Category Archives: housing debt

A Crack in the Debt Wall?

Posted on by

In this morning’s New York Times, there was an odd story about Irish mortgages. It suggested that substantial debt abolition was set to happen but gave very little detail. So I went online to try and find out more and, as far as I can tell, it’s not true. Or, given that there were no details, it’s true that some people in Ireland want this to happen but it’s not clear whether it will. So why was it on page one of the “paper of record”? We can only presume that some people of influence are trying to sow the seeds for debt “forgiveness” as the paper calls it.

In the piece, now not visible on the top pages of the website, Peter Eavis asserts:

The Irish government expects to pass a law this year that could encourage banks to substantially cut the amount that borrowers owe on their mortgages, a step that no major country has been willing to take on a broad scale.

With more than 50% of Irish mortgage holders now underwater and the Allied Irish Bank raising interest rates on mortgages recently, such a decision makes sense. Only there’s no clear indication that it’s actually happening.

What Eavis is referring to is the Irish Insolvency Bill, proposed last June in the aftermath of the Keane report into the financial meltdown in Ireland. Media reports at the time noted that Keane placed

huge store in the implementation of a personal insolvency bill in early 2012.

 

This legislation is curiously lost in the parliamentary process with no clear account of what’s going to happen being available.

In fact, Irish media reported today the creation of a new joint Irish and UK personal insolvency company, Debt Options, which will be based in Dublin. The Leicester-based firm IrishBankruptcyUK.ie, has been involved in the write-off of more than €1 billion worth of Irish debt in the UK over the last year. Expectations are that more business is to be had because Irish procedure requires expensive legal counsel and a

six-month personal insolvency arrangement process with the bank

Clearly this investment would not have been made if people involved in Irish bankruptcy proceedings thought the government was about to act.

Certainly, debt forgiveness or abolition is in the air in Ireland. Here’s the Irish Independent from September after Blackrock showed that negative equity was at 50% and Moody’s reported that 20% or more of such mortgages would default:

“Principle modification” — which is a nicer way of saying “debt forgiveness” — is, according to Moody’s, the only solution. This has been empirically proven by Blackrock. Thus, we have a known cure that we won’t countenance and can’t afford.

That forgiveness is the answer has also been argued by Harvard economist Carmen Reinhart and backed up by several economists in Ireland, including Oxford’s Ronan Lyons, Trinity’s Brian Lucey and UCD’s Ray Kinsella.

Banks know that even mentioning this possibility is financial kryptonite to their sector. But just look at the figures. Short of mass repossessions, there really is no alternative. The message from the banks is: “Stay calm, don’t worry, this is under control.”

Quite frankly, our banks have been lying to us. This is about as controlled as herding butterflies.

Well put. So we have to conclude that the Times put this story on A1 because it too wants to put pressure on the banks. Who pushed them to do that? The only conceivable “source” that might have such clout would be the Federal Reserve or similar high placed financial regulators. Debt activists have been hearing rumors for a while now that debt abolition is on the Fed’s agenda.

Mortgages are $14 trillion. The earth may be moving under our feet.

 

 

Privatized Austerity: Why Silence=Debt

Posted on by

The new report on debt from the Federal Reserve Bank of New York presents the case for a decline in household debt. Which is true, if you exclude bankruptcy, foreclosure, and student debt all of which are up. And forget trying to get a new mortgage at those nice low rates you hear about: the banks aren’t lending at all. What we’ve got here is a privatized austerity that’s affecting individual lives every bit as much as its nation-state implemented partner in Europe. In this privatized form, debt-driven austerity presents less of a political target. Silence=Debt. Which is why we strike debt.

Let’s look at the Fed’s own numbers. With student loans, the news is all bad, explaining in part why, of all debt topics, attention continues to be centered on student loans:

• Outstanding educational debt stood at $914 billion as of June 30, 2012 [previous Fed figures had it at $870 bn]

• Since the peak in household debt in 2008Q3, student loan debt has increased by $303 billion, while other forms of debt fell a combined $1.6 trillion.

• Student loan delinquency rates increased for the second consecutive quarter; The percent of student loan balances 90 or more days delinquent increased to 8.9% from 8.7% during the second quarter of 2012.

Note that the delinquency rate here is across all student loans, including those currently in deferral. The Fed itself has reported that 27% of loans not in deferral are in some stage of default. The increase in student debt is a direct consequence of the impossibility of declaring bankruptcy or defaulting on these loans.

So we need to be careful about the assumption that the numerical decline in bank reported debt means that people’s situations are improving. To the contrary, as bankruptcy and default increase, banks move debt off their balance sheets, making their situation appear better. For the debtor, the situation is in fact worse.

Here we can see that more people are being pursued by debt collectors for larger sums than ever:

This chart suggests that about 14% of consumers are in collection and the amounts are climbing steeply to an average of $1550.

As we might expect from this, bankruptcies are up, while foreclosures are running back at 2011 rates, despite the 5 million people who have already lost their homes

So how can total household debt be lower? Here’s the giveaway detail. Foreclosures and bankruptcies allow banks to remove that debt from their balance sheets. The people concerned are now invisible, statistically unaccountable and therefore (it is hoped), politically neutralized. Here’s the Fed’s visualization of that for mortages:

The red section of the bars refers to “charge-offs” meaning defaulted or foreclosed loans. The more these increase, the lower total mortgage debt becomes as you can see here, as represented by the black line.

Notice also that the blue bars depict new loans and mortgages that are actually paid off by the homeowners. This number has now declined to irrelevance. If we assume that some folks are in the course of time managing to pay off their 30-year loans, then the amount of new mortgage lending is very low indeed. That would accord with the anecdotal sense that, despite notionally low interest rates, mortgages are now impossible to get. The federal funds set aside to help underwater mortgage-holders have been little used, not because people don’t want them, but because banks put so many obstacles in the way of refinancing.

Unlike European austerity that is visibly punishing the 99% to recoup the excesses of the one per cent, this silent austerity has come with relatively little political consequence. A Wall Streeter whose entire enterprise rests on forcing companies into debt and then cashing out, leaving them to pay off the debt, is at 50% for the presidency. He’s only doing to companies what the banks are doing to all of us.

Strike back. Strike Debt Assembly at 1.30, followed by Life After Debt: A Gathering of Debt Refusal at 4pm, this Sunday in East River State Park in Williamsburg.

The Debt Vultures

Posted on by

From three corners of the debt square–education, housing and health–come stories to answer two repeated questions about Strike Debt: is this the right theme for OWS? And is this in any way different to standard issue capitalism? In short, yes and yes. And I think they might serve as an answer as to what to call predatory debt: I’m going for vulture debt. Because a group of vultures is known as a committee (true).

First, education. Student debt has been questioned by some as an elitist preoccupation or as too easily eliding with right-wing attacks on higher education. Today, a US Senate report of all things exposes for-profit higher education institutions, so beloved by the right-wing, as predatory loan garnishing machines. They exist solely to generate money with instruction as an afterthought:

Among the 30 companies, an average of 22.4 percent of revenue went to marketing and recruiting, 19.4 percent to profits and 17.7 percent to instruction. Their chief executive officers were paid an average of $7.3 million

80% of their revenues come from Federal grants on average. Here’s one specific example of why this is vulture debt:

The Apollo Group, which operates the University of Phoenix, the largest for-profit college, got $1.2 billion in Pell grants in 2010-11, up from $24 million a decade earlier. Apollo got $210 million more in benefits under the Post-9/11 G.I. Bill. And yet two-thirds of Apollo’s associate-degree students leave before earning their degree.

The more you read, the worse it gets. These “colleges” are more expensive than not-for-profit institutions, yet graduate far fewer of their students. In terms of debt:

Students at for-profit colleges make up 13 percent of the nation’s college enrollment, but account for about 47 percent of the defaults on loans. About 96 percent of students at for-profit schools take out loans, compared with about 13 percent at community colleges and 48 percent at four-year public universities.

These institutions are the right-wing solution to higher education: supposedly vocationally-oriented market-driven education, rather than the supposedly wasteful liberal arts schools. They are nothing but debt vultures.

Housing. I noted recently that student debt is getting noticeably worse for older people. Now it seems that foreclosures are biting the over-50s hard:

one and a half million Americans over the age of 50… lost their houses to foreclosure between 2007 and 2011. Of those, the highest foreclosure rate was for homeowners over 75.

In this report from the AARP it emerges that these are prime loans, not the marginal sub-primes so often discussed. Seniors are being affected by declining pensions, collapsed property values, rising medical costs, shrinking investment values and (although not mentioned in the report) the need to support children and grand-children. People who have been making payments since the 1960s are now being evicted. Whose interest does this really serve? How much is enough? For a vulture, that question makes no sense.

Finally, and most repellent, medical debt. Please don’t be eating while you read this. The major medical debt collector Accretive has been banned from Minnesota and fined $2.5 million. Why? Well, it did things like this:

Carol Wall, a 53-year-old Minnesota resident, said “a woman with a computer cart” told her she owed $300 as she was “vaginally hemorrhaging large amounts of blood” at an Accretive-affiliated emergency room.

The repellent company has issued the usual generic statement claiming such cases were  exceptions, and so on, and so on. Even the New York Times didn’t buy that:

Accretive Health contracts with some of the largest hospital systems in the country to help them recoup money on unpaid bills that have piled up during the financial crisis and the economic downturn.

In other words, this is how medical debt works: the system knows people can’t pay and has a mechanism to deal with it. Here the debt vultures are literally preying on the weak, requiring patients to pay before they can even see doctors, against all rules and regulations.

So: is debt a proper subject for OWS? I’d say that predatory, criminal enterprises that place profit before people and are fundamentally incapable of saying “enough is enough” are the prime target of Occupy. Further, the unique quality of the movement is to bring together issues that are deliberately kept apart so that we can see how things really are. The minor “fixes” that pass for policy from the political parties are helping almost nobody–this is statistically as well as morally true. From student debt to housing and medical debt, the debt vultures have shown that this is a fight to the death. Only social movements like Occupy can help.

Is this a different form of capitalism? Technically, the switch to debt as the dominant aspect of the money form is different. Certainly, rapacious capitalism is far from new, as a quick glance at Engels’s 1845 classic The Condition of the Working Class in England will show. However, the present delusions about the virtues of the rich have become so attenuated that it is considered daring  to suggest that government or society have any role in wealth creation whatsoever. The idea that government should mitigate the impoverishing effects of capitalism for any except the capitalists themselves is now “socialism.” When neo-liberalism emerged, Stuart Hall and others called it “Thatcherism” and were widely castigated for saying that capitalism had changed. But it had. And it continues to do so.

Debt servitude is predatory and relentless. It has shifted the target of neo-liberal expropriation from Heavily Indebted Poor Countries to Heavily Indebted Poor People. Fanon suggested that fascism was the application of colonial techniques to colonizing nations. We can say today that neo-liberalism is the application of neo-colonial techniques to all populations. No longer is there a “wages of colonization” (to adapt Du Bois’s concept of the “wages of whiteness”) in which being a citizen of the neo-colonial powers protects you. We are all targets now.

Certain scavenger species can eat themselves to death, unable to stop. The debt vultures are one such species. We have to stop them before it’s too late.

 

The Slow Motion Mortgage Disaster

Posted on by

From time to time the media make efforts to convince us that the mortgage debt crisis in the US is improving. Or at least not getting worse. Or something. A rush of recent reports shows that, while wealthy people and banks are doing better, things continue to get worse for the majority. According to the Office of the Comptroller of the Currency, 5% of all mortgages are in default, with a further 4.1% in foreclosure. Which is to say one in ten of all homes is in default or foreclosure. And worse is to come, unless new and radical ideas being proposed by county government are enacted.

One indicator is that people keep trying to refinance. According to Bloomberg News:

Refinancings probably rose 4.2 percent to $275 billion in the quarter ended last week, the bankers group forecast, three months after saying the boom was over. About 5.6 million loans will be refinanced this year.

Banks then resell the loans to Fannie Mae or Freddie Mac–in effect to the Federal government–for a tidy profit and no risk:

The gain on sale that accrues when a loan is sold to a third party for more than its previous value was 2.36 percent for Wells Fargo in the first quarter, compared with 1.9 percent in the fourth quarter.

Meanwhile it remains very difficult for average consumers to get refinanced. Very high credit scores and enormous amounts of paperwork are now required. And that’s for people in relatively good situations, who are simply asking to pay less on their current loans. In a state like New York, this will in itself cost you thousands of dollars.

The government has been trying to get refinancing for people whose houses are severely “underwater” (meaning that the loans are worth more than the homes). Headlines tell you that they have succeeded. In fact, there were  only 4,400 refinances for those whose loans were more than 125% of the current home value in the entire first quarter.

To realize how little that is, look at the new Corelogic report. Here we discover that 11.4 million loans, 23.4% of the total, have negative equity. However, this problem is very unevenly distributed. While a state like New York has relatively low numbers, 61% of all mortgages in Nevada are underwater, followed by Florida (45%), Arizona (43 %), Georgia (37 %) and Michigan (35 %). So California, with 30%, doesn’t even make the top five. But there are 2 million underwater mortgages in California, compared to only 339,000 in Nevada.

Here come the kickers. First, it’s at the low end of the market where the bulk of the negative equity is concentrated. For example, for low-to-mid value homes valued at less than $200,000, the negative equity share is 31% for borrowers, almost twice the 15.9 % for borrowers with home values greater than $200,000. So while it’s good nowhere, it’s twice as bad at the lower end, meaning for people on low income.

Next, 4.5 million households whose loans are underwater also have home equity loans. There’s almost $300 billion nationwide in such loans and 60% of them are about to start asking for repayment of principal as well as interest. In 2014, according to the Office of the Comptroller’s report, $29 billion in home equity loans start full repayment, followed by $53 billion in 2015 and $66 billion in 2016. Homeowners will be unable to refinance in many cases because their total loan amounts will put them underwater. And interest rates, which are usually variable on these loans, can really only go up from current levels.

So what is to be done? A new idea has begun to circulate in county government. The county could use its power of eminent domain to acquire underwater properties and then resell them to the homeowners at the current property value. This plan is circulating in San Bernadino County in California, epicenter of the home equity disaster, and has attracted interest from places like Suffolk County on Long Island, NY, where 10% of properties are underwater. Counties are not making these moves because they are radicals but because their localities, dependent above all on real estate markets, are dying. The city of San Bernadino is bankrupt. National retail sales fell for three months in a row, largely because people are no longer doing up their houses.

Needless to say, the banks are in uproar, making solemn references to the sanctity of contract law and so on and so on. But as we’ve seen here, the states and the Federal government were more than willing to overturn contract law to forgive debt mortgaged against slaves after the defeat of the Confederacy. The argument was that human property was immoral so the debt did not apply. With all the evidence that we now have about the corruption of the housing market, from robo-signing of mortgages, to the fixing of interest rates, and the forcing of sub-prime loans to people of color, can we not say that extreme housing debt is also immoral?

Of course, if such a program were offered, homeowners who have been making payments are not underwater might feel cheated. So we might have to advocate that all mortgages be open to nationalization and reset at LIBOR without fees. It would be the most gigantic stimulus to the economy imaginable and might ironically be US capitalism’s best shot at long-term survival. However, because neo-liberalism is dedicated to the short-term, no national program of this kind has the slightest chance of approval in the current political climate. So we’d better get on it and change the political climate, no?