It’s starting to sink in. The Associated Press, at least, had it right today.
“WASHINGTON – Relentlessly rising unemployment is triggering more home foreclosures, threatening the Obama administration’s efforts to end the housing crisis and diminishing hopes the economy will rebound with vigor.
“In past recessions, the housing industry helped get the economy back on track. Home builders ramped up production, expecting buyers to take advantage of lower prices and jump into the market. But not this time.
“These days, homeowners who got fixed-rate prime mortgages because they had good credit can’t make their payments because they’re out of work. That means even more foreclosures and further declines in home values.
“The initial surge in foreclosures in 2007 and 2008 was tied to subprime mortgages issued during the housing boom to people with shaky credit. That crisis has ebbed, but it has been replaced by more traditional foreclosures tied to the recession.
“Unemployment stood at 9.5 percent in June and is expected to rise past 10 percent and well into next year. The last time the U.S. economy was mired in a recession with such high unemployment was 1981 and 1982.
“But the home foreclosure rate then was less than one-fourth what it is today. Housing wasn’t a drag on the economy, and when the recession ended, the boom was explosive.
“No one is expecting a repeat. The real estate market is still saturated with unsold homes and homes that sell well below market value because they are in or close to foreclosure.
“‘It just doesn’t have the makings of a recovery like we saw in the early 1980s,’ says Wells Fargo Securities senior economist Mark Vitner, who predicts mortgage delinquencies and foreclosures won’t return to normal levels for three more years.
“Almost 4 percent of homeowners with a mortgage are in foreclosure, and 8 percent on top of that are at least a month behind on payments — the highest levels since the Great Depression.
“Because home values have declined so dramatically, many people can’t refinance. They owe far more to the bank than their properties are worth.
“To combat the foreclosure crisis and help stabilize home prices, President Barack Obama launched an effort in March to help 9 million people avoid foreclosure by helping them refinance or modifying their loans to lower their payments.
“But that’s of no help to people who can’t even afford the lower payments because they’re making much less money or lost their jobs altogether.
“As of early July, about 160,000 borrowers were enrolled in three-month trials of loan modifications under the plan, according to preliminary figures from the Treasury Department.
“Meanwhile, more than 1.5 million American households were threatened with losing their homes in the first six months of this year, foreclosure listing service RealtyTrac Inc. said Thursday.
“Last week, Treasury Secretary Timothy Geithner and Housing Secretary Shaun Donovan outlined their frustrations in a letter to 27 mortgage companies, saying the industry needs to ‘devote substantially more resources to this program for it to fully succeed.’
“While high-level pressure on the mortgage industry could help, ‘There’s nothing there that’s going to help people who don’t have jobs,’ said Jay Brinkmann, chief economist with the Mortgage Bankers Association …
“Around the country, the relationship between rising unemployment and foreclosures is growing. An Associated Press analysis of more than 3,100 U.S. counties found a much stronger link between foreclosure rates and unemployment this year than in 2007 …
“Even in areas where unemployment is lower, borrowers are struggling.”
Overall, the writers did a good job on this story. Where did they get the idea that there was a recession in the early 80s, though? Do you, dear reader, remember this country gutting it out during an unemployment crisis back then? Don’t buy it. It didn’t happen.
And where is the reasoning behind the Wells Fargo Securities senior economist’s musings that delinquencies and foreclosures will return to normal levels in three years? We’ll see such normalcy again only when people are put back to work. Isn’t that the thread running through this story? Someone should prod this fellow and ask how – in three years – those 50 million (or more) jobs will be created. If he has the answer – because the administration gurus don’t – then he shouldn’t keep it a secret. [It must be tough to be a senior economist and not know what the heck is going on.]
And it must be tougher still to be an administration official pretending to have all the answers – and knowing that the people are beginning to wise up. That letter to those 27 mortgage companies last week … what gall! Those companies need to “devote substantially more resources to this program for it to succeed,” they were told. The “substantially more resources” should have been the hundreds of billions of dollars that Mr. Geithner, et al, has handed over to Wall Street. That would have taken care of our mortgage woes.
But our unemployment woes? Unless someone in an official capacity discovers the Great Depression emergency shipbuilding programs of the 1930s, there will be no job creation and no economic recovery. [We don’t have three years, Mr. Vitner.]