Matt Stoller has a superlative article today in Salon picking up on a central frustration of everyone trying to decipher housing policy. The truth is that the data is truly terrible. We have a vague idea of the number of mortgages and foreclosures, and we can identify trends. But in reality, there is no central, comprehensive, reliable number on these metrics and that makes it impossible to create decent housing policy. I urge you to read the whole thing, but here’s a healthy excerpt:
There are four separate widely followed private foreclosure tracking services — Corelogic, LPS, RealtyTrac, and the Mortgage Banker’s Association National Delinquency Survey. Each has problems, and none is comprehensive. There are also government sources for foreclosures. The Office of the Comptroller of the Currency, which regulates national banks, has a widely cited Mortgage Metric Report. The data for that report comes from the big mortgage services, and it is “rigorously reviewed”, according to Bryan Hubbard, spokesman for the OCC. It’s considered good data, but it covers only 50 to 60 percent of the market, the part controlled by services regulated by the OCC. The FHFA tracks some limited data around Fannie and Freddie loans, and the VA and FHA track some data around loans guaranteed by those agencies. But like the private data services, none of these foreclosure sources are comprehensive.
This causes significant problems for policymakers (and thus homeowners). As Silvers put it, “If you do x, whatever x, refis, principal write-downs, interest subsidy programs, how much is it going to cost?” The lack of data is impacting the key policy question over debt relief for homeowners [...] “If you write up some sort of protocol for doing something with mortgages, the question can’t really be answered vigorously under the current data regime. And the consequence is actually that it produces a reluctance to act. The lack of good data has seriously contributed to the inability to make good policy in this area,” says Silvers.
Seriously, go read it.
This is the kind of article that should put most housing analysts out of business. They are making their determinations by reading incomplete data sets and adding some guesses. Nobody really knows the answer to these questions. And the efforts to remedy these questions haven’t worked. Even though Dodd-Frank mandated that the Consumer Financial Protection Bureau and the Department of Housing and Urban Development create a national foreclosure database, Congress never appropriated the funding mechanism that would allow them to set it up. So this is a catastrophic failure of policy. And it’s in part by design: if nobody has the data, then nobody can be held accountable.
On a related note, Felix Salmon points to my Salon story about the principal reduction tax issue and picks out an important datapoint, that the Congressional Budget Office estimated a two-year cost of extending the tax exemption for homeowners who get debt relief at only $2.7 billion. He writes that “If the average underwater homeowner pays a marginal tax rate of 20%, then that means the CBO expects write-downs from principal reductions and short sales of somewhere in the $10 billion to $15 billion range during 2013 and 2014. And this, remember, is six years after the housing bubble burst.”
He’s right that this is astonishingly low, especially when you consider that this includes short sales. But that’s just the point; CBO cannot reliably estimate that figure, because WE DON’T KNOW HOW MANY FORECLOSURES HAVE HAPPENED. So they plug in a rough number and it looks incredibly low to those informed about the housing market. But really the answer is unknowable. This does explain a lot of why the policy is so awful. And ultimately the responsibility lies with those running the agencies who should have solved this problem years ago, and that goes all the way up to the White House.
So we can continue to beat up Ed DeMarco about his refusal to participate in principal reduction programs. But we should be just as angry that we have no rational basis for determining the reach or benefit of that policy. Because we don’t know how many foreclosures have happened.