Awful Thoughts on the Housing Crisis

Mike Whitney is a thoughtful writer on the economy for CounterPunch:

In its effort to rescue the housing market, the Obama administration has created a Frankensystem which neither allows the market to clear nor solves the intractable social problems of lost equity and foreclosure. Obama needs to step back and take a look at the mess he's made by following the advice of financial industry reps and bank lobbyists. Housing is in a shambles. The market is presently stitched together with buyer-assistance programs, loan modifications programs, new homebuyer subsidies, foreclosure abatement programs, principal reduction programs, historic low interest rates, "easy-term" financing, and government-backed loans. It's a dog's breakfast of inducements, giveaways and bandaids all designed with one purpose in mind; to keep the banks from taking a bigger hit on their garbage mortgages. To get an idea of how desperate the situation really is; take a look at this article in the Wall Street Journal:

"The U.S. government's massive share of the nation's mortgage market grew even larger during the first quarter. Government-related entities backed 96.5 per cent of all home loans during the first quarter, up from 90 per cent in 2009, according to Inside Mortgage Finance. The increase was driven by a jump in the share of loans backed by Fannie Mae and Freddie Mac, the government-owned housing-finance giants....

“The collapse of the mortgage market in 2007 steered more business to the Federal Housing Administration, which insures loans, and Fannie and Freddie, which were taken over by the government in 2008 as rising losses wiped out thin capital reserves. Congress also increased the limits on the size of loans that Fannie, Freddie and the FHA can guarantee, raising the ceiling to as high as $729,750 in high-cost housing markets such as New York and California. ("U.S. Role in Mortgage Market Grows Even Larger" Nick Timiraos, Wall Street Journal)

There is no housing market in the U.S. apart from the government. The Potemkin banking system is still on the rocks, so Fannie and Freddie have been forced to pick up the slack. But if the government is going to put up all the financing, then it should have a bigger say-so on the way things are run. The emphasis should be on helping people, not on more handouts for the banks.

Here's another stunner from the Wall Street Journal. The article is titled "Number of the Week: 103 Months to Clear Housing Inventory" by Mark Whitehouse. Here's an excerpt:

"How much should we worry about a new leg down in the housing market? If the number of foreclosed homes piling up at banks is any indication, there’s ample reason for concern. As of March, banks had an inventory of about 1.1 million foreclosed homes, up 20 per cent from a year earlier....

“Another 4.8 million mortgage holders were at least 60 days behind on their payments or in the foreclosure process, meaning their homes were well on their way to the inventory pile. That “shadow inventory” was up 30 per cent from a year earlier. Based on the rate at which banks have been selling those foreclosed homes over the past few months, all that inventory, real and shadow, would take 103 months to unload. That’s nearly nine years. Of course, banks could pick up the pace of sales, but the added supply of distressed homes would weigh heavily on prices — and thus boost their losses." ("Number of the Week: 103 Months to Clear Housing Inventory" Mark Whitehouse, Wall Street Journal)

Got that? There's a 9-year backlog of distressed homes. The banks are deliberately fudging the numbers to hide how bad things really are. The number of homes in late-stage foreclosure is not 1.1 million, but nearly 6 million--- 5X more than the banks are admitting. Housing will be in the doldrums for a decade or more. It's shameful that people can't get basic information like this to help them make their investment decisions. The banks couldn't pull off this type of information warfare without the help of government officials pulling strings from inside. Bernanke and Geithner must be involved.