There a many reasons why 2010 will go down as a record year, the amount of oil spilled, the historic legislation that was passed, the hottest average temperatures ever observed in the US. All these will be indicators of a year that in the words of the ancient Chinese curse were “interesting times”. This morning we have another looming on the horizon. So far this year foreclosures are running at 10 times their average.
In any given year in the United States there are around 100,000 foreclosures. This year Reality Track, the folks who keep track of the numbers of foreclosed houses, says that there have been 528,000 foreclosures so far, if this pace continues then the end of 2010 will see one million family homes foreclosed on.
"Originally posted at Squarestate.net"
This is another clear sign that the economy has not recovered. The foreclosed homes will eventually be put on the market, where they will increase the supply and decrease the price of homes in their neighborhoods. If it were just a few neighborhoods, we might be able to shrug and look the other way, but the reality is that we are talking about a significant number of the total privately owned homes in the U.S. being repossessed by the banks.
There are approximately 75 million privately owned homes in the U.S. That means this year 1.33% of all homes will be foreclosed on. This level of foreclosure is not just limited to people who took advantage (or were taken advantage of by) criminally lax lending standards, the new crop of foreclosures is predominately from folks with fixed interest 30 year mortgages.
The efforts of the Obama Administration to stave off this crisis through mortgage modification have been stymied by the banks unwillingness to embrace the idea. Having a little experience with mortgage modification myself, I can tell you that the process is Byzantine to say the least. We applied for it over six months ago. More than three time we have had to send in the same paper work or resupply the bank with information. The six month trial period is frustrating beyond belief. During this time, where you don’t know for sure that you will get a permanent modification, you have to stay absolutely current with your mortgage. One slip up and you will be denied and will have to go back to paying the original payment.
According the AP article, more than 400,000 of the 1.2 million people who have applied for mortgage modification have dropped out of the program, while about a third have managed to get the permanent modification and are paying on time.
All of this highlights the fact that we have not done enough to stimulate the economy. While we do not want to re-inflate the housing bubble with every Tom, Dick and Harriet trying to earn a quick buck by flipping houses, we must find a way to stabilize the economy and prevent this kind of financial disaster from hitting more and more of our fellow citizens.
The idea that we must cut the deficit at a time when demand in the economy is once again pointing downward is flatly nuts. The commodities bubble that sent gas prices to $4.00 a gallon and the resulting rise in all other goods, is a big part of what caused the housing bubble to fully collapse. As working people had to choose between putting food on the table and gas in the car and paying their mortgages the choice was clear. That many of these mortgages were given or taken out on the hope of a rising market or optimism about future earnings contributed, but it was the rising cost of daily living that set the avalanche in motion.
As 15 million people look for a job a more work at the one they have, this choice is being played out again. Especially with the hateful and mean spirited tactics of the Republican party have forced more than 2 million of those unemployed to lose their benefits. There are still tons and tons of securitized mortgage bundles out there. Another housing crash will cause another liquidity crisis. While there have been steps taken to prevent the spread of such a crisis they have not been systematic and there is still and enormous cliff that we can fall over.
We have missed our opportunity to combine the bankruptcy crisis with the foreclosure crisis. The idea of allowing cram down for primary homes in bankruptcy was defeated by Conserva-Dems and Republicans. This would have allowed bankruptcy judges to reduce the principal owed on a house if the owner filed bankruptcy. They would still have to pay for the home they lived in but they would have been able to pay something more like the market value of the homes, not the inflated bubble price many are stuck with now.
It would have kept people in their homes and prevented a huge glut of houses from entering the market. Sadly that ship has sailed. It is unlikely that the obstructionist Republicans will allow any kind of relief for distressed home owners through the 111th Congress. The victory of these Neo-Hooverites is likely to the defeat of our economic recovery.
In the real world some 1 million families will be ruined. They will have to move in with relatives, they will have lost the biggest asset of their lives and may never get the opportunity to rebuild that lost wealth that their house represented. Worse, from a human perspective, is the loss of stability. Not everyone bought a house as an investment, most looked at it as a place to raise their family, to build a lifetime of memories. That will be lost when they lose the physical structure. Again people who just tried to live the American dream, work a job, buy a house, raise a family are taking the hit for the reckless know-nothingism of the Republican fiscal policy.
If there is to be a silver lining we must make it clear, this economy is the Republicans fault. They made the policies that lead to the disaster and they have opposed at every turn the actions that could fix it. Worse they are saying they want to do more of the same if they are elected this cycle. They will try to extend the tax breaks to the ultra-rich at a cost of 687 billion (687,000 million) dollars. They hate the poor, they hate the unemployed and they will take it out on us if we give them the chance.
Do not give them the chance. For all the faults of the Democratic Party the choice is clear, one party will make an effort to address the problems of the nation, the other will only take steps that will make it far, far worse.
The floor is yours.