Reading this article out of Reuters, one cannot escape the near-inevitable conclusion that we are heading towards a double-dip recession with a second housing collapse leading the way.
We wrote last week regarding the back-slapping going on over at the Treasury Department because they were ahead of schedule in getting 500,000 people signed up for a TARP-funded loan modification program.
The plan has been plagued by red-tape delays and, some would say, a reluctance for banks to do their part so much so that only 17 percent of eligible borrowers have had the their loans modified. And trust us, that’s actually good news.
Instead of propping-up the housing market, the numbers suggest that this loan modification program is merely delaying the inevitable.
From the market's peak in 2005 to the second quarter of 2009, U.S. home equity fell 37 percent, or by $4.7 trillion, according to the Federal Reserve. To put that into context, China's economic output totaled about $4.3 trillion in 2008.
There have been recent signs the housing market may be bottoming. But rising unemployment and "shadow inventory" -- homes that banks have yet to foreclose on -- raise the prospect of further price declines.
But here’s what really worries us:
Another problem is the number of borrowers who re-default on their modified loans. The U.S. Office of the Comptroller of the Currency says 56.2 percent of loans modified in the second quarter of 2008 re-defaulted after 12 months.
According to Amherst Securities, an even higher 70 percent of homeowners re-default within 12 months of a modification -- but it stresses its data does not include HAMP modifications.
So, it’s safe to say that government bail-out or no, well over half of distressed borrowers re-default within 12 months of a loan modification. That isn’t necessarily what we would call a “green shoot”.
There is a cultural aspect to this as well. We can rail all we want against the government, the greedy banks and unscrupulous real estate agents but it appears that we as individual citizens have totally lost our bearings in exercising any sort of personal/family fiscal discipline.
Mark Seifert, head of nonprofit agency Empowering and Strengthening Ohio's People said his group's re-default rate is around 30 percent because counselors help homeowners cut their budgets to keep their homes. This may involve not eating out and cutting all non-essential items.
Non-essential items like that new car you bought through that other un-godly government prop-up program and that totally sweet $4500 rebate you got for your perfectly functioning “clunker”.
And not to pick on any one person but check out this guy:
For homeowners like Jeff Latta, there was no help at all.
Latta, a 53 year-old retiree, pays $1,600 in monthly home payments that eat up 93 percent of his pension and he struggles to make child support payments.
To help pay his mortgage, Latta has slashed his bills by hunting for food in the wooded hills around his town of Albany in southern Ohio, and growing his own vegetables. He has resorted to selling pumpkins and firewood to make cash.
In March, Latta heard about Obama's Home Affordable Modification Program, or HAMP, that allows mortgage payments to be reduced to 31 percent of a homeowner's income.
The plan was launched as a central plank of Washington's efforts to stem foreclosures.
Latta applied for a loan modification but was rejected. His bank said his income from selling pumpkins and firewood -- a net of $906 in 2008 -- was too high.
"Frankly, I'm disappointed," Latta said. "I thought I would qualify as I am at high risk of default."
Foreclosure prevention advocate Bryce Burton at Ohio Housing Finance Agency said Latta's bank miscalculated his income. "Jeff is a shining example of someone doing everything they should be to keep their house," Burton said.
Does anyone else see a problem here? We hate to rain on Mr. Latta’s golden years but did he seriously think that he was going to get by on $1700/month free and clear when he was considering retirement… at 53?
And a shining example of someone doing everything they should? Well, doing everything he should except perhaps finding a job which the article never bothers to consider.
But we’re such kill-joys for suggesting the same for a person who decided to put it on auto-pilot a full quarter century prior to his life expectancy expiration date. As far as the obligatory sob story, Rueters could’ve done a tad better.
We hate to be pessimists, it’s not in our nature but the numbers and anecdotal evidence doesn’t look good. Combine that with the fact that our gold-plated road-paving government is aiding and abetting this reckless behavior leads us to believe we are not getting out of this mess anytime soon.