As Housing Goes, So Goes the Economy

I have been saying since the summer of 2007 that unless and until something is done to stop the decline of the residential housing market, do not expect any significant improvement in the nation's economy. So what have we seen take place since then? Banks and mortgage companies bailed out yet no corresponding actions by the bailed out lenders to pass along anything to distressed homeowners. Instead, we've seen an unwillingness to modify loans to stem foreclosures and wave after wave of foreclosures that are driving home values ever lower and creating more homeowners who are upside down on their loans and headed towards foreclosure or bankruptcy. I truly do not understand why of political leaders cannot come up with something to stop the continued debacle. The New York Times today echos what Ive been saying. Here are some editorial highlights:
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The Great Recession began with the bursting of the housing bubble. Today, nearly two years after the recession officially ended, the housing market is still in trouble.
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[O]ver all, sales and construction have been flat for two years, while prices, driven down by foreclosures, are plumbing new depths. Even a recent drop in foreclosure filings isn’t a reason for optimism. . . . . the decline appears to be largely the result of banks slowing the foreclosure process in order to keep properties off the market until prices recover. The catch is that prices are unlikely to recover as long as millions of foreclosures are imminent.
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This isn’t just bad news for homeowners. Selling and building of houses are one of the economy’s most powerful engines. Until the market recovers, the entire recovery is imperiled. Falling home equity dents consumer confidence, making things even worse.
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Since the problems in housing are not self-curing, a government fix is in order. But the Obama administration’s main antiforeclosure effort has fallen far short of its goal to modify three million to four million troubled loans.
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Its basic flaw is that participation by the banks is voluntary. Most have joined the program but face no real pressure to meet its goals. Another big problem is that banks often do not own the troubled loans; rather, they service the loans for investors who own them. . . . Not surprisingly, defaults proceed and modifications lag. Banks win. Homeowners and investors lose. The economy suffers.
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That does not have to be the end of the story. In a recent hearing in a Senate banking subcommittee, witnesses proposed new laws and regulations to change loan-servicing standards in ways that would prevent banks from putting their interests above those of everyone else.
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For starters, various government guidelines on loan servicing would be replaced with tough national standards. Among the new rules, homeowners would be evaluated for loan modifications before any foreclosure — or foreclosure-related fee — is initiated. The bank analysis used to approve or reject modifications would be standardized and public, and failure by the bank to offer a modification when the analysis indicates one is warranted would be grounds for blocking any attempt to foreclose.
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In the Senate, Democrats Jack Reed and Sheldon Whitehouse of Rhode Island and Sherrod Brown of Ohio have introduced bills to establish standards. The new Consumer Financial Protection Bureau can also impose servicing rules. The Obama administration should champion national standards, and Congress and regulators should act — soon.