Does the Housing Market Need a Pep Rally?



Original Post Date: June 21, 2010

 By: James R. Hagerty

 When he was mayor of New York, Ed Koch was famous for asking anyone he met, “How am I doing?”

 Perhaps not wishing to hear the answer to that question, the Obama administration’s top housing and mortgage officials on Monday gave their own reply: We’re doing great!

 The Treasury and the Department of Housing and Urban Development released a new monthly “housing scorecard” in an attempt to show that the administration is making progress in its efforts to heal the market.

 It’s mainly a rehash of statistics released by a variety of sources, and many of them can be read as signs of stabilization. What the statistics can’t show is whether that stabilization is only a temporary reprieve brought about by tax credits, very low interest rates and other forms of government intervention.

 “Today’s housing market is in significantly better shape than anyone expected 18 months ago,” HUD Secretary Shaun Donovan told reporters. Despite alarming forecasts back then, he said, “the world didn’t end.” After ticking off lots of hopeful indicators, Mr. Donovan slipped in what may have been the day’s most important point: “Obviously, we are not out of the woods. Our housing market remains fragile, and we still may see further declines.”

 We already have seen evidence of very steep declines in newly contracted home sales since April 30, the deadline for home buyers to qualify for tax credits of up to $8,000.

 But that drop won’t show up in Tuesday’s report from the National Association of Realtors on May home sales because that will reflect sales that were completed in May, not new contracts signed.

 The Treasury also released its monthly update on the administration’s $50 billion drive to prevent foreclosures, known as the Home Affordable Modification Program, or HAMP.

 The report shows that 340,459 households at the end of May were benefiting from long-term reductions in their mortgage payments under HAMP. That was up 15% from a month earlier. Since the program started in the spring of 2009, about 1.2 million households have been given “trial” modifications. To convert those trials to long-term relief, the households must make at least three payments and provide documents showing that they qualify for the program. HAMP provides financial incentives to borrowers, loan servicers and investors.

 The number of people crashing out of HAMP remains huge, largely because until recently loan servicers weren’t required to verify borrowers’ eligibility before starting them on trials. By the end of May, 429,696 trials had been canceled, up from 277,640 a month before.

 Nearly 468,000 households are still in trials, and 190,000 of them have been in that limbo stage for at least six months, as loan servicers slowly work through their huge backlogs of unresolved cases.

 Another big problem remains: Even after HAMP modifications, many borrowers still face crushing overall debt burdens, when credit cards, car loans, student loans and other obligations are considered. For those granted HAMP mods, the median ratio of overall debt payments to pretax income is 64%. That means the typical borrower has little left over for food, clothing and other expenses and may be just one surprise medical bill or car repair away from another default.