Washington, D.C. – Today, the Government Accountability Office released a report, entitled “Loan Performance and Negative Home Equity in the Nonprime Mortgage Market.” The report provides a detailed understanding of the state of the housing market at the end of June 2009. The Chair of the Joint Economic Committee (JEC), Congresswoman Carolyn Maloney, requested the report in an effort to further understand the depth of the recession.
“This recession is different from past recessions because we are dealing with a credit crunch, housing price bust, and an equity collapse,” Maloney said. “Today’s report helps further our understanding of this recession’s complexities, especially as it relates to what was happening in the nonprime housing market up until the end of June 2009.”
Foreclosures create a vicious cycle of housing price declines,
diminished household wealth and reduced consumer spending. The decline in spending reduces employment
and triggers further foreclosures. The
report provides estimates for state and Congressional districts on the percentage
of “seriously delinquent” nonprime loans – classified as mortgages in default
or in the foreclosure process (see adjacent chart or click here). It also shows the impact of falling housing
prices, which have left many borrowers in a negative equity position where
their mortgage balances exceed the current value of their homes.
“The report provides a sobering snapshot of the foreclosure crisis inherited by the Obama administration, revealing trends through the mid-point of 2009,” Maloney said. “Since that time, Congress and the Administration have taken actions to stem the tide of foreclosures and keep families in their homes, which remains a top priority as my colleagues and I work to get the housing market and our economy back on stable footing and build a robust labor market.”
In response to the housing crisis, Congress and the Administration took a number of steps in 2009 to slow foreclosures and keep families in their homes. The Administration’s efforts, under the Home Affordable Modification Program, intensified at the end of 2009. The Treasury Department has streamlined the application process for conversions, pressured the servicers to move more quickly to process modifications, and provided new Web Tools for borrowers -- all with the goal of speeding modifications and helping vulnerable families stay in their homes. Congress has allocated money to counselors to help homeowners get the information they need to be able to modify their loans.
The Worker, Homeownership, and Business Assistance Act of 2009 provided additional support for the housing market and should mitigate the rate of foreclosures for all homeowners. Finally, the House has passed a comprehensive financial regulatory reform proposal which will create a Consumer Financial Protection Agency to protect borrowers from predatory lending practices associated with many of these nonprime mortgages.
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