Our story last week on the failure of the government's mortgage relief efforts drew a flood of mail from homeowners facing default and foreclosure. Once again, dozens of readers report spending months of fruitless effort trying to contact lenders, only to be shuttled from one rep to another, often getting conflicting advice.
I am among the millions that are having a hard time getting a loan modification through my bank … What I don't understand is why are the lenders holding out? … In the next 5 to 10 years it'll be more Americans with bad credit than good. Then who will be able to get any credit for anything?
— Berni B., address withheld.
Every time we write about this topic, our inbox floods with mail from readers trying to catch a break on their mortgage. Once again, dozens of readers report spending months of fruitless effort trying to contact lenders, only to be shuttled from one rep to another, often getting conflicting advice, eventually hitting the same dead end. Some of these readers report that, rather than cutting payments to reflect the recent drop in interest rates, lenders are offering to suspend payments for a few months — and then raise their monthly payment to make up the difference. That's hardly relief.
Despite assurance from lenders and mortgage servicers that they are doing everything possible to slow the foreclosure rate, it just isn’t working. As the Mortgage Bankers Association reported last week, the latest data show the pace of foreclosures and defaults hit a record in the second quarter. Separate data show the rise continued in July — from levels that were already substantially higher than a year ago.
Nearly two years after the government launched its first unsuccessful mortgage relief effort, Hope Now, some 13 percent of homeowners with mortgages are either in default or headed for foreclosure. A third now owe more than their house is worth; one recent research report figures that will rise to 50 percent by 2011 unless more aggressive measures are taken.
I can’t speak for lenders — I have no idea why they aren’t moving more quickly to modify loans. There are many possible reasons — one of which is that they are hoping that homeowners will somehow figure out a way to keep making payments. Some readers report they are spending down their retirement savings while they try to work out a new loan.
Whatever the reason, the current process just isn’t working. As you point out, aside from agony each family goes through when it loses a home, their credit is destroyed. That’s not a great formula for getting a consumer-driven economy out of recession.
It’s also not going to help the housing market get back on its feet. Every time a foreclosed home is sold — either in a distressed sale or at an auction — that sale drags down the price of every other “comparable” home in the neighborhood. That puts more homeowners “underwater” on their mortgages, leading to more defaults and foreclosures, pulling home prices lower still.
It’s a vicious downward cycle. And until the lending industry or the government figures out a real solution, it’s hard to see how the economy can get back on its feet. No matter what Fed Chairman Ben Bernanke says.
All I am hearing about these days is Health Care Reform. What happened to finishing the job with creating new Green Jobs?
— James P. address withheld
There’s a lot of work left to do to get the Green Job Machine started in the United States. But you may have an easier time finding one in China or Europe.
The economic stimulus package championed by the Obama administration set aside (roughly) $112 billion for various spending categories that could be considered “green.” The list includes some $33 billion for renewable energy and $12 billion for upgrading the power grid. About half of the $5 billion devoted to developing low carbon cars was recently doled out to various winning bidders for research and development projects aimed at coming up with a better battery for electric cars.
But the rest of the money could take time to work through the pipeline. Spending on renewable energy is expected to come in roughly equal chunks through 2015; the full amount won’t be spent until 2018.
In the meantime, other countries are also spending billions to create renewable energy sources, upgrade their power grids, improve water and waste-treatment facilities, invest in developing low-carbon cars and expand their rail systems. China plans to spend nearly twice as much as the U.S. — and plans to spend it over the next two years. Other big spenders on green jobs include the European Union ($53 billion), South Korea ($31 billion), Germany ($14 billion) and France ($7 billion). All of these countries plan to spend the money by 2010, according to a report by HSBC.
Government spending won’t necessarily translate directly into jobs for a given country; if a South Korean power company invests in wind power, for example, they might end up buying the turbines from a German company, which will create jobs there. No matter how many strings you try to attach to government spending, it has a way of flowing around the world.
That government spending represents just the beginning of what could be a much bigger private investment in energy efficiency: from retrofitting old buildings to stretching the efficiency of appliances. So a lot depends on exactly what you call a “green” job.
The biggest wild card may be the final rules for a system that may be even more controversial (and difficult to pull off) than health care reform: the so-called “cap and trade” scheme that made it through the House and faces a tougher road in the Senate.
If such as system is enacted, it would put a real price on carbon pollution — and create a real market for equipment to cut emissions — and the people that design, build and install them. But the details of such a plan are critical. If the “cost” of carbon pollution is high (along with the credits companies can buy to continue polluting), the need to invest in cutting carbon emissions will be compelling. If the final rules are watered down — and credits handed out to everyone freely to get the system up and running — the incentive to “go green” will also be diluted.
That debate turns on another thorny problem. Raising the cost of polluting may be good for the planet. And it may help speed investment in new technologies and create new industries. But it may also force companies to close down operations — and cut jobs — in facilities that are too carbon-intensive to turn a profit under the new rules. So a true accounting of the employment benefits of the green revolution has to include the jobs lost from the old carbon economy.
In any case, it’s hard to see how these new jobs will come close to creating enough employment to rehire the 7 million people who were sidelined during the recession. Investment in green technology is a great idea. But — by itself — it won’t come close to producing enough jobs to get the economy going again.