America’s foreclosure crisis has been over for more than a year, if it ever really existed. But the government/activist/media blob is still trying to convince the public that there is an epidemic of bad borrowers who need public relief.
At Harvard Law School, a student group called Project No One Leaves recently concluded its fourth annual conference aimed at creating what one attendee called “a multi-faceted, national housing justice alliance.”
Milwaukee mayor Tom Barrett recently gave $200,000 to a community organization called ACTS Housing to fight the foreclosure crisis by buying up bank-owned properties — even as the number of new foreclosure starts in the Badger State continues dropping by double-digit percentages.
According to Treasury Department official Christy Romero, the Obama administration’s $30 billion Home Affordable Modification Program (HAMP) — which has already spent more than $11 billion of taxpayer money on “principal reduction” refinances — needs to be extended to prevent any hiccups in the inflation of house prices.
“Will Treasury help [bad borrowers] get back on their feet in the same way it helped the banks get back on their feet?” Romero, special inspector general for the Troubled Asset Relief Program, asked the Washington Post in March.
The Post also seized on another constant feature of the HAMP – that it has always been a magnet for swindles, fraud, redefaults on modified loans, and other forms of deadbeating — to argue that the “foreclosure crisis is still burning years after the housing crisis ended.”
In fact, the rates of foreclosure sales and new foreclosure-processing starts are the lowest they have been since 2007, according to HOPE NOW. CoreLogic’s most recent equity report shows that 6.5 million homes — 13.3 percent of all homes — had negative equity (i.e., the borrower owes more than the house is worth) in the fourth quarter of 2013. That compares with 11.1 million underwater homes — or 23.1 percent of all U.S. houses — in the fourth quarter of 2010.
This recovery is also evident in the Office of the Comptroller of the Currency’s Mortgage Metrics Report, which has shown a steady decline in new defaults. Interestingly, the fourth-quarter Mortgage Metrics Report showed a substantial uptick in redefaults — in which deadbeats go deadbeat again after negotiating new loans — but that’s after several years of sharp decline in the repeat-delinquency rate.
“Overall delinquencies are way down,” says Christopher Thornberg, founding partner of Los Angeles–based Beacon Economics. “Mortgage conversions — which are current mortgages going delinquent — are way down. . . . We’re seeing a housing market that’s bouncing forward.”
The drop in delinquency by mortgage borrowers has been in progress for several years now. The reinflation of the real-estate market has removed much of the incentive to go bad on a mortgage. It is also notable that the supposedly catastrophic spike in mortgage foreclosures peaked at only about 10 percent of all U.S. home loans. Roughly nine out of every ten American homeowners preferred to stay current on their mortgages even when underwater rates were much higher. And Thornberg notes that they don’t have much pity to spare for people who chose to default.
“For all the populist rhetoric, the vast majority of Americans didn’t have a lot of sympathy for these people,” Thornberg tells National Review Online. “It made good press. I think of [Senator Elizabeth Warren (D., Mass.)]. But now you’re dealing with a situation where the housing market has come bounding back. And so it’s hard to make the argument that the high rate of foreclosures crashed the market; it was the other way around. Foreclosures were a symptom of the market crash.”
Supporting Thornberg’s claim is that negative equity correlates with mortgage delinquency far more clearly and consistently than any other explanation — job loss, illness, interest-rate adjustment, among others — advanced during the real-estate price correction that began in 2006 and continued through the early part of this decade. Moral concerns aside, going bad on an underwater mortgage is a rational choice in which the benefits in many cases outweigh the costs.
Market intervention by the Bush and Obama administrations (both of which supported and pursued less interventionist policies than the ones proposed by 2008 Republican presidential challenger John McCain) distorted this calculus, but in the wrong direction. Programs like HAMP made it more attractive to go bad on a loan, in hope of a bailout, a refinance at a lower rate, or just more time. Patterns of behavior at the margins reflected this distortion.
Thornberg says the recent spike in the rate of redefaults noted above is a holdover effect of this kind of tinkering with the market. These late spikes are occurring as federal interventions, as well as state and local efforts such as California’s “Homeowner Bill of Rights,” run their course.
“HAMP: That’s what’s causing the recidivism rate to climb,” he tells NRO. “If you’re underwater on a house, you go through the modification process basically so you can get a year of free rent.”
One thing is certain: The public-policy push for loan modifications has created such a lawless environment that Wikipedia’s entry on HAMP breaks out a special section on “Proliferation of scams from companies claiming to offer loan modifications.”
Recent news articles that come up on a Google News search for “loan modification” include:
These cons are not surprising, but they are part and parcel of the bad citizenship programs like HAMP set out to reward. Failing to pay back money you borrowed is, in all but a catastrophic handful of cases, a willful decision; and the moral calculus of that decision is the same whether the money was loaned to you by a gigantibank, a relative, or a child.
The good news is that 90 percent of us take that moral point seriously. The bad news is that we’re still being forced to give money to the other 10 percent.