The new survey from the Federal Reserve on changes in family finances from 2007 to 2010 contains sobering news. This covers the Great Recession, so it stands to reason that there would be some ugly statistics. And sure enough, the data show that median family income fell 7.7% in this period (real mean income went down 11%), and median net worth just collapsed:
The decreases in family income over the 2007−10 period were substantially smaller than the declines in both median and mean net worth; overall, median net worth fell 38.8 percent, and the mean fell 14.7 percent (figure 2). Median net worth fell for most groups between 2007 and 2010, and the decline in the median was almost always larger than the decline in the mean. The exceptions to this pattern in the medians and means are seen in the highest 10 percent of the distributions of income and net worth, where changes in the median were relatively muted. Although declines in the values of financial assets or business were important factors for some families, the decreases in median net worth appear to have been driven most strongly by a broad collapse in house prices.
This puts a number to the losses from the housing bubble. We can now say that the bubble bursting took away almost 40% of the median American family’s net worth. At the lower levels those losses were greater, as the top 10% held on to more of their money (it was likely concentrated in stocks that bounced back in 2009 and 2010).
There’s a lot of interesting data in the Fed report, including the fact that people continued to spend through this period, despite having a lower net worth and lower incomes, partly by cutting back savings. But really this shows starkly how the failure to fix housing stunts an economy. Bloomberg has a long piece on how the Obama team never made a dent in housing, and it’s a good companion piece to the Fed. There is no logical reasoning in the piece’s argument that the Administration actually wanted to protect banks, and so that was made the priority over housing, but otherwise, it paints a fairly accurate picture. This is as close as it gets:
Obama didn’t deliver on his vow that day to avert as many as 9 million foreclosures. While his plan was undermined in part by the weak U.S. economic recovery, it also lacked broad and aggressive measures. Relief programs have tinkered around the edges of the housing finance system because Obama’s advisers chose early on not to expend political capital forcing banks to forgive mortgage debt. Instead, they created homeowner aid programs with voluntary participation by lenders and strict rules to avoid rewarding speculators or irresponsible borrowers.
“They were well-intended, but they were not bold enough,” said Steven Nesmith, a former vice president at loan servicer Ocwen Financial Corp. (OCN) (OCN) who served as an assistant secretary in the Department of Housing and Urban Development during the administration of President George W. Bush. “They should have gone bigger and bolder with a robust plan to deal with housing, not just trying to stabilize the broader financial-services system and the banks.”
I think it’s closer to, as senior Treasury officials have said, wanting to extend out foreclosures so they didn’t all hit at once, to protect bank balance sheets. That’s not well-intentioned at all, it picks winners and losers, and the people lose.
It’s insulting to hear the Administration take credit for all modifications performed in the last four years, because they created an industry standard through HAMP for private banks to follow. They can emphasize the positives and discount the fact that substantial percentages of the modifications they’re counting as successes are now in default again. This is all on the housing scorecards in black and white, but in public the pronouncements overlook these inconveniences. But you cannot spin away a 38.8% loss in net worth over a three-year period. That’s a catastrophic crisis, and it deserves a maximum response.
Even today we’re not getting that. The man hired to be Fannie Mae’s CEO last week, a former BofA executive, doesn’t believe in principal reduction. The settlement on the criminal violations by bankers in all areas of the mortgage process barely moves the needle on relief for homeowners. People thrown out of their homes illegally will get a $2,000 check. There’s just a lack of seriousness around all of this.
Homeowners looking for justice have a better chance turning to the courts than a federal agency, though not by much. And really, they only have their neighbors to truly rely on, as the grassroots home defense movement has proven more robust than anything coming out of any branch of government.
UPDATE: From the Bloomberg cover story, a really telling piece:
Shaun Donovan, secretary of the Department of Housing and Urban Development, pushed for the government to bear some of the cost of reducing mortgage principal for underwater borrowers. Others, including Treasury Secretary Timothy J. Geithner, argued against it, saying they feared it could reward people who tapped home equity to support lavish lifestyles.
Basically, the Administration’s been afraid of the one “welfare queen”-type story, some borrower who can be painted as undeserving by the opposition, and for that reason, relief has been denied to millions of others.
UPDATE II: This new figure on net worth puts the US back at the levels of the early 90s.