In its sixth year, the financial crisis hasn’t gotten much better, according to data compiled by Alan White of the CUNY school of law. The percentage of mortgages in foreclosure was measured at 3.33 percent as of June this year. This is an improvement over the last couple of years, when that number hovered above four percent, but well above the pre-crisis one percent foreclosure rate in 2006. This number has exceeded the ideal of one percent for longer than it did during the Great Depression.
This should come as no surprise considering the lack of political will in Washington to take the necessary measures to deal with foreclosures. Many of the programs set up in the wake of the crisis are either underfunded or underutilized. Some of them, such as the Protecting Tenants at Foreclosure Act, were passed and signed without giving any federal agency the ability to enforce them, leaving individual municipalities to pass their own laws to protect renters. The city of Chicago recently passed a law, the Keep Chicago Renting ordinance, that requires entities that take control of rental properties in foreclosure to allow tenants to stay or pay them a $10,600 relocation fee. This is great for tenants in Chicago, but the fact that the federal government has basically passed this responsibility down to the city is emblematic of the lack of a substantial response to the financial crisis.
Principal reductions, which would relieve many distressed borrowers by reducing the amount they actually owe, weren’t even on the table until recently. Obama’s nominee for director of the Federal Housing Finance Agency, which controls Fannie Mae and Freddie Mac, Rep. Mel Watt has said he would possibly reconsider allowing principal reductions, a step in the right direction from the current director’s vehement opposition to the idea.
Edward Demarco, the acting director of FHFA, has consistently blocked principal reductions, even while his superiors at the Treasury tried to convince him otherwise, claiming that the cost to the taxpayer would be too much. Although Watt hasn’t made a definitive statement on the issue, he has been known to be in support of the idea in Congress. Even the idea that he isn’t completely opposed to reductions is a major change from what has been going on in Washington. Perhaps the economic recovery will start to accelerate once the FHFA is led by someone who is no longer standing in the way of sensible policy.
Although the financial crisis seems to be mostly a non-issue to politicians and pundits lately, we are still a long way from recovery, and many homeowners who received temporary modifications through the Home Affordable Modification Program are approaching the end of their 5 year deal and could go right back where they started. Economic issues may not be “in-season” but the foreclosure numbers show that there is still a long way to go before things are back to normal. That being the case, there are still plenty of steps that, after all these years, haven’t been taken to relief homeowners. We also have no idea what Congress will do about the Mortgage Debt Forgiveness Act which prevents taxation on debt forgiveness for homeowners who go through short sales. The MDFA is scheduled to sunset December 31, 2013. Will Congress pay any attention to that expiration given the myriad of other issues they are dealing with? Do they realize the crisis is not over and homeowners are still trying to deal with distressed properties for which they can find no solutions? I guess we will just have to wait and see if any attention can be paid to the plight of homeowners in 2014.