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America Underwater: The mortgage crisis in data
This week, Marketplace Money and The New York Times teamed up to tell the story of home ownership in America three years after the housing bubble burst. In a special report called "Which Way Home," we share the stories of the people who own homes, want homes, and have lost homes during this turbulent period.
While our reporting teams were hard at work finding, recording, and telling the stories that appeared in Wednesday's issue of The Times (now online at NYTimes.com), and on the public radio airwaves this weekend on Marketplace Money, we on the digital team went in search of data to tell the story.
We put to work former Marketplace intern Ryan Faughnder, a USC journalism graduate student who has compiled the data for a number of our Marketplace Maps. What he put together for us this time stark. It revealed a nation underwater.
In Nevada, for instance, 60 percent of homeowners owe more on their mortgage than their house is worth. The data comes from research and analytics firm Corelogic, which produces a quarterly negative equity report that reveals just how many borrowers are underwater.
The second data set we included comes from the Federal Housing Finance Agency, which regulates mortgages by Fannie Mae and Freddie Mac. The FHFA tracks a data point called the House Price Index. That calculation of housing purchase prices and appraisal data measures changes in home values over time. It's the same data that the St. Louis Fed uses when graphing out the housing bubbles for each state.
When you line up home price data with the number of underwater mortgages, you can see why so many borrowers are in trouble. Housing prices have fallen far from their peaks in many states. There goes your equity.
Finally, we looked at a report that shows the worst of it; those homeowners falling behind in mortgage payments or those who just gave up and walked away. RealtyTrac's foreclosure report counts the number of homes that received a foreclosure filing of some kind during the quarter. RealtyTrac explains it like this on its website: "If the number is 100, you could say that one in every 100 housing units received a foreclosure filing during the quarter."
Here are a few notable ones: In California, 1 out of 88 housing units received foreclosure filings. In Nevada, it was 1 out of 44 housing units. In Vermont, meanwhile, it's 1 in 8,493.
Want to see how your state stacks up? All of this data is easily explored and sortable in our latest Marketplace Map: America Underwater.
Thirty years ago when interest rates were 15 percent and higher I learned much about housing and mortgage options listening to MPR including the recommendations to take a free house buying class offered at my local college; not gamble with variable rates; not borrow against equity or, if absolutely necessary, only for items such as a furnace or roof and pay it back before borrowing again; and carefully look at all the numbers when purchasing or refinancing, etc.. Thank you MPR! I would love to have you look in your archives and bring back some of those early commentators as guests. I hope to continue expressing my thanks through my Sustainer support of MPR for many years. (Start requiring downloading freeloaders to be members. Surely this technology costs money!) Anyway, I took a free evening course, researched info at county offices, paid for real inspections and due to the confidence I gained listening to MPR reporters, guests and listener call ins, I stood my ground again and again when what I was being told or sold didn't add up. One paperwork error was $34,000 - an error I was "expected to trust they would fix it" - I didn't, I stepped out of the room and called their corporate office advising them I was calling the AG and local tv station next -- the closing fees were dropped altogether. Twice I have taken mortgage processing concerns to the Minn. Office of the State Attorney General - one appraiser was investigated - he wasn't even doing the assessments, just reusing old paperwork. Another offender was told to 'cut it out' and did. Sadly this state entity is often a political football instead of being exempt from political nonsense. However, I am hopeful that after all the banking and mortgage corruption they are now being funded as generously to assist taypayers as the banks were to... I cashed my personal mutual funds after I fought Deutsche Bank to recover funds my mother invested through AARP. (Check out the foreclosure listings to see how DB is currently involved in the American mortgage market recovery.) I sold my house and started renting when I could no longer fathom the explosion of housing being built. (The gatekeepers didn't care - government officials loved the black bottom lines from building and inspection fees, taxes, etc. And sorry 'wall street protesters' -- the bankers who made the real money are nowhere near government buildings - they are living the good life on yachts and islands. Regardless, I don't think anyone should be allowed to walk away from a real estate purchase decision unless the realtor was lying about the condition of the property or the info on the paperwork was falsified, any more than student loans, car purchases or credit card bills should be 'dismissed'. Yes, I'm sure there are a few understandable exceptions, like healthcare bankruptcies because of the billions insurance companies are raking in without making payouts. When I purchased my first home, student loans were not included credit reports at the time. I was disgusted - I worked multiple jobs paying off that obligation. When people couldn't afford cars in the 1980's (another recession) car loans were stretched out to 48 and 60 months. Why can't mortgage payments be stretched out for 40, 50 years for one primary residence? The payment would be closer to what the people abandoning homes would be paying in rent somewhere. Plus, they could refinance as the market starts improving as the glut of housing is absorbed instead of just letting mortgage investors resume their feeding frenzy. What about the real threat to housing investment in America - health insurance is a national ponzi scheme we can actually stop and have an incredible impact on the housing market. I have dropped my health insurance, something I would have never considered 40 years ago. However, back then insurance actually paid for health care. Today politicians are fodder for the bloated "not-for-profits" who are hugh campaign funders who 'encourage' employees to support pro-insurance politicians and their lobbyists. No politician wants to be labeled as discouraging any job growth, even if they just low-paying call center jobs that only add layers to customer frustration levels until they give up hoping to collect from the thousands they have given to insurance companies for health care only to not be reimbursed when health care is actually needed. We need CNAs, not call center operators. Please stop using the terms 'health care' and 'health insurance' interchangeably. We could have a successful national health care program but only if we defeat the health insurance monster, the one that killed GM and is bankrupting every company and individual in America. I have stopped paying their extortion money and will pay the health care professionals who actually provide health care, including care of my eyeballs and teeth. If the money being fleeced by health insurance companies went to actual health care providers we could all afford health care and safe homes.
JDB: That figure is Vermont's House Price Index, not average home value. It's a very differnt thing. Here's a chart of Vermont's HPI from the St. Louis Fed: http://research.stlouisfed.org/fred2/series/VTSTHPI
The more I listen to supposed experts talk about the role of housing in the economy the greater is my fear that nothing is being learned by the collapse of our property markets. The 2007 crash was forecasted by a number of economists and others who understood the full nature of underlying land markets. There was no "housing bubble" bursting; what burst were credit-fueled and speculation-driven land markets.
Under normal market conditions, the value of a dwelling or housing unit is very close to its replacement cost, less whatever depreciation has occurred. As an asset, the value of housing is in a continuous state of decline -- kept reasonably constant only by the ongoing maintenance and replacement of the house a piece at a time. However, as an asset, land keeps rising in price until about every 18-20 years the fever of speculation drives the price of land to such a level that business and residential tenants are priced out of the market and owners of existing property find it difficult to find qualified buyers.
In the most recent land market cycle, the deregulated and fraud-prone financial services sector acted as an accelerant to a burning fire. Much too late, the regulators and our elected officials have acted to put their collective fingers in the dike, ignoring the most obvious and meaningful potential reform -- which is to prohibit any financial institution that accepts government insured deposits or other government protections from extending credit for the purchase of land or refinancing of an existing loan based on land value as collateral. This would not prevent the eventual upward start of another speculative land market cycle but it would protect the banks from themselves and protect us as taxpayers from the banks.
During my own long career in the financial services industry (the last 20 years at Fannie Mae, retiring in 2005), I had the good fortune to make the acquaintence of several economists who actually know how property -- and land markets, particularly -- act as primary drivers on the general economy. Marketplace could do worse than to contact any one of them, as follows: Fred Harrison (author of the 2005 book, 'Boom Bust: Housing Prices, Banking and the Dpression of 2010'); Mason Gaffney (University of California, Riverside); Nic Tideman (Virginia Polytechnic Institute); Fred Foldvary (Santa Clara College); or William Peirce (Case Western University). There are others, but these individuals fit the description of actual experts.
Real people took real losses because he walked away, and many of them had less money and less time to make it up than him. It's a contract with the bank, but the loss is passed on to investors. I am a lay person and knew real estate never keeps going up endlessly. Why didn't he? Because like so many, he believed what he wanted to believe. There are many villains in this mess and he is one of them. I took a huge loss of income due to their bad behavior as did a lot of people I know. It is a moral issue. You walked away and left others holding the bag. I did nothing wrong. Others had a huge party and sent the bill to me and others like me.
This position, too, goes too far, although it's closer to the truth than the bubble rhetoric in both inflation and deflation phases. Contemporary societies cannot survive without credit, and you are never invisible to credit agencies, only denied the means of traveling anywhere without a credit card.
That the word crises is used more commonly when making reference to the much needed correction underway in the housing market exemplifies just how far up their posteriors society has lodged their heads. The late start that I got in my early thirties at work that enabled me to a low to average income became the trend I was on for the twentyfive years that followed. It began when I moved from New Hampshire to Southern Florida. The day after I rolled into Florida I got up homeless in my car, and near a place that advertised a job opening in a newspaper I shaved and donned a suit and knocked on their door. They interviewed me and told me to call them later. I made that call before the weekend and was scheduled to begin the Monday that followed.
Employed as an experienced machinist I continued pursuit of work more suitable. I would describe the reception as favorable most places I went but thought that was the norm.
I responded to an ad and was interviewed where there was work in which I had great interest, and was hired. I was happy with this job, getting better pay, but a year and a half later they moved my job, several other jobs, myself and two others to California.
I was loving life in Florida and had begun dreaming of owning a home there. My dreams were dashed upon the harsh reality of the insane prices for which houses sold in California.
The saving for a home that was already underway in Florida continued in California fifteen years. Then the housing bubble fully inflated. I remember hearing a clip in which there was audible glee in Greenspans' voice as he sumarized the health of the economy.
I was pissed. The new heights to which homebuyers had skyrocketed prices belittled my savings mercilessly. In 2005 all I could picture as an explanation for this home price insanity was some idiot powered mouth saying sure I'll pay that price plus a few thousand more. What do I care? Its not my money. Someone using someone elses money made my savings look like dirt and I wanted revenge.
Once market correction was underway there came all the forclosure crying and the sympathetic ear manifest in political rhetoric and subsequent government tampering which hindered the correction. I was thinking we should be having forclosure parties. We should be volunteering at the banks to help process default notices. That's what I wanted to do but the time left subsequent to fulfilling the responsibilities expected by my employer prevented this from happening. I could at least enjoy the forclosure news. I couldn't get enough of that.
On the internet houses looked to be for sale and the prices were becoming compareable with my savings but the government tampered persistently to prevent this. Especially with that first time homebuyer tax credit. I frequently took a day or two off from work as my vacation hours neared the maximum accrual permitted by my employer. I would combine those days with a weekend to go to Florida shopping for a home. Houses, as I mentioned before, would appear on the internet. I would check them out while in Florida. Arriving at an address there would seldom be any for sale sign. I think many of them were sold and the websites left the aged information. Through a couple of years doing this one free website appeared to keep current. On my way to a property from the internet I passed a great looking one with a forclosure sign. That was how my first interaction with a realtor came about. You never see a house on the internet with a button beside it saying "Add to shopping cart". So it was through the realtor that I found out about a lovely little distressed property in a city I could really like. It was on and off the website that stays current a couple of times along with downward price changes and the appearance of a cash only requirement. One of those times was because of me. Now I own it. Literally. I'm 55, I just bought my first home, and when the right circumstances arise I can move there settle down and start a family. This could all be done at an earlier age if houses weren't so insanely overpriced. Lower home prices are required considering the tiny paychecks we'll get following the forced cut in pay coming to all in the US for our failure to compete globally.
I'm invisible to the credit agencies and I intend to stay that way. They are an unreliable source of information and there are more people like me who are proof of this.
