Housing Crisis

A few weeks ago we wrote about a small study indicating that health costs had contributed to the mortgage meltdown which in turn has wrought havoc with the entire global economy; it found that 49 percent of foreclosures had a health-spending factor (and keep in mind that people miss work or lose their job—and their insurance—when they or a family member become seriously ill) Today's Wall Street Journal takes a look at people squeezed between paying for medical bills or the mortgage. The Journal didn't come up with a firm number of how many foreclosures are health related—except that it's a lot.

Just how many people are being forced to choose between home and health care is hard to tell. Freddie Mac, the big government-sponsored home-loan investor, says illness appears to be a growing reason homeowners with some of the company's 12 million mortgages are falling behind in payments. Illness was the chief cause for 15% of Freddie Mac's delinquencies in the first half of this year, behind such reasons as loss of income and too much debt. Although that percentage is down from previous years, the actual numbers are higher because more people are delinquent on their loans.

 

 

 

 

Fannie Mae found itself on the front pages once again this week with the news that it lost $29 billion in the third quarter of 2008. Scarier still, Fannie's net worth, which was $44 billion at the end of 2007, now stands at a paltry $9.4 billion.

It has been over two months since Fannie and Freddie were seized by Federal regulators and put into conservatorship. Many of us are wondering, simply, what has happened since? Have they been more active in dealing with the continuing struggles in the housing market? Are regulators upbeat about the future of the mortgage giants?

On Thursday, November 13th from 3:30 pm to 5pm, the Asset Building program looks to find some answers to these questions. We are pleased to welcome Jim Lockhart, Director and Chairman of the Oversight Board, Federal Housing Finance Agency-- the entity that is overseeing Fannie and Freddie-- to discuss this pressing topic. Joining him will be Barry Zigas (Director of Housing Policy, Consumer Federation of America), Gregory Baer (Deputy General Counsel, Regulatory and Public Policy, Bank of America), Ellen Seidman (Director, Financial Services Policy, Asset Building Program), and Maya MacGuineas (President, Committee for a Responsible Federal Budget and Director, Fiscal Policy Program, New America Foundation).

We hope you join us for what certainly will be a lively and informative discussion. Click here to RSVP.

To piggyback off my colleague David’s thoughts on older Americans and the mortgage mess, I believe the new AARP study provides an impetus for a national conversation about automatic savings as well as flexible savings.

The study indicates that the foreclosure rate for those aged 50 and older whose mortgage exceeds their home value is twofold the national average. I’ll leave it to my more seasoned and brilliant colleagues to muse about and craft solutions that help those in trouble now, but I do maintain that our long-term asset-building goals should remain at the fore. While the importance of fixing our regulatory structure and re-thinking the way we do business in the housing arena cannot be overstated, I feel that we can focus on proactive solutions that allow for greater financial stability in those age groups that are, unfortunately, disproportionately affected by this calamity.

Despite falling prices, liquidity may be returning to California's housing market. June's unsold inventory index for existing homes in California dropped to 7.7 months, a decline from 10.2 months last year. Sales across the state rose for the third consecutive month to gain 18% from last year as deep discounts on foreclosed properties enticed buyers into the market. In the Sacramento region, one of the hardest hit markets in the nation, sales rose 95% year on year.

Snapshot asks, is this increase in liquidity in the housing market a sign that the market will soon bottom?

Wall Street Journal - Home-Price Declines Accelerate
Sacramento Business Journal - Home sales up, inventory index down statewide
Contra Costa Times - Resets Begin Peaking on Subprime Loans

Democracy Arsenal (07/08) cites Parag Khanna on the rise of the E.U.
The Las Vegas Sun (07/07) quotes Sherle Scwhenninger on the dire state of the housing market.
New York Times (07/07) features Michael Cohen discussing Obama's stance on patriotism.
Washington Post (07/06) quotes Peter Bergen on Al Qaeda's continuing decline.
Sify (07/02) features Jeffrey Lewis analyzing India's nuclear strategy.

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

Some are questioning whether the US is in a recession. Job losses last week were less than expected at -20,000. Many expected between -75,000 and -80,000. The stock market has rallied and the Dow Jones Industrial Average broke through the 13,000 mark last week. The Federal Reserve cut interest rates by 25bp but two members of the FOMC dissented. Richard Fisher, president of the Dallas Fed, and Charles Plosser, president of the Philadelphia Fed, argued there was no need for a cut. Despite a blip of positive news, the prospects for the U.S. housing market and American consumer are likely to continue to drag on the economy. For a graphic representation of how damaged the US housing market is, see Ben S. Bernanke's Mortgage Delinquencies and Foreclosures.

Snapshot asks, if this recession is led by falling housing prices and damaged consumers, when will it be worst?

The Conference Board's consumer confidence index fell again to 62.3 from 65.9 in March. The index was dragged down by the present situation index, which measures consumers' assessment of current economic conditions. Housing data also weighed on the economic outlook. Home prices from the largest urban areas around the country fell 13.6% in February from prices a year earlier. Given the slowing consumer and the rapidly declining housing prices, economists fear a "negative feedback loop," in which consumers, hurt by deteriorating house prices and poor consumer credit conditions, buy less and damage corporate profits.

Snapshot asks, will the struggling consumer keep the U.S. in a prolonged recession?

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.