Tuesday, August 27, 2013

Propping Up America's Housing Market

Updated October 2013

Recent housing market data in the United States appears, at least on the surface, to show that the housing market is recovering from its Great Recession meltdown.  That said, I believe that there is a key to this recovery; Federal government mortgage aid programs.

From HUD's website, here are some graphs from the monthly Housing Scorecard for August 2013.  First up, we have a graph showing the number of times that mortgage aid of varying types has been accessed:

That's a whopping 6.9 million times that mortgagees have received some sort of mortgage aid (i.e. modification of mortgages or being the recipient of loss mitigation) since April 1, 2009 when the Washington stepped in to save the day.   To put the number of recipients into perspective, according to the Federal Reserve, there were 13,078,660 mortgage holders in the United States in the first quarter of 2013.  You can also see that the rate of mortgage aid access is nearly twice the rate of completed foreclosure proceedings, a point of great pride to the current Administration.  

Here is a graph showing how the number of monthly foreclosure starts (in dark blue) has dropped since April 2009:

The number of monthly foreclosure starts dropped from its peak of just over 200,000 per month back at the beginning of 2009 to its current level of 60,000, a drop of roughly 70 percent.  That's a positive.

Here is a graph showing how much Americans have saved through reduced mortgage payments since 2009:

In the second quarter of 2013, American homeowners' annual savings from refinancing and HAMP modifications including the reduction of principal owing has just passed the $55 billion mark, money which, of course, can be used to stimulate economic growth!

Here's what has happened to the value of America's home equity since the first quarter of 2006 when the market peaked:

HUD claims that total home equity is up $2.812 trillion since April 1, 2009, a not unsubstantial amount.  Unfortunately, of that total, $815.6 billion was accrued in July 2013 alone and when added to the $442.8 billion accrual in June 2013, nearly 45 percent of the increase in America's aggregate home equity since April 2009 was gained in two short months.

In total, since April 1, 2009, 9.089 million Americans have received "counselling" from the Obama Administration's efforts to stabilize the housing market.  Despite these efforts and the recent "improvements" in the housing market, in July 2013 alone, 359,000 homeowners required "counselling" from the federal government housing folks, up nearly 5000 from June 2013 but down from 420,000 in July 2012.  While that is a reasonable drop of 14.5 percent, it is still rather shocking that over four years into this correction and bailout, that 359,000 mortgagees still need taxpayer-funded assistance.

Since it was first implemented after the Great Recession decimated America's housing market, the Obama Adminstration's HAMP program has come under increasing fire.  The Home Affordable Modification Program that was designed to help Americans stay in their homes has helped about 865,000 homeowners avoid foreclosure through the use of permanent modifications of their mortgage debt.  Thus far, the program has spent $4.4 billion of the $19.1 billion it was allocated.  Unfortunately, the program has failed to actually keep a significant number of HAMP beneficiaries in their homes or at least keep them from defaulting yet again.  A study by the Special Inspector General for the Troubled Asset Relief Program notes that a total of 306,000 homeowners have redefaulted out of the program for a failure rate of 35 percent.  As of April 30, 2013, $815 million or 18 percent of TARP funds spend on HAMP permanent modifications was spent on more than 163,000 redefaulters who ended up defaulting for the second time.  The longer a homeowner stays in a permanent modification the more likely they are to redefault with a failure rate of 46 percent for those who had their mortgages modified in mid-2009.  The study shows that the smaller the modification, the more likely the homeowner is to default in the long run.  Rightly or wrongly, the Obama Administration has now extended HAMP for another two years with the final application deadline now December 31, 2015

While it cannot be denied that government assistance has kept many Americans in their homes, again, these programs could be creating an additional problem since the free market has been restrained from self-correction.  As I noted in the early part of this posting, the sudden and dramatic rise in total home equity is concerning as markets in many centres seem to be rising at what can only be considered overly exuberant rates similar to what was seen as the housing bubble built during the early and mid-2000s.  This is of particular concern as interest rates rise, putting pressure on households that are just scraping by thanks to HAMP and those that have not sought help but are in a negative equity situation.  Is it possible that actions by the federal government that bailed out too many homeowners will result in the unintended consequence of creating the next housing bubble by artificially inflating housing prices and minimizing the risk of home ownership?  With just over 13 million homeowners or 25.4 percent of all mortgages still underwater in the first quarter of 2013, the housing situation in the United States is still extremely volatile no matter what housing prices appear to be telling us.  Unfortunately, only time will tell what impact government programs have had on the housing market and by then it will be too late to do anything about it.


  1. Just FYI, the number of mortgages outstanding is not 13 million, as cited in your third text paragraph. You misread the chart, which is referring to dollar values in millions.