Who'll solve our economic mess?
TERRY SAVAGE email@example.com Mar 10, 2008
Federal Reserve Chairman Ben Bernanke admits current efforts are not getting the economy back on track.
Updated: May 3, 2013 12:14PM
There's no end in sight to the woes of consumers -- and very little help is on the way. The statistics are shocking and grow worse by the month:
??900,000 American homes are now being foreclosed -- up 71 percent from a year ago.
??Home prices declined 8.9 percent on average in 2007 -- but some markets recorded declines of 35 percent or more.
??Americans' percentage of equity in their homes has fallen below 50 percent for the first time on record since 1945.
??801,840 Americans declared bankruptcy in 2007, up nearly 40 percent from the previous year -- in spite of tougher new bankruptcy laws. And 76,120 more filed for bankruptcy in February.
Americans have been financing their lifestyles -- and world economic growth -- on their credit cards and houses for the last decade. We're past the stage of blame. In a column a year ago, I pointed out that there was enough greed to go around -- from home buyers, to mortgage brokers, to financial institutions, investment banks and rating agencies.
The question now is: What are we going to do about it?
In spite of all these disastrous headlines, there is still no organized system to help people deal with their mortgage woes.
Consumers are widely advised to contact their lenders before falling behind in their payments. Lenders have no choice but to institute foreclosure when a loan is more than 90 days past due. But even those who try to get help from lenders soon find it's an impossible task.
The mortgage brokers are long gone. Banks tell the homeowner that the loan was sold and suggest they call the "servicer" -- the company that collects their payments. Easier said than done.
The homeowner struggles to find a real person in the voice-mail limbo of "press 1 to make a payment. ..." Persistent callers who reach a real person will be told the terms of the loan can't be changed because it now belongs to an unknown "investor."
The investor -- perhaps a big global bank -- may have taken a multibillion-dollar "write-down" on their balance sheet, but they still want to get paid!
Even struggling homeowners who want to do the right thing are totally frustrated. And so the statistics keep adding up.
Help plans don't work
Calling the well-publicized toll-free number (888) 995-HOPE just leads to another bureaucratic run-around and re-direction to counseling.
The Hope Now Alliance program is run out of the offices of the financial services industry trade group -- the ones who facilitated the mortgage mess in the first place and who have little incentive to come up with a solution that causes their member banks to recognize even more losses.
Even the National Foundation for Credit Counseling and its Consumer Credit Counseling Services agencies acknowledge they cannot work magic when homeowners cannot make the monthly payments on their mortgages and have no equity in their homes to refinance because of falling prices.
Cate Williams, of NFCC agency Money Management Inc. in Chicago, explains the dilemma: "These days, counseling is really about coaching and helping people understand the best of some hard, hard choices -- preparing them for some tough decisions."
Something to offend everyone
Fed Chairman Ben Bernanke acknowledged that even dramatic Fed interest rate cuts and a huge tax rebate program are not getting the economy back on track. The Fed is worried about the banks and is providing more credit. But the banks are worried about lending. And the world is worried about the value of the American dollar amidst our growing national debt.
Even staunch "free-market-solution" advocates are coming to recognize that the cost to our society of these foreclosures and bankruptcies could be worse than the cost of some sort of government-backed rescue plan.
Alex Pollock of the conservative American Enterprise Institute has come up with a plan reflected in a bill introduced by Sen. Chris Dodd (D-Conn.). It recommends a modern version of the Depression-era Home Owners' Loan Corp., which was created in 1933 to help avert foreclosures by purchasing defaulted mortgages from the banks and then making new, more affordable loans to the homeowners based on reduced property values.
At that time, nearly half of mortgage debt in America was in default! Drastic action was necessary. Eventually, nearly one of every five mortgages in America became owned by HOLC. Lenders didn't get all their money back, and they had to settle for lower-yielding government bonds. But the program did work to stop the downward spiral of home foreclosures and values.
So far, there's something in this current "bailout" proposal to offend everyone -- homeowners, investors and even foreign central banks -- since each stands to lose something in the process. But there is also general agreement that someone needs to stand up and lead the way out of this mess -- before it inevitably gets even worse. And that's the Savage Truth!
Terry Savage is a registered investment adviser. Distributed by Creators Syndicate.