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July 25, 2011 04:08 PM UTC

Obama's fate may turn on housing

  • 28 Comments
  • by: allyncooper

( – promoted by c rork)

As the political rhetoric heats up for the  2012 presidential election, there’s little doubt the overriding issue will be the economy.  Presidential candidates live or die by the state of the economy and by the perception they can do something about it or are ineffective in economic matters.  Nobody knows this better than Obama, who was swept into office by a rapidly deteriorating economy.  George H.W. Bush found this out the hard way when he woke up the day after his re-election bid and belatedly acknowledged James Carville’s astute observation – “It’s the economy,  stupid”.

The recession has been “officially” over for months, with the stock market up , most large corporations making good earnings, and the tech and auto industries rebounding.  But on main street , unemployment remains stuck above 9%,  state and local governments continue to layoff workers and cut services, many small businesses are struggling,  and consumer confidence remains anemic.

Housing continues to be the major drag on recovery.  Four years after the bubble burst,  housing prices are continuing to decline fueled by a continuous supply of foreclosures , and more and more homeowners find themselves “underwater”, owing more on their mortgage than their house is worth.  Since the market peak in 2007, the total value lost in the residential market is a whopping  $9 trillion.  Nothing has hit the middle class harder, because the bulk of its wealth was in the roof over their heads.

 

Historically,  a housing recovery has led the way out of previous recessions. Housing has a multiplier effect triggering the purchase of other major consumer products, like appliances and furniture.  But the indices simply aren’t there to indicate any turnaround in housing anytime soon, certainly not by the election next year, and perhaps not for years after that.

It’s been said the three most important words in real estate are “location, location, location”.  But three other words are becoming increasingly important – “inventory, inventory, inventory”.  Gary Shilling, the housing consultant who predicted the housing bust and has been right more often in his pessimistic outlook on the market, recently said housing prices will likely drop another 20%. Moreover, the percentage of homeowners with loans underwater may increase from the current 25% to 40% –   a wave of “strategic foreclosures”  could be on the horizon – people who still have jobs and can pay their mortgage but walk because they no longer see the value of paying on a house not worth the note.  Shilling even predicted this could lead to a new recession in 2012.

Inventory is the important indicator.  “Normal” inventory nationally is about 2.5 million units.  Current inventory is 4.0 million, and going up.  The “shadow inventory” refers to the number of loans in foreclosure or 90 days delinquent, and that number currently totals 4.3 million loans, representing units that will be dumped on the market at some point in the future adding to the already huge inventory glut.  In addition to this “shadow market”, there is yet another “shadow market”, owners who would put their houses on the market but aren’t because they are underwater or simply can’t see the value of trying to sell in a depressed market.

Adding to housing’s woes is the fact there is simply a smaller market for housing now.  Credit and finance restrictions put in place by Dodd-Frank have culminated in what’s known as a Qualified Residential Mortgage requiring a 20% down payment, a provision the National Association of Realtors and the NAHB is fighting tooth and nail.  Because of this and other credit restrictions on mortgages, the number of eligible buyers is dwindling while inventory is increasing.

The Obama administration initially launched the HAMP program in February 2009  to help struggling borrowers refinance and stay in their homes, but it’s been a big disappointment. It also failed to address what is now the bigger problem – underwater loans.  FHA launched the  $ 8 billion  Short Refinance program in September in which underwater borrowers can refinance into an FHA insured loan if the lender writes off the unpaid principal balance of the original loan by at least 10%, but as of June only 246 borrowers took advantage of it .

In the past few weeks, Obama has turned his attention back to housing,  no doubt aware of the bleak situation and the ramifications it may have on his re-election. At a Twitter town hall meeting two weeks ago, Obama said he would put more pressure on banks to pursue principal reduction, acknowledging property devaluation as the crucial issue.  HUD has accelerated implementation of a $1 billion mortgage assistance program to the unemployed mandated by Dodd-Frank, but it could be a drop in the bucket given the enormity of the problem.  Last week on Meet the Press, Treasury Secretary Timothy Geither admitted the administration may be running out of options “to engineer artificially a stronger recovery” in the housing market .

The economy will be the overriding issue in the presidential election next year. Obama is a smart man and doesn’t have to be told, “It’s the economy, stupid”.   But he may be running out of options to “fix” the housing crisis, not through lack of trying, but simply because the problem is so systemic little can be effectively done by government.  But politics is perception and the pain is real with that $9 trillion in wealth gone predominately from the middle class.  The election could very well hinge on who gets blamed for that pain.  

Comments

28 thoughts on “Obama’s fate may turn on housing

  1. I wish someone would talk about the Colorado AG, John Suthers.  He is using State resources to go after those that help homeowners.  See Denver Weekly News.

    http://bhonline.org/blog2/tag/

    The AG should be focusing on helping counties collect from the banks and Freddie and Fannie for not paying transfer taxes or assignment fees.  The State has lost millions and he focuses on one guy that tried to help a family through an illegal foreclosure.  

    1. Are you really trying to throwing John Suthers under the bus for shining a light on the activities of this guy?

      http://insiderealestatenews.co

      Most consumer advocates I know, don’t take title to someone’s home in order to “save” it. I met several of the homeowners he purported to help, and they stated he simply helped them out of hundreds of dollars, and they were still foreclosed upon, but I guess that wasn’t his fault, it was just some grand conspiracy to put a hardworking consumer advocate out of business.  

      1. My point is the AG’s office is not focused on going after the pretender lenders (the banks) so investors and homeowners continue to be defrauded.  

    2. “I met several of the homeowners he purported to help, and they stated he simply helped them out of hundreds of dollars..”

      i wrote the denver weekly news article and have seen the AG’s file on sherron lewis, the advocate in question. you say you met “several” of the homeowners who you allege were defrauded out of money but why aren’t these “several” homeowners listed in the AG’s official injunction? are you the person who writes all the articles for inside real estate news, i.e., john rebchook? if so, you seem to be one of the AG’s “go to” online media outlets and particularly one the AG regularly used to put out their information on sherron lewis.

      i’m sure you are aware of the federal claim mr. lewis has filed against the AG’s office? you are aware that the homeowners mentioned in the DWN article accuse the AG’s office of coercion and of using them to target & go after mr. lewis? there are many questions that you, if you are mr. rebchook, never seemed to bother to ask regarding this case and how the AG’s office handled it.

      so just so readers here are aware. if you are mr. rebchook or are personally affiliated with inside real estate news, it seems you & your publication are “in the tank” for the colorado AG and therefore are not the best or most objective source of information on this.

      adeeba

      1. Have you seen the Qui Tam lawsuits brought in Nevada and California? It alleges that banks, Fannie and Freddie are not paying transfer taxes and this is costing the states millions. It’s filed by two whistle blowers.

        I hope someone in this state files one of these for Colorado.  Where is the AG?  He’s busy going after anyone but the banks.

        http://livinglies.wordpress.co

        1. i hadn’t read too much about the qui tam suits but will start paying attention.

          you are correct that it seems the colorado AG is staying away from doing any heavy duty investigating of the banks. suthers’ actions are very miniscule compared to what AGs in other states are doing – like the AG in NY, for one.

          1. She is going after the banks for not paying the fees a county is entitled to collect when the banks assign a mortgage or transfer the property as in a foreclosure. These banks are not paying these fees and haven’t been for about 15 years so there would be penalties and interest as well.  

            http://www.homepreservationnet

            It makes no sense why John Suthers wouldn’t want to do the same and collect millions of badly needed funds for the state.  Why isn’t he doing this is my question.    

            1. maybe more & more people need to start demanding some answers from suthers. interestingly, the colorado AG’s office was specifically mentioned in this judicial watch news release: http://www.judicialwatch.org/n

              …But state attorneys general nationwide have supplied dozens of documents to Judicial Watch showing contact between their offices and Warren’s, including emails establishing closed-door meetings between Warren and New York Attorney General Eric Schneiderman on February 14 and March 7. Several states refused to turn over responsive documents in their possession based on confidentiality concerns arising from, as the State of Colorado put it, “the Consumer Financial Protection Bureau’s participation in the ongoing investigation into bank and loan servicers mortgage processes.”

        2. but I wasn’t even aware that Colorado had such a “transfer tax.”  How much is it, and how is it assessed (when it is properly paid)?

          1. Colorado Transfer Taxes Est

            Transfer Tax                            0.01%

            Average Sales Price                 $269,000

            Calc Transfer Tax                       $26.90

            2011 Est Sales (CB & HUD)         312,000

            Total Transfer Tax 2011            $8,392,800

            Total Transfer Tax Est 15 years                   $125,892,000

            http://www.ncsl.org/default.as

            http://www.census.gov/const/ne

            This is what I came up with but of course the county clerks would need to do their own calculations.  What you see above are the numbers I used and the related links to where I obtained the numbers.  Anyone is free to dispute these numbers.  Not all of the transfer taxes have been avoided as some homeowners would have paid the fees. Penalties and interest would also impact the amounts counties would be able to collect.  

            It’s a great Qui Tam for someone interested.  You do get a percentage of what the state collects.  

  2. continues to affect the whole economy can’t be overestimated.  Our boom was fueled by consumers spending on lines of credit connected with piggy bank homes expected to keep rising pretty nicely in value. This included spending by young people and young families who never should have qualified for mortgages with next to nothing down on those homes to start with. There should be no mystery as to why consumer “confidence” as evidenced by spending isn’t recovering just because Wall Street is. The middle class piggy banks are tapped out or in negative territory.  

    Middle class ability to spend so freely is gone. A new job, if you can find one, often just means digging part way out of a deep hole, not a return to free and easy spending. That’s not even on the horizon. Turns out a highly unregulated economy fueled by consumers needs lots of, um, consumers, not just a tiny elite. There was more than one type of house of cards to collapse and bring us to where we are today.  

      1. It was amoral greed with no need to fear consequences at the highest levels that did that. Just that what happened to all the credit people were spending and which is no longer available prevents a return to the old spending spree habits that fueled our consumer driven economy and therefore we’re not seeing much of a recovery. Even loosened credit won’t convince deep in debt consumers to add more to already overwhelming debt burdens either. People are in paying down, not adding to debt mode. They’re going to be cautious spenders long after things get a little better and credit opens up.

        We were told it was OK that we weren’t  creating anything anymore except consumer demand. We were told that for consumers, as well as the nation, debt doesn’t matter.  That ever increasing equity will cover it. Well, here we are, not manufacturing stuff or demand.  What’s supposed to fuel the economy now?  

        1. I think the real issue is that the banks are making triple on foreclosing on properties they don’t own.  They do this by selling to investors (1st)then collecting insurance when the loan defaults (2nd) and collect again when they foreclose (3rd).  It’s a scam they are not going to stop.  It is this behavior that will prevent a recovery or at least it is weighted more heavily than anything else right now as the article truthfully depicts.  

          1. But I still think the recovery needs people with money or credit to spend in the marketplace and confidence to spend it. Lack of that is going to be a very long term drag following an orgy of putting it all on the old inflated home credit line that is no more.

            1. Without a strong middleclass we’re unlikely to see a recovery anytime soon.

              I do think that most are underestimating what the banks are doing and that is stealing everything in site.

              I believe I read somewhere that the banks have $600T out there in derivatives and worldwide there is only $50T. What does this mean? The banks can’t fix what they did and we need to shut them down before any recovery can take place.

              And whether we agree or disagree recovery will not happen until we fix the banks and that means putting some in jail and shutting down most of them.  The sooner we come to grips with this the better but we will not stop the plundge until this problem is fixed.  

              1. It’s a kleptocracy, a reverse Robin Hood transfer of wealth from the middle class to the pockets of a tiny elite on a stunning and accelerating scale.  When the middle class  has been completely si sucked dry,  then what?  It’s not as if we can start selling cheap stuff to China   We don’t make stuff anymore and it will be a long time before China stops making plenty of its own cheap stuff for its own growing middle class. The Wall Street Masters of the Universe don’t think or plan beyond their next heist.  Prison is the only thing that’s gets their attention and maybe pitchforks would be helpful.  

  3. AG’s Waiving Prosecution of Banks’ Foreclosure Fraud, Leaving America in the Dust

    http://livinglies.wordpress.co

    The Banks Still Want a Waiver

    By GRETCHEN MORGENSON

    HOW should banks atone for those foreclosure abuses – all the robo-signing and shoddy recordkeeping that jettisoned so many people from their homes?

    It has been four months since a deal to remedy this mess was floated. Not much has happened since – at least not publicly.

    1. people can’t buy houses or don’t want to with no promise that they’ll make a nice profit to pay themselves back for all the debt.  

        1. — and always has been (until the disastrous recent) — home ownership is a bitch if you’re not used to saving.

          I’m not saying that 20% is the right number, but rather that there’s a large dose of reality that’s been sadly missing from home buying.  The restoration of this reality is not a bad thing.

        2. And that’s why I think that the premise of this diary didn’t drill down far enough.  It confused correlation with causation.

          One out of every five Americans is either unemployed or underemployed.

          If you don’t have a job, you can’t buy a house.

          The 2012 election will be about jobs.  Housing is just a symptom.

          1. I’m hoping that the general public starts to realize that without fixing the banking problems and I mean jail time of the banksters and shutting down many of them and their fraudulent practices, that there cannot be a recovery.

            As time passes I think people are getting it and starting to point their fingers at the right players the ones that are destroying our economy.  

          2. But I did say the election will be about the economy. That encompasses jobs, anemic economic growth (less than 2%), the dismal housing outlook, and other factors.

            Fact is most people losing their houses are still employed. The guy across the street from me lost his and he was employed.

            BTW, I’m in that one in five bracket having been in the housing business, with new home construction virtually at a standstill.

  4. Voters, fairly or unfairly, tend to blame the party in power when the economy isn’t doing well.

    The Republicans came in 2010, because voters were frustrated with how the economy was doing. It is difficult to tell how this will play out a year from now:

    (1) Will the Republicans be blamed for not “fixing” the economy?

    (2) Will President Obama be blamed for not doing enough to “fix” the economy?

    Or is there a possibility that both scenarios could play out?

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