The Foreclosure Crisis
- The foreclosure crisis is not going away any time soon. Data released in March 2010 showed the number of houses facing foreclosure rose in the 4th quarter of 2009, with households at least 90 days delinquent on their mortgages standing at 1.6 million. The number of foreclosures that quarter stood at 128,859, with an additional 38,000 owners selling in a short sale at a discounted price. (The figures are from the Office of the Comptroller of the currency, and the Office of Thrift Supervision, cited in The New York Times, March 25, 2010.) Overall 13.6% of mortgage holders were delinquent or in foreclosure in December 2009, up from 12.8% in September – the seventh consecutive quarterly rise. The number of actual foreclosures fell however by 15% as banks modified loans. The number of foreclosed homes held by banks rose 4.6% in January 2010, from 617,286 to 645,800, en route to an estimated 2010 peak of 733,000 by April. That number had first peaked in November 2008 at 845,000. (The Wall Street Journal, March 19, 2010). Minority populations were particularly hard hit. Homeownership rates for Asians fell 1.2% in 2008, as against a fall of 0.8% among Latinos and o.4% among whites. (data from Rep. Mike Honda posted on The Huffington Post, April 2, 2010)
- House construction continued to fall in the first quarter of 2010, slowed by the glut of already available houses; and house prices fell too – the February 2010 fall being the fifth monthly fall in a row. ‘According to the Case-Schiller data, average US home prices in February were near levels of the second half of 2003. The 20-city index was down 30.3% from its mid-2006 peak.” (The Wall Street Journal, April 28, 2010). House sales spiked in March – new single-family house sales rose 27% – as first time buyers rushed to take advantage of the soon expiring tax credit.
- Elizabeth Warren, head of the Congressional Oversight Panel, issued a stinging report in April on the failure of the Obama administration to get to full grips with the crisis. She reported that 167,000 people had been helped with their mortgage in the previous 15 months, a period in which foreclosures were averaging 200,000 a month: ‘the…flagship mortgage aid program lags well behind the foreclosure crisis and leaves consumers strapped with high levels of debt.” Through March 2010, 231,000 homeowners had completed loan modifications – just 21% of the 1.2 million borrowers who initially entered the program.
- Moral hazard issues and bank resistance continued to slow down the administration’s response. “We cannot help those who simply bought a home they could not afford”, a Treasury spokeswoman was quoted in April (AP, April 14, 2010); and certainly second mortgages – about 10% of total mortgage debt but possibly 50% of all troubled mortgages – did (and does still) complicate assistance efforts. They are mainly held by just a few financial institutions – of the $840 billion home-equity loans outstanding, Bank of America has about $147 billion, Wells Fargo $124 billion, JPMorgan Chase $118 billion and Citigroup $43 billion. (Data in The Washington Post, March 27, 2010) Policy aimed at persuading banks to write those loans off would hit these 4 key financial players hardest; which is perhaps why David Lowman of JPMorgan Chase was so explicit before the House Financial Services Committee on April 12, 2010, that “principal reduction could reward households for consuming more than they can afford, might punish future homeowners by raising the costs of borrowing, and in any case was simply unworkable.” (cited in The New York Times, April 13, 2010)
- The Federal Reserve announced in March its intention to stop buying mortgage-backed securities at the end of the month – it has $1.25 trillion worth of them – but is prepared to resume purchases if private money is slow to take up the slack. Meanwhile the treasury issued a seven-item questionnaire on the future of Fannie Mae and Freddie Mac, which collectively have now absorbed $125 billion in taxpayer aid to stay afloat.
David Coates holds the Worrell Chair in Anglo-American Studies at Wake Forest University. He is the author of Answering Back: Liberal Responses to Conservative Arguments, New York: Continuum Books, 2010.
He writes here in a personal capacity.