No wonder the Obama administration has suddenly rediscovered the foreclosure prevention policy arena. Banks foreclosed on homes in the first quarter of this year at a rate 35% higher than in the first quarter of 2009, and the process appears to be accelerating:
A record number of U.S. homes were lost to foreclosure in the first three months of this year, a sign banks are starting to wade through the backlog of troubled home loans at a faster pace, according to a new report.
RealtyTrac Inc. said Thursday that the number of U.S. homes taken over by banks jumped 35 percent in the first quarter from a year ago. In addition, households facing foreclosure grew 16 percent in the same period and 7 percent from the last three months of 2009.
More homes were taken over by banks and scheduled for a foreclosure sale than in any quarter going back to at least January 2005, when RealtyTrac began reporting the data, the firm said.
What caused the big jump? Mainly the initial economic collapse of 2008, and continuing unemployment. As the AP reports, these are homes that government intervention on the federal and state levels prevented banks from seizing earlier in the process:
Foreclosures began to ease last year as banks came under pressure from the Obama administration to modify home loans for troubled borrowers. In addition, some states enacted foreclosure moratoriums in hopes of giving homeowners behind in payments time to catch up. And in many cases, banks have had trouble coping with how to handle the glut of problem loans.
These factors have helped slow the pace of foreclosures, but now that trend appears to be reversing.
In short, all of these government interventions did little to solve the actual problem homeowners faced on troubled mortgages, which was an inability to make the payments. Like Cash for Clunkers and the homebuying credit, Barack Obama’s policies had the effect of postponing the inevitable. Most homeowners who were in trouble in 2009 are still in trouble this year, and instead of simply getting all of the pain into a single year, Obama managed to drag it out into 2010.
What are the real problems behind foreclosures? Housing market speculation with adjustable-rate mortgages and unemployment. The first group took calculated risks intended on maximizing their profit, either in cash through resales or in equity through refinancing. Foreclosure was always a risk if the market turned sour. Government has no place in indemnifying those speculators through interventions on foreclosures, and certainly taxpayers shouldn’t foot the bill for risk taxpayers didn’t take.
Government could do something about unemployment, though. The Obama administration could demand an austerity program from Congress and stop signaling huge tax and fee burdens on businesses through programs like ObamaCare and cap-and-trade. Permanent tax reductions on capital gains would also help, as would an end to bailouts of any kind. That would allow capital to come back into the market and create jobs, which would be the best and most permanent solution to the foreclosure crisis that we could implement. Unfortunately, all we can expect from Obama is more kick-the-can policies and further attacks on capital that will just make the situation worse.