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How bad is the housing situation?


Really bad, at least if you believe new data out of the Mortgage Banker's Association. One in every 10 mortgage holders is now officially "delinquent" -- that is to say, late on at least one payment. That's an all-time high. And that's not the only record we're setting: About one in 20 loans is now in foreclosure, which also qualifies as a first. All in all, about 15 percent of mortgage-holders are now delinquent or in foreclosure.

Also worrying is where the problems are cropping up. The problem, at least until recently, was largely concentrated in Florida, Arizona, Nevada, and California . But now we're seeing other states move into the lead: "Washington, Maryland, Oregon, and Georgia showed the greatest overall increases in foreclosures started compared to last quarter,” reports the MBA.

It's a reminder, if nothing else, that the trigger for the financial crisis was the realization that homeowners were going to begin defaulting in record numbers and the assets based on their future payments were not safe. It was not the realization that that had already happened. Instead, it's happening now. So though the financial crisis seems to have largely played itself out, the housing crisis isn't anywhere near its end.

Photo credit: David Zalubowski/AP.

By Ezra Klein  |  May 19, 2010; 1:36 PM ET
Categories:  Housing Crisis  
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I think the TARP and other bailout money would have been better spent paying off large portions of these mortgages [something a bit more sophisticated that accomplishes the same thing would be preferable I'm sure]. Of course, it's easier to look like you're being strong armed by the banks into providing bailouts that payoff incompetent bankers than to voluntarily help duped homeowners in a way that would actually improve the market value of houses and mortgage assets while keeping people in there homes.

Posted by: bcbulger | May 19, 2010 2:08 PM | Report abuse

I never understood why the govt didn't just buy out the mortgages and rent back the properties to the occupants and sell the houses off slowly over a few years to keep them from depressing the housing market so quickly. Why pay the speculators who bet of CDSs and CDOs and allow the houses to go into foreclosure. Wall st speculators get rich...Oh wait....

Posted by: srw3 | May 19, 2010 2:21 PM | Report abuse

One thing Euro issue tells us is that no matter how much we try to push a problem under the 'carpet' things don't improve.

Geithner has been the guy who basically sided with Banks when it came to loan modification stuff. No wonder, today he is the same guy who will be getting the gift from Dodd when it comes to allow banks to continue the derivative business. Some things never change....

We kind of ignored the housing story because we thought as economy picks up employment would improve which will start to give some boost to housing. For a while things indeed proceeded along that scripted story line. However, with Euro going to dumpers, our own recovery is solidly challenged which in turn puts a break on employment (Pfizer firing 6K people..) and which in turn drags down housing further. Tax credit stop is exasperating this housing drop too. I could never understand why Congress did not do phasing out of Tax credits rather than a sudden stop since gradual decrease would have helped to dampen the impact.

Posted by: umesh409 | May 19, 2010 2:37 PM | Report abuse

The problem is / was that those house's were never worth the price's that were being paid for them.

Posted by: obrier2 | May 19, 2010 2:52 PM | Report abuse

No surprise. The wave of mortgage delinquencies is working its way up the pre-2007 credit score ladder. The first to fall were the subprime borrowers. Then those with better credit scores who couldn't refinance their floating rate mortgages to fixed interest rate loans during the credit crunch. Now delinquencies and foreclosures are hitting those with (formerly) good credit scores who have lost their jobs or are making less money. Some are apparently making a business decision to walk away from hopelessly underwater homes.

This recent wave comes down to employment. 10% unemployment in the US and that's the OFFICIAL unemployment rate. Everyone knows that the official rate understates true unemployment. It's time for an FDR-style works program or a '70s CETA job training program. Actually the time for this was last year as part of the economic stimulus program. Obama would have been pilloried for expanding government employment but it would have been highly visible and have had a measurable economic impact as opposed to the nearly invisible impact now of the 2009 stimulus package.

Posted by: tuber | May 19, 2010 3:46 PM | Report abuse

obrier is right. Phantom equity is fools gold. But we've been through this all before. Its hypocritical to post all this Ezra without also stating that the Fed is responsible for the start of this (during the Bush administration) and continuing it now. Let interest rates rise like the markets would be doing now otherwise all you're doing is reinflating the bubble and instead of say 5 million homeowners out on the street in a couple years you'll have twice that.


if they can't afford their mortgage payment what makes anyone think they can afford a rent payment unless its highly subsidized. Should we do that for people that over-extended themselves? Who then becomes the judge and jury on that one?

as to the extent of the market it is bad. I'm looking right now to possibly move and in NJ there are a LOT of homes in pre-foreclosure as well as in foreclosure. It also stretches over all size home markets. Its not a pretty picture and about to get much worse I fear.

And then we have the commercial market sector which is about to pop. Anyone think to look around and see the vacancy rates among commercial properties? Its at its highest too.

Posted by: visionbrkr | May 19, 2010 3:48 PM | Report abuse

The clean solution to this would have been to pass bankruptcy mortgage modification reform (aka "cramdown") at the same time that TARP was passed. This would have been the stick to get the banks to agree to mortgage modifications either voluntarily or by judicial order. The losses to the banks would have been backstopped by the TARP money they were given to maintain their required capital reserves.

Instead, the banks paid back the TARP money as soon as possible so they could resume their previous compensation/bonus structures. They still have numerous bad assets on their books that they haven't written down (thus there is ongoing risk to their capital requirements and "fragility" in the financial markets) and the mortgage crisis is being dragged out much longer than was necessary because the Federal government's alternative solutions prevent the real estate market from clearing.

Bottom line: The banks need to eat their losses.

Posted by: jnc4p | May 19, 2010 5:53 PM | Report abuse

Let's face it. Obama has done nothing to address the problem. When he was running for President he said he would support cramdown legislation and he said he would allow people to withdraw from their 401ks, without penalty, to save their houses. He let the cramdown legislation die and has said nothing about 401k withdrawals. His plan announced in March 09 was an absolute failure, and his new plan is just as bad.
The solution he seems to have come up with is to just let the problem work itself out (translation: let the foreclosures continue). While a large percentage of the foreclosures are attributable to a decrease in income, the fact is that in many parts of the country homeowners are significantly "under water" on their loans, and it makes no financial sense to stay in a home worth 50% of what you owe (which is the case with many homes in the Sacramento area; it's worse in Las Vegas). In the area I live, there are literally thousands of homes that sold for between $500-800k that simply are not going to sell for anywhere near that amount. So unless you put a huge amount down, you can either pay your $4,000 a month mortgage, or short sell, rent a similar house for $2,000, and wait for 2-3 years to get another loan. If you do, you'll get the same house for half the price. It's called strategic default. Business do it all the time, and so should homeowners.

Posted by: demichae | May 19, 2010 8:14 PM | Report abuse

There are a variety of options available for those who are behind or falling behind on their mortgage payments. Determining what is realistic for your situation is your first step. You may qualify for one of the options available and still keep your home.
Loan Modifications
Principal Reduction

Posted by: racingdrew | May 19, 2010 8:39 PM | Report abuse

"I think the TARP and other bailout money would have been better spent paying off large portions of these mortgages"

Or converting every subprime and adjustable rate mortgage to a fixed rate mortgage (while pay little or nothing to the bank in the way of fees for the conversion). Pay off some, but so many of the mortgages could be serviced, even by their poor-credit mortgagees, if only the banks didn't arbitrarily balloon their payments because projections for these huge profits on balloon mortgages looked good when you were booking profits 15 years ahead of time.

Posted by: Kevin_Willis | May 20, 2010 9:17 AM | Report abuse

good idea, Kevin Willis, May 20.
here in Orlando many of us are sitting on 2005-2007 mtgs. that are way underwater but for homes we want to keep.
but we are ALSO stuck at boom time mtg. interest rates which the banks refuse to refi.
I have a 30-yr. fixed mtg. for 1.5% higher than today's prevailing rates. "Letting" me continue to pay the nut, which I am willing to try to do, with this slight adjustment, to current rates, would still enrich them while preventing a foreclosure.
Or, I can walk (and eat the $155k down I made) and they can sell to someone @ half what I paid. They will then have a lower monthly payment coming in at a lower interest rate.
And my community will suffer with much, much less property tax being paid for schools, police, fire and so on.
Why is there no outcry that the banks' greed - to keep inflated mtgs. in place at puffed-up interest rates - is silently accepted by the duped Treasury officials, who continue to prattle about "help" for homeowners.
Any program that helps fewer than 3% of the intended recipients is on its face a failure.
Thanks. This is change I can believe in??

Posted by: FloridaChick | May 21, 2010 11:14 AM | Report abuse

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