Housing Crisis

COST: Mortgages Make Risky Health Care Piggy Banks

Joanne Kenen — Tue, 25 Nov 2008 19:56:00 -0500

A few weeks ago we wrote about a small study indicating that health costs had contributed to the mortgage meltdown which in turn has wrought havoc with the entire global economy; it found that 49 percent of foreclosures had a health-spending factor (and keep in mind that people miss work or lose their job—and their insurance—when they or a family member become seriously ill) Today's Wall Street Journal takes a look at people squeezed between paying for medical bills or the mortgage. The Journal didn't come up with a firm number of how many foreclosures are health related—except that it's a lot.

Just how many people are being forced to choose between home and health care is hard to tell. Freddie Mac, the big government-sponsored home-loan investor, says illness appears to be a growing reason homeowners with some of the company's 12 million mortgages are falling behind in payments. Illness was the chief cause for 15% of Freddie Mac's delinquencies in the first half of this year, behind such reasons as loss of income and too much debt. Although that percentage is down from previous years, the actual numbers are higher because more people are delinquent on their loans.

Hospitals tend to be more willing to work out payment plans than banks; medical providers usually have to get a court order to put a lien on a home.

Consumer advocates usually advise patients that they should not refinance a mortgage or use home-equity loans to pay medical bills, but of course some people do just that when faced with persistent bill collectors. With housing prices falling, however, it's harder (and riskier) to do that. As Susan Harris, 46, told the newspaper, she was self-employed and uninsured when she was diagnosed in 2003 with liposarcoma, a type of cancer. She cashed out her retirement funds and turned them over to the hospital, qualifying for Medicaid as she spent down her assets. But she still had $26,000 in hospital bills that Medicaid didn't cover, and that amount kept growing as more bills piled up. She refinanced her home last year and paid $28,000 on medical bills. She just had yet another operation to remove cancer from her lung. But this time her house, with its falling value, can't be her medical piggy bank.

"I will once again be cancer free, but over my head in debt," she told the paper. "There's no more money in my house to mortgage it again."

Asset Building Event: What are Fannie And Freddie Doing to Stem the Tide?

Mark Huelsman — Tue, 11 Nov 2008 21:21:00 -0500

Fannie Mae found itself on the front pages once again this week with the news that i t lost $29 billion in the third quarter of 2008 . Scarier still, Fannie's net worth, which was $44 billion at the end of 2007, now stands at a paltry $9.4 billion.

It has been over two months since Fannie and Freddie were seized by Federal regulators and put into conservatorship. Many of us are wondering, simply, what has happened since? Have they been more active in dealing with the continuing struggles in the housing market? Are regulators upbeat about the future of the mortgage giants?

On Thursday, November 13th from 3:30 pm to 5pm, the Asset Building program looks to find some answers to these questions. We are pleased to welcome Jim Lockhart, Director and Chairman of the Oversight Board, Federal Housing Finance Agency-- the entity that is overseeing Fannie and Freddie-- to discuss this pressing topic. Joining him will be Barry Zigas (Director of Housing Policy, Consumer Federation of America), Gregory Baer (Deputy General Counsel, Regulatory and Public Policy, Bank of America), Ellen Seidman (Director, Financial Services Policy, Asset Building Program), and Maya MacGuineas (President, Committee for a Responsible Federal Budget and Director, Fiscal Policy Program, New America Foundation).

We hope you join us for what certainly will be a lively and informative discussion. Click here to RSVP.

Let's Have the Discussion on Savings Now

Mark Huelsman — Tue, 23 Sep 2008 17:31:00 -0400

To piggyback off my colleague David’s thoughts on older Americans and the mortgage mess, I believe the new AARP study provides an impetus for a national conversation about automatic savings as well as flexible savings.

The study indicates that the foreclosure rate for those aged 50 and older whose mortgage exceeds their home value is twofold the national average. I’ll leave it to my more seasoned and brilliant colleagues to muse about and craft solutions that help those in trouble now, but I do maintain that our long-term asset-building goals should remain at the fore. While the importance of fixing our regulatory structure and re-thinking the way we do business in the housing arena cannot be overstated, I feel that we can focus on proactive solutions that allow for greater financial stability in those age groups that are, unfortunately, disproportionately affected by this calamity.

First, we can expand the Saver’s Credit and make it refundable. This will not only help bridge the wealth gap, but could allow for greater wiggle room in retirement for lower-income seniors when it comes to financial recovery. In addition, it will provide today’s low-income workers and tomorrow’s retirees the opportunity to reap the benefits of tax-preferenced savings. Second, we can create a universal, automatic IRA for the nearly 80 million Americans who aren’t offered an employer-sponsored retirement plan. These two proposals, in tandem, could create enough of a dam of retirement security that today’s workers and tomorrow’s retirees are not washed out by the occasional (and devastating) financial crisis. Luckily, both of these ideas have been introduced in Congress and have acheived the ever-so-rare bi-partisan support.

If nothing else, this crisis also highlights the need for flexible, automatic savings. My colleagues in the Asset Building Program have developed an Autosave proposal that seems more than prescient given our current state, and provides an opportunity to save for those who would otherwise have nothing and might have to take out high-cost loans for emergencies.

The discourse of the past few days, weeks and months has centered on potential imminent action to prevent these crises from deepening. What should not be lost, however, is the need to make sure that when financial catastrophes hit, our instinct should be to make sure the most vulnerable (in this case, moderate and low-income seniors) have a little extra to stave off financial ruin in the future. That starts with savings, and it should start now.

Home Buyers Starting to Bite?

Ian McAllister — Thu, 31 Jul 2008 14:19:00 -0400

Despite falling prices, liquidity may be returning to California's housing market. June's unsold inventory index for existing homes in California dropped to 7.7 months, a decline from 10.2 months last year. Sales across the state rose for the third consecutive month to gain 18% from last year as deep discounts on foreclosed properties enticed buyers into the market. In the Sacramento region, one of the hardest hit markets in the nation, sales rose 95% year on year.

Snapshot asks, is this increase in liquidity in the housing market a sign that the market will soon bottom?

Wall Street Journal - Home-Price Declines Accelerate
Sacramento Business Journal - Home sales up, inventory index down statewide
Contra Costa Times - Resets Begin Peaking on Subprime Loans

ASP In the News | July 7-9

Ian McAllister — Wed, 09 Jul 2008 14:58:00 -0400

Democracy Arsenal (07/08) cites Parag Khanna on the rise of the E.U.
The Las Vegas Sun (07/07) quotes Sherle Scwhenninger on the dire state of the housing market.
New York Times (07/07) features Michael Cohen discussing Obama's stance on patriotism.
Washington Post (07/06) quotes Peter Bergen on Al Qaeda's continuing decline.
Sify (07/02) features Jeffrey Lewis analyzing India's nuclear strategy.

Prices Fall and Sales Rise, Light at the End of the Tunnel for Housing?

Ian McAllister — Wed, 28 May 2008 16:06:00 -0400

Housing prices continued their downward slide in April with a monthly decrease of 2.2%, a decline of 14.4% from last year's levels. In an unexpected twist, monthly home sales actually rose by 3.3%. Some optimists see this as an indication that the market is nearing its bottom and beginning to work its way through a massive glut of unsold homes as sellers cut their overvalued asking prices and buyers open their wallets to bargains. Others point to worsening consumer confidence and tighter lending requirements as evidence that April's sales figures were a statistical blip in a market that has much further to fall.

Snapshot asks, to what degree will further credit turmoil stop buyers from clearing the housing market?

Wall Street Journal - Home Sales Rise in Hard-Hit Areas
Bloomberg.com - U.S. Home-Price Index Fell 14.4% in March
Washington Post - Existing Home Sales Rise as Prices Plummet
New York Times - Home sales post unexpected April increase
Yahoo News - Home sales unexpectedly rise in April

The Recession is Hiding in Housing

Sam Sherraden — Tue, 06 May 2008 17:05:00 -0400

Some are questioning whether the US is in a recession. Job losses last week were less than expected at -20,000. Many expected between -75,000 and -80,000. The stock market has rallied and the Dow Jones Industrial Average broke through the 13,000 mark last week. The Federal Reserve cut interest rates by 25bp but two members of the FOMC dissented. Richard Fisher, president of the Dallas Fed, and Charles Plosser, president of the Philadelphia Fed, argued there was no need for a cut. Despite a blip of positive news, the prospects for the U.S. housing market and American consumer are likely to continue to drag on the economy. For a graphic representation of how damaged the US housing market is, see Ben S. Bernanke's Mortgage Delinquencies and Foreclosures.

Snapshot asks, if this recession is led by falling housing prices and damaged consumers, when will it be worst?

Financial Times - US Jobs Surprise
BNP Paribas - US: Employment Falls Less Than Expected
US Department of Labor - U.S. Employment Situation April 2008
Wall Street Journal - Jobs Data Show Hopeful Sign, Though Economy Still Ails
Ben S. Bernanke - Mortgage Delinquencies and Foreclosures

No Sign of a Bottom

Sam Sherraden — Tue, 29 Apr 2008 20:49:00 -0400

The Conference Board's consumer confidence index fell again to 62.3 from 65.9 in March. The index was dragged down by the present situation index, which measures consumers' assessment of current economic conditions. Housing data also weighed on the economic outlook. Home prices from the largest urban areas around the country fell 13.6% in February from prices a year earlier. Given the slowing consumer and the rapidly declining housing prices, economists fear a "negative feedback loop," in which consumers, hurt by deteriorating house prices and poor consumer credit conditions, buy less and damage corporate profits.

Snapshot asks, will the struggling consumer keep the U.S. in a prolonged recession?

Wells Fargo - Atypical Recession - Atypical Recovery
Deloitte & Touche - Keeping Your Cool Through a Financial Crisis
Bloomberg - Harvard's Feldstein Says Economy in Recession, `Getting Worse'
Wall Street Journal - Consumer Confidence Stays Weak

Getting the Housing Mess Right

Ellen Seidman — Mon, 21 Apr 2008 16:50:00 -0400

With a sense of irony and amazement that Congress actually might be getting the housing mess right, Sebastian Mallaby's column in today's Washington Post hits the nail on the head. It's interesting that it took a writer whose major beat is international economics to see the point about negative externalities and the collective public good. As several of us, through many forums--I've been working with the Center for American Progress on the Save America's Family Equity or SAFE proposal--have been saying for months, this is not a matter of bailing out either borrowers or lenders or of preventing house prices from falling. This is a matter of cushioning the blow for all the rest of us--the communities that will pay dearly from declining tax revenues and increased demand for services; the homeowners whose mortgages are long-since paid off or who have been paying faithfully and can and will continue to do so; the renters who have lost their homes because their landlord can't afford to pay the mortgage any more.

Mallaby points to the positive steps Congress is taking to enable loan servicers to sell or refinance their loans after taking a substantial haircut and to enable borrowers to get new loans that they can support--with upside to the government to compensate for taking the risk. I wish he'd included the proposal outlined in Congressman Frank's bill for bulk transfers of loans, because I believe that ultimately that will be necessary. But the essential points are there. As is the point that the tax giveaways in the Senate's "housing" bill are outrageous.