From the Associated Press:
Nearly half of the 1.3 million homeowners who enrolled in the Obama administration’s flagship mortgage-relief program have fallen out.
The program is intended to help those at risk of foreclosure by lowering their monthly mortgage payments. Friday’s report from the Treasury Department suggests the $75 billion government effort is failing to slow the tide of foreclosures in the United States, economists say…
We’re on track, according to the linked article, for 1,000,000 foreclosures in 2010 – far outstripping the 900,000 we had in 2009. But the really bad news is that we might have 1,500,000 in 2011. This will put massive downward pressure on home prices, thus putting ever more people “underwater” and that, in turn, will increase the phenomena of “strategic default” (people bailing out on homes they can afford, but which are underwater) – and so yet more downward pressure.
This is a crisis of massive proportions. Even if nothing else goes wrong with the economy, this will be enough to push us in to full-blown Depression. We need to get creative here – just modifying the payment so people are still stuck owing banks the massively over-inflated home prices of 2005 simply won’t do the trick. We have two tasks in front of us:
1. Keep as many people in their homes as possible via “cramming down” the mortgage to match current market value.
2. Get as much of the inventory off the market as possible by working out incentives for foreclosed homes to be leased for 2-5 years rather than sold.
I’ve discussed this issue here, as well as many other times over the past two years. I realize it is unfair to the people who aren’t “underwater” that some people will have their mortgages crammed down. I realize that it is, often, best to just let things take their course – but we’re facing the complete collapse of home values in the United States. The loss of that stored wealth would cripple our economy for a decade. Think of all the follow-on things which go with homes: televisions, washer/dryer units, landscaping, etc, etc, etc. Houses drop to 10% of their 2005 value, my friends, and we’re well and truly in a bad spot – and they can drop that low, and take the remainder of the economy down with them. 25% unemployment might seem like a good thing at that point.
We need to figure a way out of this – we need to both spread the pain and the benefits around. Bailing out banks has failed. Letting the market completely collapse will be ruinous (including to those of you out there who aren’t underwater or who have paid off your home…think about it: if you’ve got a paid off house worth 200,000 right now, how will you feel when its worth 100k? 50k? 20k?). We’ve got to put a floor under housing prices – we’ve got to get the massive inventory to go away, at least for a while.
Or we can just let things drift – and have a world of economic hurt. Our choice.
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