enough Republican support to both pass and avoid a veto, a Washingtonian might be forgiven for not paying attention to what's going on in the states. (Some wonder whether we ever do.) But in fact, there is a good deal of action-as well as frustration at the lack of activity inside the Beltway.

FDIC Chairman Sheila Bair has struck again-with yet another creative response to the ongoing mortgage crisis. Chairman Bair has a history of being ahead of just about everyone else in Washington with proposals to respond to the crisis in a manner that is doable and fair. This time it's the Home Ownership Preservation or HOP loan, and the FDIC estimates about one million loans-make that one million homeowners in trouble-might be eligible.

With a sense of irony and amazement that Congress actually might be getting the housing mess right, Sebastian Mallaby's column in today's Washington Post hits the nail on the head. It's interesting that it took a writer whose major beat is international economics to see the point about negative externalities and the collective public good. As several of us, through many forums--I've been working with the Center for American Progress on the Save America's Family Equity or SAFE proposal--have been saying for months, this is not a matter of bailing out either borrowers or lenders or of preventing house prices from falling. This is a matter of cushioning the blow for all the rest of us--the communities that will pay dearly from declining tax revenues and increased demand for services; the homeowners whose mortgages are long-since paid off or who have been paying faithfully and can and will continue to do so; the renters who have lost their homes because their landlord can't afford to pay the mortgage any more.

Mallaby points to the positive steps Congress is taking to enable loan servicers to sell or refinance their loans after taking a substantial haircut and to enable borrowers to get new loans that they can support--with upside to the government to compensate for taking the risk. I wish he'd included the proposal outlined in Congressman Frank's bill for bulk transfers of loans, because I believe that ultimately that will be necessary. But the essential points are there. As is the point that the tax giveaways in the Senate's "housing" bill are outrageous.