TOPICS > Economy

Housing Market Still Plagued by Foreclosures, Mortgage Woes, Tumbling Prices

May 17, 2011 at 12:00 AM EDT
The U.S. housing market showed more signs of weakness Tuesday with the fall of new home construction by more than 10 percent and new building permits by 4 percent. Judy Woodruff discusses the fallout from the disappointing new housing report with Inside Mortgage Finance's Guy Cecala and The Washington Post's Dina ElBoghdady.

JUDY WOODRUFF: There was fresh evidence today of weakness in the housing market and the overall economic recovery. New home construction was expected to rise, but it fell last month by more than 10 percent.

And new building permits dropped by 4 percent. The housing news followed other troubling data, including the continued foreclosure problems.

In the broader economy, factory output slowed in April, after the earthquake in Japan caused an auto parts shortage. And a day earlier, a national survey predicted that the economy will now grow by less than 3 percent this year.

We take a look at the developments on housing and its impact with Guy Cecala — he’s the publisher of the trade journal Inside Mortgage Finance — and Dina ElBoghdady of The Washington Post.

And we thank you both for being here.

DINA ELBOGHDADY, The Washington Post: Thank you.

GUY CECALA, Inside Mortgage Finance: Good to be here.

JUDY WOODRUFF: So, Guy Cecala, to you first.

What do these numbers say about the health of the housing industry?

GUY CECALA: Well, quite simply, they say that home builders are reluctant to build new houses. And it’s because they know they can’t sell the houses.

Demand for all types of housing is down. This is the first step, the construction of new houses. Then the next step, of course, is sales of new houses, which are down also. And I think, tomorrow, the existing home numbers are coming out. And those are expected to be down, too. So, it’s a series of bad news.

JUDY WOODRUFF: But this was not — the expectation had been that things were going to be better.

GUY CECALA: Well, yes.

They were expected to be better because we’re going into the home-buying season. April is a good month in terms of normal home sales. That’s when most people get out of the houses after a long winter and go out and buy homes. So, it’s particularly disturbing to see declining numbers as you enter the peak home-buying season.

JUDY WOODRUFF: And what’s behind it?

GUY CECALA: Well, clearly, the problem is there’s too many foreclosed properties still on the market, which is driving down home prices, and that the average foreclosed home is still selling for much less than someone can build a new home for. So, it makes it particularly hard to move new homes. That’s why they’re hit the hardest.

JUDY WOODRUFF: That’s the — you’re saying that’s the main cause that is at work here?

GUY CECALA: Yes. There are a combination of events. Mostly — that’s just the price issue. But there’s also the demand issue. With more news coming out that home prices are continuing to slide in most parts of the country, home buyers are reluctant to jump off the fence and buy a new home, because they don’t want it to go down 10 percent in the first year that they have it.

Tight mortgage underwriting standards are another big problem. There are a lot less people who can qualify for a mortgage these days. And that’s reducing demand overall.

JUDY WOODRUFF: And that was something that we had thought was getting better as well. But it hasn’t.

GUY CECALA: No, not really.

JUDY WOODRUFF: Well, Dina ElBoghdady, let’s turn to you. We heard Guy Cecala mentions foreclosures first and foremost. And we know there have lately been these negotiations under way between the banks and the state attorneys general and the federal government.

What have they been trying to accomplish?

DINA ELBOGHDADY: Well, basically, this started back in September, when there were widespread reports of mishandling of foreclosure paperwork.

Basically, at Allied Financial, there was an employee what basically said that he had signed off on thousands of documents without verifying their accuracy. And so there were lots of different lawsuits. There were lots of reports looking at various different institutions. And it was a rather widespread problem. It’s what they call robo-signing.

There were also problems with forged signatures, people at the institutions who were not signing the documents that they claimed to have signed. And so that just caused an uproar. And there were many different investigations, both at the state level and at the federal level.

And then the federal law enforcement and state law enforcement decided to join forces. And those are the attorneys general in the 50 states and people at the Department of Justice, Department of Housing and Urban Development, Department of Treasury. And they are now trying to negotiate a settlement with the five largest mortgage servicers in the country and trying to figure out what kinds of penalties should apply.

JUDY WOODRUFF: And trying to get them to do what, so that the foreclosure crisis would look like what if they were able to make progress?

DINA ELBOGHDADY: What they would like to do, at least at the start of the negotiations, they were talking about having these mortgage servicers pay something upward of $20 billion in fines, and then use these fines to reduce the mortgage balances of people whose homes were underwater, meaning people who owed more on their mortgages than their homes were worth.

And that has become a major sticking point. The banks are resisting. Some of the A.G.s are saying, wait a second, that’s not fair. That’s not really the crux of the problem. And so the unified front that was there at the beginning is sort of falling apart a little bit as far as the A.G.s are concerned.

One state attorney general in Oklahoma already said he is prepared to break ranks if they push this proposal to reduce the mortgage balances. And others are saying this isn’t going far enough.

JUDY WOODRUFF: And what happens if they can’t reach any agreement?

DINA ELBOGHDADY: Well, that is a possibility. And maybe then the A.G.s go on their own and each separate state try and go after the banks on its own terms.

JUDY WOODRUFF: And which would mean an even slower resolution?

DINA ELBOGHDADY: Yes, yes. I mean, all of this — they said — back in March, they said it would take a few more months. And, you know, here we are in May. They don’t seem to have progressed much further.

JUDY WOODRUFF: So, Guy Cecala, back to your comment a minute ago that the foreclosures are at the center of what’s happening in the housing market. If this doesn’t get resolved, what does that mean going forward?

GUY CECALA: It means it drags out any resolution of the problem, meaning, ultimately, you have to get the foreclosures done. Properties have to be sold to new buyers. New homeowners have to move into the properties. You have to go through that system before you can talk about any sort of housing recovery.

Right now, close to 50 percent of all home sales transactions are distressed properties, either loans in foreclosure or loans being sold by defaulted borrowers. Until you get that cleared up, you’re not going to have any home price appreciation or increase in home prices, which is one of the fundamental problems.

JUDY WOODRUFF: And let’s — both — ask both of you to step back a bit.

What effect is what’s going on in the housing industry having on the broader — the recovery? I mean, this recovery was supposed to have begun, was — technically did begin almost two years ago. And here we are, almost, you know, the middle of 2011, Dina ElBoghdady, and things are worse in housing.


Housing was — in the past, it usually leads us out of a recession. And, right now, it really is lagging behind in terms of the economic recovery. And part of the reason right now is the joblessness. I mean, there’s been a stubborn problem with unemployment. And that doesn’t seem to be getting fixed fast enough.

And so, you know, I mean, just to put it simply, no jobs, no mortgage, you just can’t buy a house. You can’t stay in the one you have.


How does it look from your perspective in terms of the housing industry and how it fits into the bigger economic recovery picture?

GUY CECALA: Well, what a lot of people don’t realize is housing generates a lot of sales and economic factors in the country.

Beyond just all the people employed in real estate, home building, mortgage finance, you have all the people who sell appliances, home improvement, things to decorate houses. If you have less home sales, you see less across the board in all those durable sales going on. And that has a negative impact and brakes on the economy.

JUDY WOODRUFF: And from the perspective of people inside the industry, as they look to the future, as you and you who watch them look to the future, what do you see?

GUY CECALA: Well, we keep pushing back on any sort of recovery. I think, a year ago, we were talking about, maybe by the middle of 2011, we would start to see some improvement. Right now, based on the housing numbers we have seen, we’re already talking about the middle or late 2012 at the earliest.

And I think that’s going to continue. As long as the numbers remain bad, we’re going to keep looking out further. And realistically we’re looking at another two years at this point.

JUDY WOODRUFF: And, Dina, how does it look to you, as somebody who covers housing and focuses on the foreclosure problem?

DINA ELBOGHDADY: Prices keep tumbling, and people didn’t expect them to be tumbling at this point. People expected more stabilization. So, the fact that they’re still tumbling, that the analysts keep saying, well, maybe by the end of this year, things will stabilize, well, maybe next year things will stabilize, it’s not good news at this point.

JUDY WOODRUFF: And the folks you talk to in the federal government and folks at the state government level, none of them have any — do they have any kind of prospect for a solution that’s any more optimistic than what we have been talking about right here?

DINA ELBOGHDADY: Well, right now, they have been talking about the federal government getting out of the mortgage business because so many of the mortgages out there are backed and guaranteed by the federal government.

But I don’t see how they can do that any time soon, given the state of things right now.

JUDY WOODRUFF: All right. Well, we are going to leave it there at that fairly pessimistic level.


JUDY WOODRUFF: Dina ElBoghdady, thank you very much.

Guy Cecala, thank you.

GUY CECALA: You’re welcome.