CA Politicians Pander on Foreclosures

JAN. 27, 2011

By WAYNE LUSVARDI

On the eve of President Barack Obama’s State of the Union address, 16 California House Democrats pleaded for more relief for homeowners in foreclosure.  It was all show and no go, however. It was all meant to posture and pander before TV cameras and fawning newspaper reporters covering the State of the Union speech.

Dataquick real estate data service reported 61,517 more Notices of Default on delinquent home loans were filed in California during the fourth quarter of 2011.  But newspapers headlines are portraying that the delinquents’ elected representatives are “doing something” to save them.  Nothing could be further from the truth.

Of the 61,517 new Notices of Default filed in the fourth quarter of 2011, 60,289 were because borrowers were in default on multiple loans.  For example, a borrower could owe on a primary mortgage and a line of credit on the equity in his home.  There is very little any relief program can do when 98 percent of those delinquents are also in default on more than one loan.  Homeowners were pulling money out of their homes to live on as if it was a money tree. When all the leaves were plucked, the tree died. When the whole forest died, the economy died.

According to Dataquick, homeowners were typically nine months in arrears on their loan payments when the lender filed a Notice of Default.  The typical borrower in default owed $19,949 on a home with a $333,036 mortgage.  Most of the loan delinquents were in lower income areas where most households don’t pay income taxes.  So households that don’t pay income taxes added nearly $20,000 of debt.  The debt has created a hole in the state budget that can’t be plugged.  Lower income homeowners went on a feeding frenzy of “greed” that no pop journalist wants to write about.

Obama’s speech mentioned nothing about how homeowners saving $3,000 a year on their mortgage would even dent the foreclosure crisis in California. It would only help homeowners who are already financially responsible. But politics is a game of creating a perception that government can save you after it created a problem in the first place, in this case the Housing Bubble.

Foreclosures Decreased but Were Offset by Short Sales

Short sales reflected 19.8 percent of all the re-sales of homes in the fourth quarter of 2011.  A short sale is where lender is willing to sell a home for less than the loan on the property.  Over the last four years, the percentage of short sales his climbed from 16.4 to 19.8 percent of sales.

Notices of Default and actual foreclosure Trustees Deeds recorded have somewhat declined. But this has been offset by the increase in short sales.

John Walsh of Dataquick said, “We are certainly seeing a lower level of foreclosure activity than a year or two ago.  The question is how much of that decline is due to market conditions, and how much is due to policy changes that try to address economic distress and lower home values.  Strategies now include short sales, refinances, interest rate changes, principal reduction as well as just plain waiting longer.”

Politicians want banks to delay foreclosures so the pols can stay elected. The banks seem to prefer just waiting it out until the next election cycle is over to find out what policies will be implemented. Then they can proceed.

The Continuing Stark Reality

Unemployment is still running 11.1 percent in California.  There are still 281,142 initial unemployment insurance claims.  About one third of all home re-sales — 33.7 percent — were foreclosures in the last quarter of 2011 (down from 57.8 percent in 2009). Loan delinquencies remain clustered in areas with the lowest home values.  Nothing Obama or the Democratic contingent in Congress from California is doing is going to change this reality.  But the newspapers are reporting that your representative is “doing something.”

Into this stark reality, redevelopment agencies are absurdly bemoaning that yet more affordable housing is needed.  Owner-occupants bought about 70 percent of all foreclosed homes. Thus, the market, not government, was generating its own affordable housing.

Investors bought the other 30 percent of foreclosures.  They apparently returned the properties to affordable rental housing.

CA’s Democratic Congressional Posturers

Despite all of the above, California Democratic congresspersons complained that the foreclosure crisis was somehow worsened by the Republicans blocking the appointment of the head of the Federal Housing Finance Agency.

Said Rep. Dennis Cardoza, D-Merced, “The administration has been playing footsie on this topic.”

Cardoza is probably right. The president has been playing political football with foreclosures.  But that is probably not what Cardoza meant. The term “political football” refers to a problem that doesn’t get solved because of the politics involved.

Not to be outdone in political posturing and pandering, Rep Mike Thompson, D-St. Helena, said, “It’s not good enough to keep people in their home.”  Well, he’s right on that.  Just the 61,517 delinquencies filed in the fourth quarter of 2011 would equate to $20.48 billion in loan defaults. That would be the equivalent of the California state government’s structural $20 billion budget deficit all by itself.

Executive Action

But it was Rep. Jerry McNerney, D-Pleasonton, who probably “takes the cake” for his call for Obama to take executive action without Congress.  McNerney called for a “real plan for reducing the principal owed on underwater homes.”

Asked how much that would cost, Edward De Marco, the acting director of the Federal Housing Finance Agency answered, “$100 billion.”  It’s probably more like $1 trillion; $100 billion would be about five months of loan defaults in California alone.

Now there’s a true political panderer for you. The country and the state are already broke from the Housing Bubble.  And a congressman wants the president to wave a magic wand to give a $100 billion bailout to delinquent homeowners.  But we live in a system in which the president has to share power with the Republican-controlled House of Representatives that holds the purse strings.

Politics in California is mostly symbols and not substance.  But the newspapers and broadcast networks take it seriously. And the California electorate keeps electing them. And why not?  If you could get a free 20 grand and live in a home rent free for a few years until your home is foreclosed on, wouldn’t you vote for those who created such a plundering of wealth of the savings and pensions of the middle class?

While California burned, Obama and 16 California members of congress played a fiddle to the media.  At least their tune was in harmony with their constituents.