Since my local paper is the legal paper of record for my area, every Friday it arrives with a section that includes county and school board minutes, those sad "I will not accept anyone's debts other than my own" preliminaries to a divorce, new business registrations and loan foreclosures.
I have always thought that one could plot the economic health of our country by comparing changes in the ratio of new businesses to foreclosures. Lately it has been no contest. In fact there are now so many foreclosures that the legal notices section, which once was part of the regular paper, now has a section of its own which has grown almost as large as the news part of the paper. It's as if by placing the foreclosures in a separate section they could better hide what was happening.
But the foreclosures ARE news, each entry recording a family tragedy in officious language that masks the hurt that lies behind it. The notices start out with the names of the loan holders in bold type that is the modern equivalent of the marks of shame they used to brand into debtors. Then follows a legal description that only a surveyor could understand. Finally comes the loan holder's name, the amount, and the dreaded deadline.
The Rise In Foreclosures
I decided to see if my subjective local impressions of foreclosures were nothing more than an isolated case or part of a larger trend, so I started Googling. It did not take too long to find a study conducted for the Federal Deposit Insurance Corporation.
The long-term trend in single-family mortgage foreclosure rates is rising...industry statistics produced by the Mortgage Bankers Association (MBA) and other sources suggest that foreclosure rates over the past decade are noticeably higher than rates experienced at any time in the past 50 years. Moreover, the long-term trend, although rising gradually, translates into a dramatic increase in foreclosures over the course of a generation. The long-term trend is reflected in foreclosure rates both on mortgages insured by the Federal Housing Authority (FHA) and on conventional mortgages, i.e.,those not insured by either the FHA or the Veterans Administration (VA).[my emphasis]
Out of curiosity I skimmed some of the notices in my local paper. The tale they tell parallels what the media are saying nationally. The amounts still outstanding on these loans can be staggering, sometimes over a quarter of a million, in a community where the average home value is less. That tells me quite a few of these people have not been in their houses very long. It also suggests the dreaded "balloon payment" has come due on one of those creatively-financed home purchases.
Even more troubling, the amounts owed suggest a fair number of middle class families have now become homeless, perhaps never again to be able to live in what realtors love to advertise as the American Dream. Perhaps this explains why in my community most of the recent developments approved by the planning commission on which I sit are town homes or what are termed villas or cottage homes, developer talk for what resemble rows of army barracks or base housing.
It is hard not to imagine the people behind these foreclosure notices because they could be any of us, they could even be our neighbors. Years ago when I knocked on doors for political campaigns I could already feel it coming because behind the complaints about taxes lay families that were a layoff, a cut in pay, a hospitalization away from losing their homes.
The Causes of the Rise
The FDIC study explored the role of these "trigger events" in foreclosures and concluded:
In fairness, although some trends appear to support the trigger event hypothesis, others seem to work against it.
In the end the FDIC study zeroed in several interesting statistical variables that appear to have had an impact on foreclosures. You will never guess what the first is.
It is health insurance:
Thus, the increase in the portion of the population without health insurance constitutes a significant increase in the overall risk profile of households.
If there ever was a clearer example of the systemic nature of America's problems, I don't know of one. The candidates and the media like to talk about health insurance as if it were a separate item, but it is interrelated to many other issues.
These interrelationships help us to better see the ripple impact of the Counterrevolution. As more and more Americans find themselves inadequately protected by health insurance and the Republican Counterrevolution continues to oppose any protection for the under-insured and the uninsured, their financial vulnerability increases.
You can almost hear a "Duh!" in the background. Of course it does, but the Republicans seem to think it's OK for some of us to pay as much for health insurance as for a mortgage or go without.
It is no surprise that the FDIC study reported that the portion of the population not covered by health insurance.
Has increased by more than one-third since the data were first reported for 1978.
Not to beat this horse too much, but it does need beating, because again the date marks the beginning of the Republican Counterrevolution when Ronald Reagan became president. The conclusion could not be clearer: under the Republicans who have controlled the White House and Congress during most of this time, the number of Americans without health insurance has multiplied dramatically. In plain terms they have succeeded in tilting the playing field against the average American.
The FDIC study also identifies something every American knows instinctively because a lot of us have done it--use our homes for financial purposes such as financing a child's education, paying off a car loan, and dealing with the copay on a family member with cancer. Because our wages have not kept pace with our costs, most middle class Americans--including me--have used the only remaining financial leverage they have--their homes.
The FDIC study states:
A related, but distinct, hypothesis is that the risk posture of individuals has increased, especially as individuals increasingly leverage their homes as part of a broader strategy of managing their overall wealth portfolio. Although evidence exists supporting both hypotheses, the risk posture hypothesis appears more consistent with a variety of disparate incentives and trends relating to household financial management.
Translating this into clearer English, the study hypothesizes that we are using our homes to help maintain our financial status. What it does not say is that too many Americans have become caught in the vice fashioned for them by the Republican Counterrevolution. It no longer takes some unanticipated tragedy to suddenly make a family homeless. All it takes is the personal side of economic statistics we read in the newspaper or hear on the nightly news.
The Role of the Republican Counterrevolution
The role of the Counterrevolution shows up in a dramatic visual in the FDIC study-- a graph hauntingly similar to the one in the post earlier this week on the decline of our infrastructure.
According to the study:
Between the early 1980s and the present, [foreclosure] rates increased more than 300 percent, rising from 0.31 percent in 1980 to 1.04 percent in 1997.
I am beginning to feel a bit like a tape loop repeating the same thing over and over, but notice again that the rising rate of foreclosures comes with the presidency of one Ronald Reagan. Maybe it is appropriate that we named an airport after him, because for the average American the middle class life began flying away when Reagan became president.
The Implications of the Foreclosure Crisis
Being a systems thinker leads me to worry that the housing crisis could have some very scary repercussions. Each of those foreclosure notices means another vacant home, perhaps a rented home or a home sold for a reduced price in someone's neighborhood.
But more than that, the FDIC study shows us that a major reason for the precipitous rise in foreclosures is that many so-called middle class Americans are middle class only because of their homes. The equity in their homes has allowed them to maintain a middle class lifestyle.
If they dig too deeply into that equity to the point of no longer being able to pay for their mortgages, it is probable that they will become bankrupt. Depending on when and how this happens the body blow of such a loss can cripple lives over several generations.
A family that has lost the equity in their home will probably not be able to help care for their parents when they face the prospect of a nursing home or long-term care. They also will not be able to afford to provide their children with a college education or help them to get a start in life.
Meanwhile, every foreclosure ripples through our economy. Families who have lost their home equity will never again buy a new car or even a high-priced used one. They will have to turn their backs on consumer goods like plasma television sets. They will cut back on spending for personal needs such as clothing.
The feedback consequences of this are so obvious you don't need to build a complicated model to understand them. The more foreclosures, the more likely the property values in a neighborhood will drop, leaving already nervous homeowners sitting on mortgages that are worth more than their homes.
In turn as this ripples through the economy, millions of consumers disappear as if they had been whisked away by one of Harry Potter's magic spells. Those lost consumers lead to lost jobs as the companies producing those goods see their profits drop.
Meanwhile intellectual capital decreases because the children of these families no longer can afford college. Graduate or professional school becomes reserved for the sons and daughters of those who received the Bush tax cuts. As enrollments from the middle class drop in professional schools the country faces a "brain deficit" which must be made up by importing foreign workers.
Negative reinforcing loops like this tend to be compounding, which means that the trend tends to pick up speed causing the graph to take a sharp turn for the worse. Lurking behind all this like some monster in one of those horror films that are all the rage among young people (do they know something we don't?), skulks the dreaded tipping point when the trend essentially drops off a cliff. Even fear can accelerate that tipping point.
Parts of neighborhoods succumb, then whole neighborhoods, then communities, then the nation. There's a town like that on the Minnesota Iron range where my parents are buried. When a nearby mine closed it turned the town into a near ghost town where you can pick up a house for $50,000. Is that America's future?
As the election looms closer, it appears no one has thought how to keep us from that tipping point. The economists portray the situation as what systems thinkers term a balancing loop, in which the crisis will essentially correct itself. Perhaps that might be true for the mega-banks that now run the show, but for people, the bubble continues to burst.
The foreclosure listings grow and another family moves out quietly, the rental truck or trailer in the driveway the only clue that the American Dream has gone sour for another family. And the playing field imperceptibly tilts a little more steeply.
Questions for Readers:
What are your experiences with the Mortgage Crisis? Do you know of someone who has been foreclosed on? Is you community experiencing high foreclosure rates?
Crossposts: The Strange Death of Liberal America,All Things Democrat
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