All Blog Posts from Econwatch

A report today found the number of American households threatened with losing their homes grew 24 percent in the first three months of this year and is poised to rise further as major lenders restart foreclosures after a temporary break. Early Show financial contributor Vera Gibbons reported on whether the housing market has hit bottom. It depends on the local economy of the area, she found.


The foreclosure data out yesterday showed foreclosures threat up 24% in the first quarter. And there are more foreclosures in the pipelines -- 3 million potentially this year. That is going to continue to depress prices. Prices are already 30% after their peaks, which could drop another 10%.

But the good news that we're hearing is that there is a bit of a thawing going on in the housing industry. Some of these buyers are getting off the sidelines and the government programs working their way. The economists I talked to yesterday said that the bottom is, in fact, nearing. You could potentially hit bottom in late 2009.

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Gary Varvel is the brilliant political cartoonist for the Indianapolis Star. His depiction of Treasury Secretary Timothy Geithner as an airline pilot trying to reassure terrified passengers about his improvisational flying skills is delicious. It gets to the point that there simply is no textbook response to the global financial crisis. This is especially true when it comes to disposing of those "toxic assets" President Obama, business leaders and reporters keep talking about.

"Toxic asset" has become economic shorthand for the bad loans at the center of this entire mess. The most damaging of the assets are mortgage-backed investments that have threatened the very survival of the world's biggest banks. Basically they are bundles of thousands of individual mortgages. At the height of the housing boom, selling these bundles of mortgages freed banks to loan even more money. Banks, Wall Street firms and hedge funds also bought these securities as investments. But the assets have lost their value as homeowners defaulted on the mortgages, foreclosures increased and home prices dropped.

The plummeting value of the mortgage-backed investments, and other securities built around loans, has forced banks to dramatically cut back on their lending to each other, businesses and consumers. The recession will only deepen unless the banks can eventually get rid of the "toxic assets" still on their books.

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If you want to get a good sense of how bad the foreclosure crisis has become, take a drive down South 11th Street in Newark, N.J. That's where we caught up with Scott Pyper and his crew.

Pyper is co-owner of Empty Building Security. His business shutters foreclosed homes with 14-gauge steel barriers. He may have the only growth industry in housing these days.

"In the last year and a half that we've been in business we've been very busy," Pyper said.

The shutters are necessary because looters are breaking into foreclosed homes and ripping out copper pipes, kitchen cabinets, electrical wiring, insulation, wall studs - almost everything. The places are completely wrecked.

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President Obama announced a $75 billion plan on Wednesday that he said would help as many as 9 million Americans avoid foreclosure.

As EconWatch previously noted, not all of the details are public, and we're expecting to hear more on March 4. For now, though, the below list of Frequently Asked Questions reflects what we've been able to find out so far.

Q: Which mortgage borrowers qualify?

The Homeowner Affordability and Stability Plan is limited to loans held or securitized by Fannie Mae or Freddie Mac, which as of January 1, 2009 have been capped at $417,000 for most areas of the United States and $625,500 for what are called "high cost" areas. There are higher limits for Alaska, Guam, Hawaii and the U.S. Virgin Islands. Mortgages that are linked to Fannie and Freddie are known as "conforming" loans.

Q: If I'm current on my mortgage but my home has decreased in value since I bought it, can I benefit by refinancing?

Perhaps. First, you have to hold a Fannie or Freddie conforming loan. Second, your house can't be too far underwater. The Treasury Department says: "Eligible loans will now include those where the new first mortgage (including any refinancing costs) will not exceed 105 percent of the current market value of the property."

Translated: If you owe more than $210,000 on a house that's now worth $200,000, you're out of luck.

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When President Obama announces his administration's plan to limit future foreclosures on Wednesday afternoon, he's expected to encourage lenders to lower monthly payments perhaps through lower interest rates and principal reductions.

The goal of this plan -- call it the Housing Bailout of 2009 -- appears to be to use money already approved by Congress as part of last October's Troubled Assets Relief Program to slow the pace of housing foreclosures.

"We must stem the spread of foreclosures and falling home values for all Americans, and do everything we can to help responsible homeowners stay in their homes," Mr. Obama said on Tuesday.

The fine print is what really matters. It's one thing to say that borrowers whose house prices are underwater or lost their jobs through no fault of their own should receive taxpayer aid -- but another thing to write the regulations in a way that helps the innocent while rejecting those who fibbed about their salary or bought more home than they could actually afford. (For the apotheosis of such speculators, see the case of Sacramento's Casey Serin.)

Another point to keep in mind is that not all metro areas have experienced a housing bubble. The S&P/Case-Shiller Home Price Indices show that for the decade ending August 2008, house prices in the New York and Washington, D.C. metro areas leapt by around 2.2 times, while non-bubbly areas like Cleveland saw an increase of a mere 1.17 times.

Any housing bailout of coastal properties raises the obvious question: Should taxpayers in the non-bubbly heartland be required to bail out those living in coastal states? And is it fair for renters or those who lived within their means to bail out those who didn't?

Mr. Obama may not divulge enough detail on Wednesday to let these questions be answered; the details may not be released until later. When that happens, be sure to read the fine print.