Housing as an issue has always struggled to be sexy and grab people’s attention. You might think that the housing crash and its continuing repercussions might have changed that, but this is a presidential election year and presidential candidates ignore things that don’t rally their bases or they don’t know how to address. And so housing—especially the continuing plague of foreclosures, lender and servicer malfeasance, vacant properties, and people trapped in underwater mortgages—is absent from the conversation. Here are some reasons why it still belongs center stage:
The crisis is not over. It may have all started to sound familiar, and news is full of stories about whether we’ve hit bottom yet. But as long as there are 11.4 million homeowners who owe more than their homes are worth, and a massive shadow inventory of homes in default or that lenders are waiting to foreclose on or put on the market until things get a little better, we’re in for another few years of crisis levels of foreclosures at minimum. Amherst Securities has testified that more than 10 million homeowners are likely to lose their homes – about 1 in 5 of all mortgages existing today. And you only have to talk to housing counselors or follow groups like New Bottom Line to hear how frequently lenders and servicers are still screwing over borrowers.
Fixing the Housing Crisis Would Create Jobs. According to a report from the New Bottom Line, applying principal reduction to all underwater mortgages would create about 1 million jobs. At the cost of half what the nation’s top six banks paid out in bonuses and compensation in 2010. When people’s recession-level income is going to reward people who drove up bubble prices, their local economies suffer. Principal reduction is not anti-business nonsense either. Ocwen, one of the largest subprime servicers in the country, has started reducing principal in its loan modifications—an average of $75,500 per loan—and those modifications have much lower redefault rates than other modifications. Now if only the federal government would follow suit, we might get somewhere.
Targeted Victims Are Being Revictimized. From 2009 to 2012, homeowners near a foreclosed property in African American and Latino communities “will have seen their home values drop by more than $350 billion—possibly exceeding the damage the Gulf States suffered from Hurricane Katrina,” according to the Center for Responsible Lending. Many are falling prey to foreclosure rescue scams. But even more insidious is anyone who went through foreclosure has suffered a dramatic loss in credit score—affecting their ability to not only buy another home, but also to get auto loans, or borrow for education. In a recent article, the Washington Post suggests that a generation of progress toward the closing the racial wealth divide has been lost, and that the reliance on credit scores post-housing-crisis is leading us to “defacto economic segregation.”
Housing Affordability Is Worse. From 2008 to 2010, rents have increased 4 percent and incomes fallen 4 percent for working families. Many homeowners are stuck paying high amounts based on bubble prices. As foreclosed homes go vacant and deteriorate, and credit remains tight for many potential home buyers, housing researchers agree that increased demand for rental housing is likely to keep driving prices up. The Homelessness Research Institute at the National Alliance to End Homelessness estimates that from 2011 to 2014, homelessness in the United States could increase by 5 percent, or 74,000 people.
Foreclosures make us sick. Several studies have found that mortgage default and foreclosure result in a dramatic increase in depression, hypertension, and other physical ailments related to stress. It also leads to people not taking their prescriptions in order to save their homes, with obvious consequences down the road. As I mentioned last week, quality affordable housing is a key step to reducing health care costs.
Foreclosures increase child abuse. Every 1 percent increase in 90-day mortgage delinquencies over a one-year period was associated with a 3 percent increase in children’s hospital admissions for physical child abuse, and a 5 percent increase in children’s hospital admissions for traumatic brain injuries suspected to be caused by child abuse. The study, conducted by Children’s Hospital of Philadelphia’s PolicyLab, examined data from 38 hospitals nationwide between 2000 and 2009. In the same hospitals over the same time period, overall injury rates fell.
It’s not hopeless. There are many solutions out there—policies and programs and law enforcement measures—that could make a significant difference and would be easier to implement than something like health care reform. They need a champion at the highest level who will not cower before Wall Street, but step up and do what needs to be done.