During the housing boom, millions of Americans took out mortgages to realize their dream of owning a home. Three years into the bust, millions are living a nightmare and losing their properties -- often illegally.
Nearly a quarter of homes sold in the second quarter consisted of foreclosures, according to RealtyTrac, a real estate research firm:
Banks stepped up foreclosures through the summer and will take over a record 1.2 million homes this year, up from around 1 million last year and about 100,000 in 2005 before the housing bust, according to a forecast from the real estate data company.
Foreclosed homes accounted for 24 percent of all second-quarter sales, at an average price discount of more than 26 percent compared with homes not in the foreclosure process.
As a key official at the nonprofit National Community Reinvestment Coalition told the Washington Post:
What's happened here is that there are these foreclosure machines that don't do due diligence and that are profiting at the expense of consumers.How did we get here? Most obviously, a flood of bad lending in the years leading up the 2007 subprime crash. Since then, the culprit has been woefully inadequate public policy that puts preserving bank profits ahead of helping desperate homeowners keep a roof over their heads.
The Obama administration's main anti-foreclosure initiative, the Home Affordable Modification Program, has fizzled. More people have fallen out of HAMP -- some 616,000 homeowners -- than have secured permanent changes to their mortgages. TARP Special Inspector General Neil Barofsky recently concluded that HAMP hasn't put an "appreciable dent" in foreclosure filings.
Although the U.S. Treasury has tried to bandage the program, it continues to falter. And yet President Obama still defends HAMP. As he told one questioner earlier this week at a campaign event in New Mexico:
This is a multitrillion-dollar market, so there's no government program where we can just make sure that whoever is losing their home that we can just pick up the tab.Obama is correct in saying that there is no panacea to the foreclosure crisis. The unfortunate reality is that too many borrowers are in homes they can't afford. Too many homeowners are falling behind on their payments, with 23 percent of homes worth less than what they owe on their mortgages. And lenders offer too little help in making these loans more affordable.
Yet if the government can't save everyone at risk of losing their home, it can do more to stem the damage. First, recognize the foreclosure epidemic for what it is -- a national emergency. Even as a symbolic measure, Obama should take to the airwaves to acknowledge the government's failure to mitigate the crisis and to present fresh ideas for dealing with it.
Second, revisit the White House's disastrous decision last year to bow to financial industry pressure and withhold support for so-called "cramdown" legislation. Such a law would let bankruptcy court judges force lenders to modify mortgages. This approach is tried-and-tested. After a financial bubble hit the U.S. agricultural sector in the early 1980s, Congress changed bankruptcy law to enable the courts to restructure farmers' mortgages. It worked, with no ill effects.
If there's any good news in the soaring foreclosure numbers, it's that it may speed recovery in the housing market. Said one RealtyTrac executive in discussing the firm's latest data:
This is the kind of volume of activity that we need to see for the market to heal. Our projections have been that we will get through the distressed inventory largely by the end of 2013, and these kinds of numbers are on target to get us there.Cold comfort, of course, for homeowners left out in the cold.
Image from Flickr user GiantVermin