Carl Horowitz

Call it a paradox. The U.S. economy officially has been out of recession for 15 months. The stock market enjoyed a record-high September; durable goods orders are up; and consumer spending is growing. Yet homeowners continue to lose their properties at a frequency not seen since the Great Depression. And this is despite – and possibly to some extent, because of – an emergency federal program in place for the past year and a half designed to stave off foreclosures. Call it a consumer bailout. And don’t expect it to end soon.

Business journalists have an old shibboleth: Housing leads us out of a recession. Indeed, that’s the way things have worked out seven of the last eight times. But the inverse may be true as well. Housing can lead us into a recession. Surely the current pileup of home repossessions, heavily driven by high-risk subprime mortgage lending during much of the last decade, is little short of staggering. The Irvine, Calif.-based RealtyTrac estimates that since December 2007, banks and other financial institutions have seized 2.3 million residential properties, or around 3 percent of the nation’s owner-occupied housing stock. And that figure doesn’t include the 8 million dwellings with active mortgages that Barron’s columnist Alan Abelson notes are either in delinquency, default or foreclosure. Nor does it account for the nearly one-fourth of all mortgaged homes that First American CoreLogic says are “underwater”; that is, whose outstanding loan balance exceeds their market value.

This irony of this meltdown is that it’s been happening in the face of massive federal action to stave it off. Back in March 2009, the U.S. Treasury Department, at the strong urging of President Obama, FDIC Chairwoman Sheila Bair and other federal officials, unveiled a new $75 billion program called Home Affordable Modification Program, or HAMP. Two-thirds of the money would be drawn from the Troubled Asset Relief Program (TARP) authorization enacted by Congress the previous fall; the other third would come from collapsed secondary mortgage lending giants Fannie Mae and Freddie Mac, each by that time a ward of the federal government. The White House envisioned helping as many as 3 to 4 million homeowners.

Carl Horowitz

Carl F. Horowitz is director of the Organized Labor Accountability Project of the National Legal and Policy Center, a Gold Partner organization dedicated to promoting ethics in American public life.
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