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Faster foreclosures, quicker turnaround
Barry Ritholtz
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TEXT OF INTERVIEW
Bob Moon: This economic mess started with the subprime mortgage crisis. People couldn't afford their mortgages, banks tightened credit, the rest is history, right? Well it would be. Except we're still there. The ratings agency Fitch said this week that over half of all mortgages modified to help people stay in their homes go right back into default in a matter of months. Seems we're on a mortgage treadmill and that does not spell relief for the economy.
Barry Ritholtz of Fusion IQ joins us now. Welcome to the program.
Barry Ritholtz: Thanks for having me.
Moon: I'm visualizing trying to hold back a big landslide that just keeps coming and coming and then, just when you think you have a control, there's another slide somewhere else. What are these numbers really mean for regular people and for the broader economy?
Ritholtz: Well, understand what we're looking at when we're talking about a mortgage modification. We begin with a home owner, or as some people call them "home ower," that's in a house, but doesn't have a whole lot of equity. The house is now worth considerably less than what they paid and their mortgage, which they were hoping to either refinance or somehow work around, has become an owner's burden.
So they've been unable to get out from behind too much house. And so you end up with a series of incentives and a series of steps designed to prevent foreclosures from taking place. But the bottom line is, many people are in homes they just can't afford and there's not a whole lot you can do to prevent a foreclosure, unless you reduce the amount that owed. And very few banks seem to be willing to do that.
Moon: And if these number's don't change, then we are just going to continue to see more and more defaults?
Ritholtz: The foreclosure picture looks fairly negative for the next, let's call it 12 to 24 months. We're now absorbing about 300,000 foreclosures a month. That's a pretty severe number compared to historical norms, about 3 million a year. I wouldn't be surprised to see another 5 million foreclosures before housing really stabilizes and gets healthy.
Moon: I thought that we had all these programs in place, though, that were supposed to not just stop foreclosures but to keep them from happening in the future
Ritholtz: What the data has shown us is that when they enter one of these modification programs, that on average, somebody -- without real delinquency in their mortgages -- who go through a modification, about 50 to 60 percent of those people end up 12 to 18 months back in behind the eight ball, behind in their mortgage. And people who go into a mod, already delinquent 30, 60, 90 days behind, they're going into foreclosure at very high rates, at 75 to 80 percent.
Moon: So this number -- over half of all modified mortgages going back into default after only a few months -- should that be telling us something?
Ritholtz: Yeah, it's telling us that modifications aren't going to work. Unless you're going to make the house appreciably less expensive for that home owner, for most people that are going through modifications, it's just a temporary stop gap. It doesn't solve the underlying problem. These minor changes around the margins -- lower interest rates a little bit, reduce the payment slightly, because we're extending the term of the mortgage -- they're not addressing the fundamental issue, which is, literally millions of people ended up buying houses that they can no longer afford
Moon: What I hear you saying is "Let's stop postponing the inevitable."
Ritholtz: You know, it wouldn't be the worst thing in the world to just tear the band-aid off, let house prices get back to their normal levels, relative to traditional metrics. I know it sounds cold and if you've ever spoken to anybody who's gone through a foreclosure, it's a miserable, miserable experience.
But from a macro perspective, looking at the entire country, it would be healthy for the economy, to see foreclosures go forward, to see home prices normalize. That would lead to more housing activity and that helps to create jobs. Until we start house prices get to a point that's going to cause more activity in the real-estate sector, the whole economy is just more or less muddling along.
Moon: Barry Ritholtz with the online research firm, Fusion IQ, the author of "Bailout Nation." Thanks for joining us.
Ritholtz: Thanks for having me.
For more than two years now the government has offerred ever more generous loan modification programs. The result, increased loan delinquencies, increased foreclousures, increased requests for even more generous loan modificatin programs. The cycle is obvious to anyone who wants to take a serious hard look at the situation.
Ron Tripp -- stop looking for the magic bullet. What you missed was the answer -- there is no easy way off the treadmill -- avoid getting on it in the first place.
Your attitude sdoes not lend itself to encouraging peoplke to want to help you. Stop being so entitled, ne a little humble, and take some respsosibility for yourself.
I think you can't just expect the economy to normalize on the backs of people who are trying to make ends meet and pay their mortgages. The real problem is that there are not enough decent paying jobs out there. Are you saying that I have to give up my home, the home where I raised my children and have been a contributing member of the community, and then things will get better? If I could earn just $10K more per year we wouldn't be in this mess. Why did Anthony Mozillo get out of Countrywide still with a fortune? What kind of house does he currently live in? THe problem is GREED, on Wall Street and all the top companies, who feel it is okay to take huge salaries but not pay their lowest rung workers a living wage. If I could have made another $10K per year over the past 18 years I wouldn't be behind in my mortgage. I don't think making $30K per year is shooting for the stars. But somehow we have become so used to devaluing our jobs and being so "thankful" that we even have jobs that we just have not had the means to weather the storms of this economy let alone any personal financial disaster. For every loan modification that is in trouble, I bet there are THOUSANDS of current mortgage customers who are just a shot away from disaster...one lost job...lost or decreased health insurance...legal trouble...or even trying to pay for college so that you can go forth and get a better job. You try to balance all these things yet you never earn more money. Your kids cost more, a car breaks down, you have to travel to be with a dying relative...all of that costs money and it has to come from somewhere. You can't feed your family rice and oatmeal every single day. The good days where people were upwardly mobile and made a decent living with benefits and pensions are over...yet the people in control of the major companies are still on their gravy trains. Somehow they feel it beneath themselves or socialist to pay everyone a wage they can live on. I know plenty of people who bust their tail everyday and if you think they get paid their fair worth you are mistaken. They are women...they work for places like the public education system...and they deserve a better shot in life as they try to help create a society of educated, well-informed, creative and talented graduates...yet they are still on the bottom rung. My son made more money at his first job as a floor sweeper than I make after 13 years of dedicated service.
