White Buyers Outnumber Black Buyers in Black Neighborhoods

Some in the LGBT half jokingly note that gays have long been one of the best harbingers of neighborhood change - and some would argue gentrification - given their willingness to move into marginal or historically black neighborhoods due to (i) less concern about neighborhood schools, and (ii) a desire to buy low priced historic homes in need of major upgrades.  Indeed, after coming out, still on a mortgage for the home for my former wife, I was limited in my buying power and attracted to post turn of the 20th century architecture. The solution: buy in a predominately black neighborhood close to Old Dominion University and Norfolk's upscale Ghent neighborhood.  My 1917 arts and craft house needed a thorough redo - new kitchen, bath, removal of old carpet (and thousands of carpet staples) to refinish hardwood floors, repainting inside and out, new roof, etc.  The result was a historic home at far less the cost (much of the work other than plumbing and electrical was done by my ex-boyfriend and me) than in posh and expensive nearby Ghent.  Since I bought the house, new - and much higher priced homes - have been built on vacant lots and many other homes on the street have been extensively remodeled (my youngest daughter and her family live in the house now).  

As a piece in the New York Times notes, the trend that I was part of out of financial necessity is spreading across the country with whites moving into historically black neighborhoods while blacks and other minorities buy in the suburbs. The verdict is out on whether this is a good thing or a bad thing, likely depending on one's perspective.  For cities, it is certainly helping to rebuild their tax base.  One disturbing note: mortgage lenders may be redlining minority buyers in rapidly gentrifying neighborhoods.  Here are article highlights:

RALEIGH, N.C. — In the African-American neighborhoods near downtown Raleigh, the playfully painted doors signal what’s coming. Colored in crimson, in coral, in seafoam, the doors accent newly renovated craftsman cottages and boxy modern homes that have replaced vacant lots.

To longtime residents, the doors mean higher home prices ahead, more investors knocking, more white neighbors.

Here, and in the center of cities across the United States, a kind of demographic change most often associated with gentrifying parts of New York and Washington has been accelerating. White residents are increasingly moving into nonwhite neighborhoods, largely African-American ones.

In America, racial diversity has much more often come to white neighborhoods. Between 1980 and 2000, more than 98 percent of census tracts that grew more diverse did so in that way, as Hispanic, Asian-American and African-American families settled in neighborhoods that were once predominantly white.

But since 2000, according to an analysis of demographic and housing data, the arrival of white residents is now changing nonwhite communities in cities of all sizes, affecting about one in six predominantly African-American census tracts. The pattern, though still modest in scope, is playing out with remarkable consistency across the country — in ways that jolt the mortgage market, the architecture, the value of land itself.

In city after city, a map of racial change shows predominantly minority neighborhoods near downtown growing whiter, while suburban neighborhoods that were once largely white are experiencing an increased share of black, Hispanic and Asian-American residents.

At the start of the 21st century, these neighborhoods were relatively poor, and 80 percent of them were majority African-American. But as revived downtowns attract wealthier residents closer to the center city, recent white home buyers are arriving in these neighborhoods with incomes that are on average twice as high as that of their existing neighbors, and two-thirds higher than existing homeowners. And they are getting a majority of the mortgages.

Such disparities in incomes and mortgage access aren't apparent in suburban neighborhoods with a growing share of Hispanic, black and Asian-American residents.

In South Park, a neighborhood with picturesque views of the Raleigh skyline, the white home buyers who have recently moved in have average incomes more than three times that of the typical household already here. Whites, who were largely absent in the neighborhood in 2000, made up 17 percent of the population by 2012. Since then, they’ve gotten nearly nine in 10 of the new mortgages.

In neighborhoods like South Park, white residents are changing not only the racial mix of the community; they are also altering the economics of the real estate beneath everyone. . . . . Some of that change can be positive, she said. This realization was not: “Our black bodies literally have less economic value than the body of a white person,” she said. “As soon as a white body moves into the same space that I occupied, all of a sudden this place is more valuable.”

In the places where white households are moving, reinvestment is possible mainly because of the disinvestment that came before it. Many of these neighborhoods were once segregated by law and redlined by banks. Cities neglected their infrastructure. The federal government built highways that isolated them and housing projects that were concentrated in them. Then banks came peddling predatory loans.

“A single-family detached house with a yard within a mile of downtown in any other part of the world is probably the most expensive place to live,” said Kofi Boone, a professor at North Carolina State University’s College of Design.

Here, because of that history, it’s a bargain. And while that briefly remains true in South Park, the disinvestment and reinvestment are visible side by side on any given street.
African-Americans have remained so segregated in American cities in large part because white people have avoided living in black neighborhoods, and seldom even considered buying a home in one. What changed, then?

How did the first developer to renovate a home know a new market would be waiting for it?  “I guess the answer is I didn’t know,” said Jason Queen, a 39-year-old developer in Raleigh. “But I did know that I wanted to be in downtown.”

Mr. Queen, who had worked in historic preservation, has rehabilitated or built about 100 homes in the historic corridor just east of downtown Raleigh, starting with a house that he and his wife lived in and renovated on the edge of South Park a decade ago. Mr. Queen was his own market: He rejected long car commutes and cul-de-sacs. This part of the city was more affordable than anywhere else near downtown. And he wanted diversity.

“What I didn’t want to do is move to a neighborhood where all the kids look exactly the same as my kids,” said Mr. Queen, who is white. “I didn’t think that was the right thing to do.”

Crime plummeted in the years preceding all this redevelopment. Public housing projects were demolished for mixed-income housing. Cities reinvested in neglected downtowns.

The run-up in home prices in the early 2000s also left middle-class households searching for affordable housing. By then, many working-class white neighborhoods in good locations had already gentrified. Predominantly African-American and Hispanic neighborhoods were what remained.

[I]n the aftermath of the housing bust, mortgage lending tightened, particularly for African-Americans and Hispanics. White buyers got a head start in places like South Park just as they were becoming newly desirable. By the time more lending returned for minorities, these neighborhoods were increasingly priced out of reach.

“The city is always the battleground; when it was failing, that was a problem, and now that it’s succeeding, that’s also a problem,” said Ken Bowers, Raleigh’s planning director. People used to debate whether the city was delivering equal parks or transit service in all neighborhoods. “Now the debate we’re having is ‘Are these parks gentrifying the neighborhood?’ ” he said. “That’s a very dysfunctional place to be.”

In the suburbs, a far different set of processes is driving the demographic change, as middle-class minority families seek more space or better schools, as immigrant communities take root, or as families are increasingly priced out of the city. This kind of increased diversity may bring its own challenges. But at least among the homeowners, there is something stabilizing in the fact that the new households economically resemble their neighbors — whether the communities around them are working class, middle class or wealthy.

“We made some progress by getting to a point where the entry of one black family did not signal that, ‘Oh my god, this is a neighborhood that’s going to fall apart,’ ” Ms. Ellen said. “Maybe we can get to a point where the entry of one white family is not a signal that, ‘This is a neighborhood that’s immediately going to have million-dollar condos.’ ”

My 1917 house after a near total remodel.

Marco Rubio and the GOP Zombies

In previous posts this blog has noted the absence of any change in message of the Republican Party evidenced by Marco Rubio's less than inspiring GOP response to President Obama's State of the Union address.  The GOP continues to believe that all it has to change is the face of the messenger and the "tone" of the message.  Paul Krugman has a column in the New York Times that looks further at the zombie like state of today's Republican Party and its refusal to face the reality that it was the GOP's polices that lead to the 2008 economic meltdown.  When one refuses to accept reality, one is doomed to repeat past insanities.  Here are excerpts:

[T]he G.O.P. reply, delivered by Senator Marco Rubio of Florida, was both interesting and revelatory. And I mean that in the worst way. For Mr. Rubio is a rising star, to such an extent that Time magazine put him on its cover, calling him “The Republican Savior.” What we learned Tuesday, however, was that zombie economic ideas have eaten his brain. 

In case you’re wondering, a zombie idea is a proposition that has been thoroughly refuted by analysis and evidence, and should be dead — but won’t stay dead because it serves a political purpose, appeals to prejudices, or both. The classic zombie idea in U.S. political discourse is the notion that tax cuts for the wealthy pay for themselves, but there are many more. And, as I said, when it comes to economics it appears that Mr. Rubio’s mind is zombie-infested. 

Start with the big question: How did we get into the mess we’re in?   The financial crisis of 2008 and its painful aftermath, which we’re still dealing with, were a huge slap in the face for free-market fundamentalists. Circa 2005, the usual suspects — conservative publications, analysts at right-wing think tanks like the American Enterprise Institute and the Cato Institute, and so on — insisted that deregulated financial markets were doing just fine, and dismissed warnings about a housing bubble as liberal whining. Then the nonexistent bubble burst, and the financial system proved dangerously fragile; only huge government bailouts prevented a total collapse. 

Instead of learning from this experience, however, many on the right have chosen to rewrite history. Back then, they thought things were great, and their only complaint was that the government was getting in the way of even more mortgage lending; now they claim that government policies, somehow dictated by liberals even though the G.O.P. controlled both Congress and the White House, were promoting excessive borrowing and causing all the problems. 

What about responding to the crisis? Four years ago, right-wing economic analysts insisted that deficit spending would destroy jobs, because government borrowing would divert funds that would otherwise have gone into business investment, and also insisted that this borrowing would send interest rates soaring. The right thing, they claimed, was to balance the budget, even in a depressed economy. 

Now, this argument was obviously fallacious from the beginning. As people like me tried to point out, the whole reason our economy was depressed was that businesses weren’t willing to invest as much as consumers were trying to save. So government borrowing would not, in fact, drive up interest rates — and trying to balance the budget would simply deepen the depression.

[M]ore than five years into the worst economic slump since the Great Depression, and one of our two great political parties has seen its economic doctrine crash and burn twice: first in the run-up to crisis, then again in the aftermath. Yet that party has learned nothing; it apparently believes that all will be well if it just keeps repeating the old slogans, but louder.  It’s a disturbing picture, and one that bodes ill for our nation’s future.

David Frum: Romney did Obama a Huge Favor

Reactions to Mitt Romney's selection of Paul Ryan continue and many continue to believe that Barack Obama is the winner.  Conservative columnist David Frum - who is a GOP outcast because he focuses on objective reality and not just ideology withing the GOP bubble - has a piece at CNN that looks at why in his mind Mitt Romney has done a huge favor for the Obama campaign.  Here are excerpts:

In Mitt Romney, the GOP has nominated its least ideological candidate since Richard Nixon. At every turn, the party has demanded, "More ideology! I gotta have more ideology!" With the selection of Paul Ryan as his running mate, Romney has now acceded to that wish. The least ideological Republican candidate since 1968 has committed himself to the most ideological Republican program since 1964.  Democrats must be stunned.

This year, an incumbent even more embattled than George H.W. Bush has his own preferred election theme. He doesn't want to debate his own record, which is pretty dismal. He [Obama] wants to debate the record of the congressional Republicans elected in 2010, a bunch radically less popular even than the president himself.

You'd imagine that Romney's job was to refuse the Democratic invitation, to choose his own ground for the election, and to keep his distance from the congressional GOP. You'd imagine, but you'd be wrong.

Romney has instead chosen to bolt himself to the House Republicans.

 

He has effectively adopted Paul Ryan's agenda as his own: big immediate cuts in spending, a dramatic cut in the top rate of income tax to 28% and a bold reform of Medicare for those 55 and under.

Obama's message in 2012: "Forget the economy. It's Medicare, stupid!"  The Romney-Ryan response? "We agree. Medicare it is."

Most economists would draw a distinction between the government's fiscal problems over the medium term and the economy's problems in the near term. The economy's near-term problems can be traced to the housing crisis.

Americans assumed crushing levels of debt in the 2000s to buy expensive homes, homes they assumed would continue to rise in price forever. In 2007, household debt relative to income peaked at the highest level since 1928. (Uh oh.) When the housing market crashed, consumers were stranded with unsustainable debts, and until those debts are reduced, consumers will drastically cut back their spending.  .   .   .   .   The result: slow recovery of the private economy, weak consumer demand, paltry job growth -- considerably offset by continuing job shrinkage in the public sector.

Paul Ryan's various plans and road maps contain many interesting elements for the reduction of government in the decades ahead. They do not respond to the most immediate and urgent problem: prolonged mass unemployment caused by heavy household debt.

Why not? There's why the ideology makes itself felt. Conservatives ardently believe that big future deficits are the cause of today's unemployment. They feel it. They know it. And they don't want to hear different.

When naysayers worry that the Romney campaign has over-indulged the ideology, the answer quickly comes: "Well, Reagan was ideological in 1980 -- and he still won.  .   .   .   .    Here's the difference: Although Ronald Reagan was a highly ideological candidate, he did not run a highly ideological campaign. Quite the contrary! Precisely because party conservatives trusted Reagan's ideological commitment, they allowed him space to move to the center.

No such leeway for Mitt Romney. He has been constrained first to endorse Paul Ryan's budget plan (which he did in December 2011 after months of attempted evasion), to endorse a cut in the top rate of income tax to 28% (March 2012), and now finally to choose Ryan himself as his running mate. No leeway -- and now no exit.

Conservatives exult that the GOP will now offer the country "a choice, not a referendum." That phrase does not make a lot of sense. (What is more of a choice than a referendum?) But there's good reason why conservatives say it. They are looking for a rephrasing of the slogan uppermost in their minds: "a choice not an echo" -- the title of the best-selling manifesto that helped persuade Republicans to follow Barry Goldwater to disaster.

Failed GOP Policies Wipe Out 2 Decades of Family New Worth

I continue to be amazed at how the GOP gets away with using religion - i.e., anti-abortion and anti-gay stances - and racial prejudice against blacks and Hispanics to dupe working Americans into to supporting GOP policies that have proved utterly toxic to the well being of voters being duped by Republicans.  For working class and middle class Americans, one doesn't need other enemies when it comes to bringing on financial ruin.  The GOP's unfunded wars, excessive tax cuts for the wealthy, a woefully under regulated Wall Street, obstruction of stimulus spending and serious plans to salvage the devastated housing market, and now the slashing of government employment all add up to a truly poisonous mix.  The result?  Family/household wealth has been wiped out and two decades of economic gain is gone.  Were back at 1990 levels in terms of family net worth overall, and many families are far worse off.  An article in the New York Times looks at this horrific situation.  Here are highlights:

The recent economic crisis left the median American family in 2010 with no more wealth than in the early 1990s, erasing almost two decades of accumulated prosperity, the Federal Reserve said Monday.
 

A hypothetical family richer than half the nation’s families and poorer than the other half had a net worth of $77,300 in 2010, compared with $126,400 in 2007, the Fed said. The crash of housing prices directly accounted for three-quarters of the loss. 

Families’ income also continued to decline, a trend that predated the crisis but accelerated over the same period. Median family income fell to $45,800 in 2010 from $49,600 in 2007. All figures were adjusted for inflation. 

While the numbers are already 18 months old, the survey illuminates problems that continue to slow the pace of the economic recovery. The Fed found that middle-class families had sustained the largest percentage losses in both wealth and income during the crisis, limiting their ability and willingness to spend.  

Given the scale of those losses, consumer spending has remained surprisingly resilient. The survey also illuminates where the money is coming from: American families saved less and only slowly repaid debts. 

More families said they were saving money as a precautionary measure, to make sure they had enough liquidity to meet short-term needs. Fewer said they were saving for retirement, or for education, or for a down payment on a home. 

Families with incomes in the middle 60 percent of the population lost a larger share of their wealth over the three-year period than the wealthiest and poorest families.   One basic reason for this disproportion is that the wealth of the middle class is mostly in housing, and the median amount of home equity dropped to $75,000 in 2010 from $110,000 in 2007. And while other forms of wealth have recovered much of the value lost in the crisis, housing prices have hardly budged.  Those middle-income families also lost a larger share of their income. 

Wealthier families, which derive more income from investments, were also cushioned against the recession.     .   .   .  Ranking American families by income, the top 10 percent of households still earned an average of $349,000 in 2010.  The average net worth of the same families was $2.9 million.

The Impermanent Republican Majority

Back in 2004 Karl Rove boasted of a permanent Republican Majority. That, of course, was before many Americans opened their eyes to the folly of the Chimperator's fools errand in Iraq and before GOP policies tanked the U.S. economy and nearly triggered another Great Depression. The GOP strategy focused on the red fly over states and the so-called exurbs of major cities. With the collapse of the housing market and rising gas prices, those same exurbs with their "Mcmansions" are no longer such a hot commodity. Indeed, many homeowners now find themselves trapped in the exurbs with upside down mortgages. Meanwhile, more people are headed back to the more liberal center cities. A column in the New York Times looks at the likely ongoing collapse of Rove's strategy. Here are some excerpts:

[T]here was no more jaw-dropping figure from the 2004 presidential election than this finding from the nation’s far-flung metropolitan frontier: George W. Bush carried 97 of the nation’s 100 fastest growing counties. . . . . New century America was pulling young families and newly middle class immigrants to the far exurbs, creating a vibrant new habitat for the Republican Party.

Many of the cities, at least some of the more hollowed-out and aging urban cores, were written off as inconsequential. The new electoral game was in the places where farm fields were being plowed under for asphalt. In Karl Rove’s strategy for a “durable Republican majority,” as he called it, lasting at least a generation, the exurbs were a key component of his master plan.

After a monumental housing collapse, and eight years of less-predictable changes in where Americans live, that thinking has been thrown out.

[N]ow the population boom to the exurbs is over, at least for the moment, according to Census Bureau figures released earlier this month. An analysis of those numbers done by William H. Frey, a demographer at the Brookings Institution, found that growth in the cities, and densely-populated older suburbs, has eclipsed that of the exurbs since 2010.

For political strategists reading the fine print in county-by-county population shifts, Frey’s point is one of several reasons to junk Rove’s majority scenario. Among the factors driving the urban growth spurt are a desire by young people to live closer to the urban core than the urban frontier, high gas prices and the toxic housing and lending environment. More American live alone than ever before — about 33 million people, 28 percent of all households — and most of them live in cities.

All of which bodes well for Democrats, the urban party. Obama won 21 of the 25 largest metro areas in 2008. Among population clusters in swing states, he carried the Denver metro area by 17 points, Las Vegas metro by 19 points and Orlando, the fastest-growing urban area in Florida, by 9. He also won the Tampa-St. Petersburg area, by five. Each of these showings were big moves for Democrats.

By winning the urban vote — which made up 30 percent of the electorate in 2008 – in such a lopsided manner, Democrats could afford to lose rural areas, which were 21 percent of the overall vote. When Sarah Palin talked on the campaign trail about the “real America,” she was referring to a shrinking one.

The trends since the housing collapse have made older suburbs denser, and thus more likely to vote Democratic in the minds of some strategists. Racial diversity, and the need for more government services and infrastructure, tend to make the older suburbs more like cities in their voting behavior, said Ruy Teixeira, who has written extensively about changing election demographics.

Teixeira has been predicting an emerging Democratic majority since 2002 – based on voting trends of young people, ethnic minorities and white, college-educated city dwellers. . . . The new population figures have only fortified Teixeira’s view. At the same time, turnout in this year’s Republican primary has been dominated by aging white male voters, not exactly a roadmap for the future, given the trends.

But before these Home Depot-cluttered counties can be painted blue, some caution is in order. It’s misleading to think the exurban frontier is closed, or even emptying out. What has settled down is the growth rate. . . . . Low interest rates, stable gas prices and a bounce back in the housing industry could bring fresh life to the far fringes.

Still, for Democrats, the geography of tomorrow is the urban renaissance – a boundary that now includes big parts of suburbia.

Misplaced Priorities on the Economy

Paul Krugman has a column in the New York Times that in part repeats what he's been saying all along - the economy is in trouble and appropriate steps have not been taken to try to fix it. Housing continues to see a downward spiral - the supposed programs to help distressed home owners keep their homes is the most incompetent mess one would ever hope to see - and unemployment remains abysmally high. The result is declines in consumer spending and a case of Congress and the White House figuratively fiddling while Rome burns. Sadly, I have come to believe that the GOP is relishing the mess believing that the worse things get, the better their chances of retaking the White House. The number of families losing their homes and the struggles of average citizens aren't even on the radar. Here's Krugman's assessment of the misplaced concerns of those who might have made a difference:

In case you had any doubts, Thursday’s more than 500-point plunge in the Dow Jones industrial average and the drop in interest rates to near-record lows confirmed it: The economy isn’t recovering, and Washington has been worrying about the wrong things. . . . . It’s now impossible to deny the obvious, which is that we are not now and have never been on the road to recovery.

For two years, officials at the Federal Reserve, international organizations and, sad to say, within the Obama administration have insisted that the economy was on the mend. Every setback was attributed to temporary factors — It’s the Greeks! It’s the tsunami! — that would soon fade away. And the focus of policy turned from jobs and growth to the supposedly urgent issue of deficit reduction. But the economy wasn’t on the mend.

[W]hen employment falls as much as it did from 2007 to 2009, you need a lot of job growth to make up the lost ground. And that just hasn’t happened. Consider one crucial measure, the ratio of employment to population. In June 2007, around 63 percent of adults were employed. In June 2009, the official end of the recession, that number was down to 59.4. As of June 2011, two years into the alleged recovery, the number was: 58.2.

These may sound like dry statistics, but they reflect a truly terrible reality. Not only are vast numbers of Americans unemployed or underemployed, for the first time since the Great Depression many American workers are facing the prospect of very-long-term — maybe permanent — unemployment.

And why should we be surprised at this catastrophe? Where was growth supposed to come from? Consumers, still burdened by the debt that they ran up during the housing bubble, aren’t ready to spend. Businesses see no reason to expand given the lack of consumer demand. And thanks to that deficit obsession, government, which could and should be supporting the economy in its time of need, has been pulling back. Now it looks as if it’s all about to get even worse. So what’s the response?

To turn this disaster around, a lot of people are going to have to admit, to themselves at least, that they’ve been wrong and need to change their priorities, right away. Of course, some players won’t change. Republicans won’t stop screaming about the deficit because they weren’t sincere in the first place: Their deficit hawkery was a club with which to beat their political opponents, nothing more . . .

But the policy disaster of the past two years wasn’t just the result of G.O.P. obstructionism, which wouldn’t have been so effective if the policy elite — including at least some senior figures in the Obama administration — hadn’t agreed that deficit reduction, not job creation, should be our main priority. Nor should we let Ben Bernanke and his colleagues off the hook: The Fed has by no means done all it could, partly because it was more concerned with hypothetical inflation than with real unemployment . . .

The point is that it’s now time — long past time — to get serious about the real crisis the economy faces. The Fed needs to stop making excuses, while the president needs to come up with real job-creation proposals. And if Republicans block those proposals, he needs to make a Harry Truman-style campaign against the do-nothing G.O.P.

This might or might not work. But we already know what isn’t working: the economic policy of the past two years — and the millions of Americans who should have jobs, but don’t.

It's pretty distressing stuff - especially since Obama and the Democrats have no spines and will likely allow the GOP to control the political messaging just as they have for the last two years. It makes me sick and angry.

Housing Market to Remain Troubled for At Least Three More Years

If this prediction by RealtyTrac, a foreclosure marketplace and tracking service, proves accurate, it could spell the doom of any re-election hopes the Liar-in-Chief may hold. I've been arguing since the summer of 2007 that unless and until the residential housing market stabilizes and begins to rebound, the overall economy will NOT get better for most Americans. Wall Street may be raking in obscene profits and the wealthy seemed about to get a tax windfall at the expense of the rest of the nation, but housing market stability and increasing home equity is what will drive an overall recovery. No one in Washington, D.C., of either party gets this simple fact and no one is holding mortgage lenders accountable for irresponsible foreclosures and foreclosure sale prices that are ridiculously low which in turn pressure neighborhood home prices to fall further. And as prices fall, more homeowners will find themselves upside down on their mortgages with less incentive to continue paying their loans. It's a domino effect that shows no sign of ending. Here are highlights from Rueters:
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The housing market will remain depressed, with record high foreclosure levels, rising mortgage rates and a glut of distressed properties dampening the market for years to come, industry experts predicted on Tuesday.
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"We don't see a full market recovery until 2014," said Rick Sharga of RealtyTrac, a foreclosure marketplace and tracking service. He said that he expected more than 3 million homeowners to receive foreclosure notices in 2010, with more than 1 million homes being seized by banks before the end of the year.
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Both of those numbers are records and expected to go even higher, as $300 billion in adjustable rate loans reset and foreclosures that had been held up by the robo-signing scandal work through the process. That should make the first quarter of 2011 even uglier than the fourth quarter of 2010, he said.
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Mortgage rates will start to rise in 2011, further dampening demand and limiting affordability, said Pete Flint, chief executive of Trulia.com, a real estate search and research website. "Nationally, prices will decline between 5 percent and 7 percent, with most of the decline occurring in the first half of next year," he said.
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Almost half -- 48 percent -- said they'd consider walking away from their homes and their mortgages if they were underwater on their loans. That's up almost 20 percent from when the same question was asked in May. "If that continues it would be an epidemic of strategic defaults," said Flint.
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Roughly 1 in 5 consumers said they expect it to be 2015 before there is a recovery in housing, according to the survey, conducted in November by Harris Interactive. Most respondents said they think recovery will come in 2012 or 2013. Would-be buyers suggested they wouldn't really get serious about purchasing a home for another two years.
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Homebuyers who are willing to take risks and buy distressed properties are likely to see discounts of around 30 percent from prices on comparable homes that are not in distress.

A Third Depression?

Watching the real estate market as it continues to shrivel and waves of foreclosures force an ever downward pressure on home prices, I cannot help but believe that Paul Krugman may not be onto something with his prediction that we may be headed for a third depression - that's right depression with a "D" rather than a recession. Until real estate pulls out of its multi-year nose dive, I do not expect the economy to truly pick up and more and more Americans will be faced with the grim prospect of merely holding on financially. Already, with the Republicans blocking an extension of unemployment benefits many Americans will be facing utter desperation. Here are highlights from Krugman's latest column in the New York Times as to why he believes that the economic picture is grim and why it could have been avoided:

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Neither the Long Depression of the 19th century nor the Great Depression of the 20th was an era of nonstop decline — on the contrary, both included periods when the economy grew. But these episodes of improvement were never enough to undo the damage from the initial slump, and were followed by relapses.

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We are now, I fear, in the early stages of a third depression. It will probably look more like the Long Depression than the much more severe Great Depression. But the cost — to the world economy and, above all, to the millions of lives blighted by the absence of jobs — will nonetheless be immense.

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And this third depression will be primarily a failure of policy. Around the world — most recently at last weekend’s deeply discouraging G-20 meeting — governments are obsessing about inflation when the real threat is deflation, preaching the need for belt-tightening when the real problem is inadequate spending.

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[T]he recession brought on by the financial crisis arguably ended last summer. But future historians will tell us that this wasn’t the end of the third depression, just as the business upturn that began in 1933 wasn’t the end of the Great Depression. After all, unemployment — especially long-term unemployment — remains at levels that would have been considered catastrophic not long ago, and shows no sign of coming down rapidly. And both the United States and Europe are well on their way toward Japan-style deflationary traps.

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[O]fficials [in Europe] seem to be getting their talking points from the collected speeches of Herbert Hoover, up to and including the claim that raising taxes and cutting spending will actually expand the economy, by improving business confidence. As a practical matter, however, America isn’t doing much better.

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[W]hile long-term fiscal responsibility is important, slashing spending in the midst of a depression, which deepens that depression and paves the way for deflation, is actually self-defeating. . . . . It is, instead, the victory of an orthodoxy that has little to do with rational analysis, whose main tenet is that imposing suffering on other people is how you show leadership in tough times. And who will pay the price for this triumph of orthodoxy? The answer is, tens of millions of unemployed workers, many of whom will go jobless for years, and some of whom will never work again.

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Needless to say, the GOP is driving this train wreck after having spent like a drunken sailor under the Chimperator. As for the pain of the unemployed? I suspect most of the GOP leadership and their Christo-fascist allies simply do not care. They always prefer to blame the victims rather than their own failed policies.

Foreclosure Rates Surge

While Wall Street has been bailed out with taxpayer funds and is back to giving itself absolutely obscene bonuses, the typical taxpayer who has lost their job, suffered a health care crisis that wiped out their financial capabilities or even lost tenants because of tenant job losses no relief is in sight. Worse yet, no one in Congress or the White House seems to much care beyond making pretty statements. Relief programs are basically a bust and the level of incompetence in mortgage and bank loss mitigation departments would make the Three Stooges look like rocket scientists. Half the time the right hand doesn't know what the left is doing within lenders as evidenced by a recent Bank of America loan where the homeowner - after losing her job for a number of months - finally had worked out a loan modification. The problem was, no one bothered to tell the arm of the lender doing the foreclosure work. The house was sold without my client's knowledge and she came home from her new job to find a notice on her door that the home had gone to foreclosure. Now, after many e-mails and phone calls, the sale is being rescinded - something that could thankfully be done since the deed had not been yet delivered to the purchaser at the foreclosure sale. Situations like this woman's are the norm, not the exception and lenders need to drastically hire more competent personnel to stop more tragedies that could be averted and which overall would SAVE lenders money and help STABILIZE housing prices. We need fewer obscene bonuses and more competent staffing NOW. Here are highlights from the Virginian Pilot on the surging level of foreclosures:
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LOS ANGELES (AP) -- A record number of U.S. homes were lost to foreclosure in the first three months of this year, a sign banks are starting to wade through the backlog of troubled home loans at a faster pace, according to a new report. RealtyTrac Inc. said Thursday that the number of U.S. homes taken over by banks jumped 35 percent in the first quarter from a year ago. In addition, households facing foreclosure grew 16 percent in the same period and 7 percent from the last three months of 2009.
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In all, more than 900,000 households, or one in every 138 homes, received a foreclosure-related notice, RealtyTrac said. The firm based in Irvine, Calif., tracks notices for defaults, scheduled home auctions and home repossessions.
Homeowners continue to fall behind on payments because they've lost their job or seen their mortgage payment rise due to an interest-rate reset. Many are unable to refinance because they now owe more on their loan than their home is worth.
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The Obama administration's $75 billion foreclosure prevention program has only been able to help a small fraction of troubled homeowners. About 231,000 homeowners have completed loan modifications as part of the Obama administration's flagship foreclosure prevention program through March. That's about 21 percent of the 1.2 million borrowers who began the program over the past year.
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Last month, the administration expanded the program, launching a plan to reduce the amount some troubled borrowers owe on their home loans and give jobless homeowners a temporary break. But the details of those programs are expected to take months to work out.

Subprime Loans Defaulting Even Before Resets

This story from CNN Money.com (http://money.cnn.com/2008/02/20/real_estate/loans_failing_pre_resets/index.htm?cnn=yes) illustrates why it is foolish to “let the market” decide and police itself. Don’t take this statement to mean that I am a big government liberal. It only is pragmatic and faces the business reality that where there is an opportunity to make fast money, there will ALWAYS be some who abuse the system and work it to their own advantage with no concern for the consequences of others. The mortgage loan industry is no exception and the fact that loans were bundled and resold to foolish/greedy investors left the main players in creating the mess free from consequences since the risk had been transferred to other investors. Had mortgage companies had to hold the loans they originated in the own portfolios, I suspect that sensible underwriting standards would not have been thrown to the wind. Given the fact that what happens in the housing market significantly impacts the larger economy, I believe that we are in for a very rough ride as increased numbers of foreclosures force home values down even further. Here are some story highlights:

For months, we've fretted about the Armageddon that will hit when subprime adjustable rate mortgages start resetting to much higher interest rates. What's happening is even worse: Many of these loans are defaulting well before their rates increase. Defaults for subprime loans issued in 2007 - none of which have reset yet - hit 11.2 percent in November. That represents perhaps 300,000 households, and is twice the default rate that 2006 loans had 10 months after being issued, according to Friedman, Billings Ramsey analyst Michael Youngblood. Defaults are spiking well before resets come into play thanks to the lax lending environment of the past few years. Many borrowers were approved for mortgages that they had little chance of affording, even at the low-interest teaser rates.

In late 2006, the Center for Responsible Lending (CRL), predicted that 2.2 million subprime ARM borrowers would lose their homes in the following two years due to reset shock. But these mortgages were doomed from the start. For instance, in both 2006 and 2007, well over 40 percent of subprime borrowers were awarded mortgages with either little or no documentation of their ability to pay. With these so-called "liar loans," borrowers did not have to show proof of either earnings or assets. In 2007 subprime originations, the DTI hit 42.1 percent, up from 41.1 percent in 2006. Borrowers were simply taking on more debt that they could afford. What's more, many borrowers started out with low- or no-down payment loans, which left them with almost no equity in their home. During the boom, rapid price appreciation meant borrowers built up home equity quickly. That minimized defaults, since owners could draw from that equity to pay their bills - including their mortgages - through home equity loans. But prices fell starting in 2006,leaving borrowers with less home equity to draw upon when they run into financial problems.

But instead of cutting back on risky loans, lenders kept lending. Why? "Because investors continued to buy the loans," said Doug Duncan, chief economist of the Mortgage Bankers Association. Despite their quality, subprime mortgages were as profitable as any other for lenders like Countrywide (CFC, Fortune 500) and Wells Fargo (WFC, Fortune 500), who were able to quickly securitize the loans and sell them in the secondary market. The loans sold easily because they carried the promise of high yields. "As long as you could sell the loan, you made the deal," Duncan said.

U. S. Consumers Hit the Wall

This op-ed piece from today's New York Times (http://www.nytimes.com/2008/01/21/opinion/21cohen.html?em&ex=1201064400&en=e7f127ada05a9485&ei=5087%0A) explains why it may be far harder for the U. S. economy to dig itself out of the developing recession. As noted in the piece, the country's consumers have out spent their incomes and with the falling real estate market, they can no longer refinance and pull additional equity out of their homes to pay down their consumer debt. Thus, out of control consumer spending that has kept the economy grinding along may be about to hit a brick wall. It is shaping up to be a very nasty situation. Here are some Highlights:

And here we are, with the rainy day our grandparents always droned on about appearing in the form of a deluge, and no savings stashed for it, and President George W. Bush, the debt-spender par excellence, conjuring up a $150-billion stimulus package that evokes the injection of steroids into a prone athlete wrecked by a marathon. This "shot in the arm," as Bush put it, may dampen a little pain. But this patient will be in intensive care for a long time.

As Stephen Roach, the chairman of Morgan Stanley Asia, said to me: "The very low U.S. savings rate, and related huge balance of payments deficit to attract funds from overseas, are not sustainable things." The adjustment is likely to be long and painful. Roach estimated U.S. net national savings at a tiny 1.4 percent of national income and household debt at 133 percent of personal disposable income. That last figure means middle class families are tapping into home equity - borrowing against their homes - to buy their kids socks. And if they can't pay the resulting never-sleeping debt, they lose not a room or two, but the house.

Beneath the staggering U.S. corporate losses - over $100 billion since the credit crisis began - lie the individuals suckered into taking on debts they won't be able to pay, whatever Bush hands back in tax rebates. "The median American family is going into what looks like a recession owing more than 100 percent of its income," Warren said. No wonder Citigroup just set aside $4.1 billion to cover possible defaults on home-equity loans, credit cards and auto loans - shoes that have yet to drop.

I expect the United States to bounce back, but not quickly. The central fact confronting the next president will be the new limits on U.S. power, both military and economic. The central challenge will be the provision of needed reforms, primarily universal health care, that begin to alleviate the financial strains on median American families and allow them to get back to saving rather than leveraging assets in a phony consumption boom.

Wealthy May be Next in Line in Home Crisis

As the U. S. economy continues to tank and the Chimperator and his advisers - the same folks who stood by as the crisis developed due to non-regulation and a wild West approach in the financial markets - talk about stimulus packages, this news story (http://news.yahoo.com/s/nm/20080117/us_nm/usa_housing_prime_dc;_ylt=AiMYJlVEMghWb_OFgARdMm6s0NUE)looks at what may be the next phase of the real estate market melt down: more affluent families that ran up their second mortgage equity lines who are now maxed out and unable to refinance. If this phenomenon dose take place, an already ravaged real estate market will see even more dramatic problems. Keeping up appearances and borrowing against one's home in order to drive high end vehicles may have a severe down side.

Interestingly, the story mentions "short sales," the process of negotiating with a lender to take less than a full payoff in order to avoid foreclosure. I am handling a number of short sale purchases and will be giving seminar talks to real estate agents and investors on how to do these transactions. These transactions are actually a win-win-win situation in relative terms. The homeowner avoids foreclosure and/or bankruptcy; the purchaser gets the property for a lower price; and the lender avoids ending up owning and holding residential property that may sit on the market for many, many months, thereby compounding the loses for the lender. Here are some story highlights:

HINSDALE, Illinois (Reuters) - A house in this wealthy Chicago suburb is far beyond the reach of most Americans. Unfortunately, Hinsdale may also now be too expensive for some of the people who already live here. "There is a section of the population here that over-extended themselves to buy here and then keep up the facade of wealth," said Sharon Sodikoff, a broker associate at local real estate agency Prudential Homelife Realty. "In the next year or so they'll be forced out in dribs and drabs."

[E]ven here, far from the housing crisis' epicenter, high earners with good credit may be heading for trouble as their adjustable rate mortgages (ARMs) adjust beyond their means, local real estate agents and others say. In a normal housing market they'd be able to sell, but now they are stuck. "The next wave of problems will come from prime borrowers who bought too much house or borrowed too much against it," said Michael van Zalingen, director of home ownership services at Neighborhood Housing Services of Chicago. A "prime" borrower is one with good credit.

Real estate agents warn that some high-income borrowers have already been forced to sell or leave their homes and more will follow. Especially those who used their homes as ATMs, withdrawing cash via home equity loans. "For those who utilized home equity loans for five to ten years to finance their lifestyle, the chickens are coming home to roost," said Chicago-based real estate agent Marki Lemons.

Unlike subprime borrowers, however, wealthy home owners are more likely to try to cut a deal with their lender, rather than end up in foreclosure. The alternative solution available to them is to opt for a short sale. Under a short sale agreement, the borrower sells below the mortgage value and the lender writes off the difference. The lender gets less than originally anticipated, but is not stuck with a foreclosed property. The borrower's credit rating is damaged, but not as badly as if they had lost the home.

"You won't see many foreclosed homes here because that would involve public embarrassment," Prudential Homelife Realty's Sodikoff said. "But they will call their realtor and get them to quietly broker a deal to get out of their homes."

Home Sales Sink Again, Outlook Darkens

At times over the last few months I have felt like a Cassandra when it comes to my view of the residential real estate market - the turbine that powers so much of the domestic economy. Sadly, my views appear to have been on point and the gloomy predictions are becoming reality based on this new CNNMoney.com story (http://money.cnn.com/2008/01/08/news/economy/home_sales/index.htm?postversion=2008010810cnn?=yes). The lower housing goes, the lower the economy will go and the wider the economic damage will spread. We can look forward to real estate related businesses cutting staff and re-entrenching as much as possible in the face of plummeting revenues. Here are some story highlights:

NEW YORK (CNNMoney.com) -- Contracts to sell existing homes fell in November and there could be darker days ahead for home values, which are expected to post their biggest decline on record this quarter as a full-year rebound in prices now isn't expected until 2009, according to an industry trade group. The Realtors also cut its existing home price estimate for the current quarter to a 5.3 percent year-over-year decline, which would mean the current period would see the steepest drop in that price measure on record.

Only a month ago the group's estimate was for only a 2.5 percent drop in prices in the first quarter. The group's forecast released Tuesday also no longer sees even a modest rebound in existing home prices this year, as it had previously forecast, and pushed back the estimate of a full-year uptick in prices to 2009.

The November reading is even worse than the 89.8 reading recorded in September 2001, the month when terrorist attacks shook buyer confidence. That reading had been the weakest month on record before the current housing downturn. An index reading of 100 represents the level of sales at the start of 2001, when the index was started.

Defaults on Insured Mortgages Rise 35% to Record

As the headline of this Bloomberg.com story (http://www.bloomberg.com/apps/news?pid=20601103&sid=api7SbPeUP3Q&refer=us) indicates, things are NOT good in the residential mortgage world, which will further add to the financial distress arising from the real estate market crash. Not that Mike Huckabee (or the Chimperator) would know since he seems increasingly out of touch with issues that he ought to know about. I guess he is too busy condemning gays and has not had a chance to notice. Here are some story highlights:

Defaults on privately insured U.S. mortgages rose 35 percent in November to a record, an industry report today showed, adding to evidence the U.S. housing slump is deepening. The number of insured borrowers falling more than 60 days late on payments jumped to 61,033 last month from 45,325 in November 2006, according to data from members of the Washington- based Mortgage Insurance Companies of America. The missed payments, often a prelude to foreclosure, represented a 2.9 percent increase from October.

Continued deterioration is likely to spur higher claims. And higher claims activity may result in some companies needing to raise money.'' Home prices fell 6.1 percent in 20 U.S. metropolitan areas in October, according to S&P/Case-Shiller. Mortgage insurance compensates lenders for losses on bad loans as falling home prices make it harder for borrowers to refinance.

Bond insurers including MBIA Inc. and Ambac Financial Group Inc. are struggling to maintain credit ratings needed to guarantee debt after losses on mortgage-backed bonds they covered. Fitch has given MBIA and Ambac less than six weeks to each raise $1 billion or face loss of their AAA ratings. MBIA on Dec. 10 said it will get $1 billion from private- equity firm Warburg Pincus LLC to bolster its capital and Ambac took out reinsurance on $29 billion of securities it guarantees.

Number of unsold homes in region at highest this decade

The crash of the residential real estate market is making itself felt locally as described in an article in today's Virginian Pilot (http://hamptonroads.com/2007/12/number-unsold-homes-region-highest-decade). While the figures are very bad locally, they are even worse in many markets around the country. If this situation continues, many real estate related businesses will either shrink considerably or go out of business. Here are some story highlights:

More than five times as many homes are for sale in Hampton Roads now as were on the market during the heady days of the real estate boom in 2004, and the excess inventory is showing no sign of shrinking anytime soon.

As 2007 winds down, an estimated 23,500 existing single-family, detached homes are unsold in greater Hampton Roads, from the Peninsula to northeast North Carolina, according to the Real Estate Information Network Inc. and the Old Dominion University Economic Forecasting Project. In 2000, the inventory of unsold homes was 8,475. It dropped steadily to a low of 3,480 in 2003 but has been growing rapidly ever since.

Though the prevalence of so-called "subprime" mortgages in Hampton Roads is not believed to be as big a problem as in other parts of the country, there has been a ripple effect locally as national lenders have tightened their standards considerably. With credit harder to obtain, more houses are staying on the market longer - especially the more expensive ones.

Subprimes: From Bad to Worse

As I have said a number of times over the past months, I believe that the U.S. economy seems headed for real trouble despite the rosie statements made by some and announcements that the economy is expanding. This Newseeek article looks at the reasons for the underlying instability (http://www.newsweek.com/id/74095). I hate to say that I do not see any turn around in the near term - in part because the depressed housing market is killing my firm's cash flow - and see much more financial pain in the offing for many families. Here are some story highlights:

I hate to be the bearer of bad news, but the subprime flood—which has been declared contained over and over again—isn't contained yet. My NEWSWEEK colleague Daniel McGinn ably explains why the rate freeze is far from a panacea for all subprime borrowers. And a flood of new data indicates that the subprime woes may be a symptom—rather than a cause—of a broader economic malady. That awful smell in Midtown Manhattan isn't from the horse-drawn carriages carrying tourists around. It's the distinctive odor of debt going bad.

We've just ended a bubble in housing, in housing-related credit, and in all other types of credit. Low interest rates, competition for market share, the continual pooh-poohing of inflation, and the widespread use of securitization spurred banks and mortgage companies to lend with abandon. Today, however, the assumptions holding up the latticework of credit are coming apart, one by one. Even as the economy continues to expand, more and more borrowers are having difficulty remaining current on their debt. Which isn't surprising, given that median household income hasn't budged since 1999 (see Figure 1 on Page 4 of this Census report). What's more, in a natural reaction to reckless lending, mortgage companies and banks are now in money-hoarding mode and thus unable or unwilling to help Americans refinance existing debt.

As the volume and price of new home sales continues to fall, home builders are suffering as well. The Wall Street Journal reported yesterday that delinquencies on loans extended to condominium developers have risen sharply in the past year. . . . Other types of consumer debt, which have nothing to do with housing and nothing to do with subprime, are starting to go bad too. And so it goes. The next arena likely to see a spike in delinquencies and then defaults? Corporate bonds. In September ratings agency Standard & Poor's warned of a potential wave of defaults.

Investors may have thought that Bush and Treasury Secretary Henry Paulson stuck their fingers in a hole in the dike, thus forestalling disaster. But given the rising tide of bad debt across the economy, today's actions are more like throwing a sandbag into a rising Mississippi River.

USA in Recession

Well, I could have told you this and have in fact hinted in prior posts that I thought the USA was headed toward financial trouble a number of times. It is nice to see that others concur as indicated by this Financial Times article (http://www.ft.com/cms/s/0/6a7a056a-af37-11dc-880f-0000779fd2ac.html?nclick_check=1). I truly believe that until the housing and mortgage markets revive, there will be a tremendous downward pressure on the economy as a whole. Note how the founder of Pimco, one of the world’s largest fixed-income managers, things very little of what the Chimperator and the Federal reserve have proposed to date. Here are some story highlights:

Bill Gross, founder of Pimco, one of the world’s largest fixed-income managers, has sounded a downbeat note on the US economy by saying it has gone into recession. “If I had to be bold I’d say we began a recession in December,” he said in a Financial Times interview, in which he called on the Federal Reserve to bring interest rates down to 3 per cent. The recession would last “four to five months”, he thought, but he added it would be prolonged if the administration and Congress failed to “take some rather unperceived and unforecasted measures in terms of fiscal stimulation”.

Mr Gross, whose company has $750bn of assets under management, was critical of US attempts to stabilise credit markets, describing the “Super Siv” and plans to freeze mortgage teaser rates as a “temporary fix”. He said: “What needs to be done is something fairly radical compared to Republican orthodoxy, which means spend money and absorb the deficit as opposed to pretending that you’re fiscally conservative.”

He was highly critical of the complicated financial instruments that have exacerbated the credit squeeze, saying the trend of over-leverage was a “dying concept” that will “lead to an implosion at the edges . . . of this new financial marketplace.” He also had stern words for hedge funds, describing them as a “con”.

Mr Gross founded Pimco in Newport Beach in 1971, building it into a powerful bond manager that continues to operate from southern California. With California one of the first places to feel the effects of the subprime crisis, Mr Gross said, the company’s location alerted him early to the danger that has since wreaked havoc in world markets. Pimco switched out of mortgage-backed securities in 2006 and for the first half of 2007 fell behind its competitors. However, in the second half it has outperformed the market as Wall Street has racked up billions of dollars in subprime-related losses.

I also recommend Paul Krugman's column that looks at the failure of regulators who let the motgage disaster ensue: http://www.nytimes.com/2007/12/21/opinion/21krugman.html?_r=1&hp&oref=slogin

Loan Crisis Spreading to Businesses and Neighbors

Not surprisingly, the housing market free fall and sub prime mortgage mess are beginning to spill over into other areas and are hurting business as reported in this New York Times story (http://www.nytimes.com/2007/12/17/nyregion/17citywide.html?_r=1&adxnnl=1&oref=slogin&adxnnlx=1197903981-0a+Ly0iuYSOn3EyPS6RuZw). The Chimperator's "too little too late" remedy package does not contemplate what the ripple effect of this problem will be, not that I am surprised since the Chimperator lives in a bubble of delusion. The story also focuses on Wall Street's role in creating the mess. It will be a grim Christmas season for many while the rich are insulated from the damage. Here are some story highlights:

Marcia is not in the holiday mood this year. She is not putting any Santas, reindeer or lights outside her house. She is probably not going to have many presents inside. There will be no home improvements anywhere. The fact is, she does not know how long she can even call the place hers. These guys made millions in bonuses, so they go off and buy Rolexes or real estate while people are being put out on the street,” said Mr. Mumm, who is the executive director of the Northwest Bronx Community and Clergy Coalition. “Now the homeowners are asking for their money back. This is about reparations.”

A little more than a year since she bought her Bronx home for $535,000 with no cash down, she is facing foreclosure. Even if she could scrape together the $7,500 to catch up on her overdue mortgage payments, other calamities await: an interest rate that will rise in coming months and a huge balloon payment hovering in the distance like a financial Hindenburg. “I’m not doing anything to fix up the house,” said Marcia, a nursing home aide who declined to give her last name during an interview at a community agency that offers counseling on preventing foreclosure. “I just work, eat, sleep and hope they don’t take my home. This is the worst Christmas I ever had.”

The binge of subprime loans that flooded this area a few years ago has now given way to foreclosures and forced sales by homeowners saddled with onerous mortgages they could never repay. The effects of this free-for-all are increasingly felt even among those who did not take on risky loans. Longtime neighborhood residents worry that their property values will be sunk by the double whammy of poorly maintained homes and revolving-door neighbors, while shopkeepers on the nearby commercial strip on Boston Road — especially those who sell hardware or home furnishings — say business has plummeted by 50 percent or more, as strapped homeowners cut costs.

Other housing advocates asking the same questions have begun to look toward Wall Street for part of the answer. They note how investment banks made tidy profits and bonuses in recent years by scooping up batches of subprime loans to back lucrative securities. “They were telling lenders what kinds of loans to make,” said Kevin Connor, the author of a recent report on Wall Street’s role in the subprime crisis, sponsored by a coalition of housing advocacy groups. “They built this house of cards on the backs of homeowners.”

Despite the losses taken by investments banks in recent months, housing advocates say that banking executives will still get their bonuses this year, and even chief executives who lost their jobs because of the mortgage losses walked away with multimillion-dollar severance packages. “These guys made millions in bonuses, so they go off and buy Rolexes or real estate while people are being put out on the street,” said Mr. Mumm, who is the executive director of the Northwest Bronx Community and Clergy Coalition.

Henry Paulson’s (and the Chimperator's) Misplaced Priorities

Paul Krugman has a great column in today's New York Times (http://www.nytimes.com/2007/12/10/opinion/10krugman.html?_r=2&hp&oref=slogin&oref=slogin) that looks at George W. Bush's mortgage bailout proposal and finds it sadly lacking in many ways, not the least of which is that lenders are the main beneficiaries. Are you surprised? I am not - it is typical of Bush to not give a damn for the average citizen while floating a smoke screen to give the appearance that he is dong something. Here are highlights form the column:

By Bush administration standards, Henry Paulson, the Treasury secretary, is a good guy. He isn’t conspicuously incompetent; and he isn’t trying to mislead us into war, justify torture or protect corrupt contractors. But Mr. Paulson’s actions reflect the priorities of the administration he serves. And that, ultimately, is what’s wrong with the mortgage relief plan he unveiled last week.

The plan is, as a Times editorial put it yesterday, “too little, too late and too voluntary.” But from the administration’s point of view these failings aren’t bugs, they’re features. In fact, there’s a growing consensus among financial observers that the Paulson plan isn’t mainly intended to achieve real results. The point is, instead, to create the appearance of action, thereby undercutting political support for actual attempts to help families in trouble.

In particular, the Paulson plan is probably an attempt to take the wind out of Barney Frank’s sails. Mr. Frank, the Democratic chairman of the House Financial Services Committee, has sponsored legislation that would give judges in bankruptcy cases the ability to rewrite mortgage loan terms. But “Bankers Hope Bush Subprime Plan Will Scuttle House Bill,” as a headline in CongressDaily put it. As Elizabeth Warren, the Harvard bankruptcy expert, puts it, “The administration’s subprime mortgage plan is the bank lobby’s dream.” Given the Bush record, that should come as no surprise.

There are, in fact, three distinct concerns associated with the rising tide of foreclosures in America. One is financial stability: as banks and other institutions take huge losses on their mortgage-related investments, the financial system as a whole is getting wobbly. Another is human suffering: hundreds of thousands, and probably millions, of American families will lose their homes. Finally, there’s injustice: the subprime boom involved predatory lending — high-interest loans foisted on borrowers who qualified for lower rates — on an epic scale. The Wall Street Journal found that more than 55 percent of subprime loans made at the height of the housing bubble “went to people with credit scores high enough to often qualify for conventional loans with far better terms.” And in a declining housing market, these victims are stuck, unable to refinance.

But Mr. Paulson’s plan is entirely focused on reducing investor losses. Any minor relief it might provide to troubled borrowers is clearly incidental. And it is does nothing for the victims of predatory lending. Relief is restricted to borrowers whose mortgage debt is at least 97 percent of the house’s value — which means that in many, perhaps most, cases those who get debt relief will be borrowers who owe more than their house is worth. These people would be nearly as well off in financial terms if they simply walked away. And what about people with good credit who were misled into bad mortgage deals, who should have been steered to loans with better terms? They get nothing: the Paulson plan specifically excludes borrowers with good credit scores.

Still, you might say that the Paulson plan is better than nothing. But the relevant alternative isn’t nothing; it’s a plan that — like Barney Frank’s proposal — would actually help working families. And that’s what the administration is trying to avoid.