We’re supposed to turn away from some of the underlying problems in the housing market, because the fundamentals are strong, and a combination of private equity house-flipping and deliberate blight will bring the market back into positive territory. But the truth is that there are still between 11 and 16 million underwater homeowners in America. This includes half of all borrowers under the age of 40. Even with a price surge – and that’s a chancy proposition – homeowners will struggle to achieve equity, and this will further our economic stagnation. Underwater homeowners cannot sell their homes if they want to move, cannot refinance their homes in many cases, and really get locked to an underperforming asset, weighing on their economic decision-making and leading to a real impact on the national economy as a whole. They also face outsized risks in the event of an economic shock like a catastrophic medical bill or sudden unemployment, and their lack of flexibility makes them prime candidates for foreclosure.
These underwater homeowners live in predictable areas, the states that experienced the biggest downturn from the housing crisis. Many of these states happen to be contested sites in the 2012 election. So for a while now, activists have sought to organize these underwater homeowners into a constituency, demanding that the Presidential candidates put forward legitimate policies to prevent the cascading of the foreclosure crisis and reset the housing market. Many of these underwater homeowners are current on their loans. They have an ability to pay. But they have no opportunity to access lower finance rates, and because of the popping of the housing bubble, they have lost equity and wealth. They find themselves at risk through no fault of their own. And now they’re demanding help.
The New Bottom Line has put together a new campaign called “Home is Where the Vote Is,” attempting to organize homeowners in eight crucial states, including Ohio, Nevada and Colorado, in the first wave of the campaign. They have a petition up and a statement of principles:
Nationally, there are more than 15 million underwater homes, that are $1.2 trillion underwater. Resetting those mortgages to fair market value would save the average underwater homeowner $543 per month, pumping $104 billion into the national economy every year. This would create 1.5 million jobs nationally. The bold and necessary solutions are clear, and have been advocated for by economists on both ends of the political spectrum.
The predatory practices of big Wall Street banks caused the economic collapse and foreclosure crisis, destroying millions of jobs and devastating communities.
Americans’ homes have lost $6 trillion in value because Wall Street banks artificially inflated the housing bubble and then crashed the market. The continued housing crisis is a major drag the overall economic recovery and significant source of financial pain for families everywhere.
With $700 billion in negative home equity and millions of homeowners being held underwater, banks have chained the American economy to a crushing housing debt load.
I’m ultimately pessimistic that underwater homeowners, who have a lot more to worry about and a skepticism of the political process after years of neglect of the foreclosure crisis, can be formed into a constituency. But it would certainly be nice, and warranted. Even with improvements in the housing market, the underwater problem is huge for the economy, and more than that, means so much to the lives of millions of Americans, including shocking numbers of young people under 40. If government means anything, it should mean providing this constituency with some support.