Home Front: Few solutions on horizon for strapped homeowners

After all the intellectual assessments and recital of statistics about the subprime loan crisis, a woman from Chicago asked the question on the minds of many people in neighborhoods where so many have lost their homes.

"I want to know – how many people are going to jail?" asked Yevette Boutall, director of a community development fund that works in lower-income neighborhoods of Cook County.

She asked the question in a setting far removed from those neighborhoods, at a California conference hosted earlier this week by the Federal Reserve Bank of San Francisco.

"That's how angry people are in communities," said Boutall. "They want to know how many people are going to go to jail, people who misled them and got away with it and earned money on their misery."

In San Francisco at the Fairmont Hotel, Boutall's question went unanswered for the moment. But it struck a real note about people bearing the consequences of a time when mortgages and home prices went wild. They will bear plenty more if the nation's leading foreclosure trackers are to be believed.

Speakers at the San Francisco Fed conference uniformly estimated that 2 million households will surrender their keys to lenders in the next year or two. That was their prediction despite all the voluntary lender-government agreements, the millions of dollars for new nonprofit loan counselors and the average $40,000 to $70,000 a lender loses with every foreclosure.

"I wish I had better news for you in the short term," said Tom Cunningham, director of the risk monitoring and analysis group at the Fed's San Francisco bank.

He called the situation "unprecedented. We have never seen this before."

It is hardly new that the problem is bad and can cause further declines in home prices. What seemed new at the Fed conference was how few major ideas there are to stop it. Speakers defined the problem, defined proposals to help assure it doesn't happen again. But they could not be encouraging about solutions.

The thousands of loan modifications done so far to buy homeowners time represent the easy cases, said Cunningham. The harder work is more "problematic."

Speakers from the Fed, NeighborWorks America, the Center for Responsible Lending, Colorado Foreclosure Prevention Task Force and JPMorgan Chase talked about proposed legislation at state capitols and in Congress. They detailed efforts to reach out to struggling borrowers. But the big number – 2 million households during the next year or two – didn't change.

During questions and answers, Cunningham was asked why former Chairman Alan Greenspan's Federal Reserve didn't step in to prevent this meltdown. Fair question, he said.

The Fed's examiners did probe risky loans. But lenders told them the loans commanded high prices from investors, earned profits and had no track record of defaults.

"I'm not going to criticize my colleagues," said Cunningham. "But in hindsight, I do say we should have questioned some of the assumptions they (lenders) were using and some of the variables they were relying on.

"But again, it's difficult to tell bankers to stop doing something when they're making a huge profit with no losses. You know, we just have to wait for it to crash before you come and tell them what they did was wrong. It sounds nonsensical, but that was reality."

A good time to buy?

Here is some better news for the real estate industry: Sixty-three percent of people in El Dorado, Placer, Sacramento and Yolo counties believe that now – or the next six months – is a good time to buy a house. This comes from the 2008 Sacramento State Annual Survey of the Region, being released today.

Two key details:

• The belief is strongest among whites, households earning more than $50,000 a year, residents of Placer County, Republicans and people who already have mortgages.

• It is weaker among renters, minorities, households earning less than $50,000 a year and residents of Sacramento, Yolo and El Dorado counties. All say that a year from now will be a good time to buy.

Survey director Amy Liu says it is hard to overstate the differences in attitude between the 2008 survey and one taken just three years ago.

"In 2005, a third of people were thinking of moving out of Sacramento," says Liu, who runs the sociology graduate program at California State University, Sacramento. She says Sacramento County residents declared their hometowns unaffordable after seeing median sales prices rise 32 percent from 2004 to 2005.

No one talked this year about leaving Sacramento, she says.

The annual survey, the seventh conducted by the Institute for Social Research at CSUS, shows that concern about affordable housing has fallen almost as fast as home values.

• Two years ago 51 percent of those surveyed called the availability of housing they could afford a "big problem."

• This year, 36 percent called it a big problem.

Median sales prices in the four counties have fallen up to 30 percent from 2005 highs, according to DataQuick Information Systems of La Jolla.

• The survey shows 75 percent of respondents in the four-county region believe it will be two years or more before the capital region's real estate market fully recovers.

• About 20 percent believe the market will fully recover within six months to a year.

The survey, conducted in English and Spanish, has a margin of error of three percentage points. To see the full survey go to www.csus.edu/news.

Rates barely nudge up

Interest rates for the benchmark 30-year fixed-rate mortgage stayed below 6 percent for the second straight week, averaging 5.88 percent nationally, mortgage giant Freddie Mac reported Thursday. That's up slightly from 5.85 percent last week.

Freddie Mac economists said the slight boost reflects signs that the economy may be a little stronger than financial market forecasts.

"Housing, however, continues to be a drag on the economy," chief economist Frank Nothaft said in a statement.

About the writer:

• Call The Bee's Jim Wasserman, (916) 321-1102. Read his Home Front blog at www.sacbee.com/blogs.