Author Katz: Tough to Say When Foreclosures Will Crest
Journalist Alyssa Katz has written a sweeping history of home ownership in America, "Our Lot: How Real Estate Came to Own Us." In a discussion with economics correspondent Paul Solman, Katz answered viewer questions on the roots of the foreclosure crisis and the outlook for the future.
PAUL SOLMAN: Welcome to the Insider Forum. Paul Solman here,
economics correspondent for the NewsHour with Jim Lehrer.
I have with me Alyssa
Katz, author of "Our Lot: How Real Estate Came to Own Us." She's an
investigative reporter, and I first interviewed you about the housing crisis in
the fall of 2006 and you were talking about the foreclosures already in Ohio
and places like that.
ALYSSA KATZ: Yes, I was. I asked what seemed a simple question
to me, which was: "How at the peak of the real estate boom was it that Ohio was
seeing these enormously high foreclosure rates?" It tripled that of the rest of
the country, and among subprime loans the foreclosure rates were north of 14
And just asking: "Well, how was this happening? And why?" It was those
innocent questions that led me on the journey that resulted in the book.
Alyssa Katz Author of 'Our Lot'
This is the mortgage company that sold her the house, set her up with an attorney, set her up with an appraiser -- it was what was known as a one-stop shop -- so that there was no kind of check and balance on the process for applying for a mortgage.
The peak of foreclosures
PAUL SOLMAN: This leads into our very first question from Ed
Wood, of Janesville, Wis. He asks the impossible question: When will foreclosures
ALYSSA KATZ: Yes, that is a very difficult to answer
question. The official projection from the Mortgage Bankers Association and other
institutions is middle of 2010. And that's all based on certain assumptions
about unemployment, home prices, adjustments on adjustable rate mortgages.
really depends on how much further into the doldrums the economy descends. If
borrowers continue to lose jobs and hours at work, then it's going to be very
difficult for them to make payments. There's no clear answer outside of a
crystal ball, but the best projections are middle of next year.
PAUL SOLMAN: I take it you do not have a crystal ball with
ALYSSA KATZ: Not with me today.
PAUL SOLMAN: A lot of people wrote in like Joseph Hitzel did
of Glen Gardner, N.J.: "Did anyone ask that woman [in the Oct. 15
segment, Making Sense of the Foreclosure Crisis] who bought a home for over $600,000 and worked in an eye-care facility
how she could possibly pay back that mortgage?
ALYSSA KATZ: Somebody did ask her and then
sold her a lie. This is the mortgage company that sold her the house, set her
up with an attorney, set her up with an appraiser -- it was what was known as a
one-stop shop -- so that there was no kind of check and balance on the process
for applying for a mortgage.
This mortgage company told her that her monthly
payments would be much, much lower than what she actually ended up paying. Nobody
asked her at that point if she could pay it back; all she continued to hear was
the message that buying a home was a good investment.
PAUL SOLMAN: And let's face it, when I interviewed you in
2006, most experts were saying home prices have never gone down as a whole in
the United States ever!
ALYSSA KATZ: Right.
PAUL SOLMAN: And when I was interviewing [the woman in that segment], I put myself
in her shoes and I thought: "Gosh, I remember when I got mortgages how relieved
I was. I'm so pleased that they're willing to give me the money."
ALYSSA KATZ: Well exactly. You see business people who have
a nice office, and are wearing suits and seem like they know what they're
doing. And you have to remember that in a neighborhood like Jamaica, Queens,
where we were for that segment, they have suffered with this legacy of
discrimination. Of banks saying: "No, we will not lend here." And so when history
seemed to reverse itself and suddenly financial institutions were willing to
make loans, well, there must have been a good reason!
Personal or systemic failure?
PAUL SOLMAN: We received a number of questions like this
one. Ira Cushing of Sebastopol, Calif., writes: I can understand why some of the mortgage
holders feel that they are victims of a scam.
I cannot understand how news
analysis that purports to explain the mortgage crisis fails to make any
mention of the role of the Community Reinvestment Act of 1977, passed under
Carter, in greatly expanding the number of borrowers who were at great risk of
ALYSSA KATZ: The question actually includes a misstatement of
fact, with all due respect to Mr. Cushing. The Community Reinvestment Act (CRA)
was specifically applied to depository institutions, to banks that are
federally regulated. It simply asks them to meet the credit need of the
communities in which they hold deposits. And what it did do, in huge numbers, is
make sure that borrowers who might not have qualified for mortgages previously
-- because of outright discrimination on the part of institutions -- that institutions
would have to play fair and make responsible loans in those communities.
the thing you have to know about the CRA is those mortgages overwhelmingly have
performed very, very well. A number of studies have looked at the question of
whether CRA had anything to do with causing the credit crisis and promoting
foreclosures. What they found again and again is that mortgages made by financial
institutions covered by the CRA have performed really well and had foreclosure
rates that are tiny fractions of non-CRA loans.
The other thing to remember is you have to think of the
subprime industry as a shadow banking industry. It existed almost entirely
outside the reach of the Community Reinvestment Act and federal banking regulations.
The firms doing this lending were not depository institutions. They simply
existed to create, sell, and package for sale subprime loans
in very large numbers.
PAUL SOLMAN: Rebecca Jacobsen asks: Why do individual
foreclosed homeowners see their foreclosure as a personal failure instead of a
ALYSSA KATZ: That's a really good question. I think people
in foreclosure see it as a personal failure because this country sees home
ownership as a personal achievement, and some sort of mark that one has become
a full citizen. It's this idea of individual aspiration to acquire property.
And it's supported by the government as really the most aggressive social
welfare program that this country has. A huge amount of federal spending goes
into the home interest deduction, and now we have the homebuyer tax credit, FHA
mortgage insurance -- there's just an enormous amount of support for
many people think: This is my achievement, I have achieved the American Dream
by buying a home. But the flip side is that we then see it as individual failure
when one isn't able to hold onto the home.
Moratorium on foreclosures?
PAUL SOLMAN: Ken McBride writes in to ask: "Why not an
immediate, nationwide moratorium on foreclosures, especially for those who have
been subject to predatory and fraudulent lending practices?"
ALYSSA KATZ: Now that's a really good question. In
theory, that would be great, because there is really no question that fraud and
violations of lending laws like the Truth in Lending Act and so on are
pervasive. And yet there's this very practical question of how you identify who
exactly would be protected under such a moratorium. How would you decide who
had actually been a victim of fraud or predatory lending?
More deeply, the issue is that the investors and investment
banks that finance these mortgages are the financial institutions that Treasury
has been bailing out with TARP. It's their near collapse that has been so devastating
to the economy. So, who gets to stay in the lifeboat?
You don't hear a lot about it because it's politically inconvenient.
And when we say investors, remember those investors are our pension funds, they
are institutions of higher education, they are cities. Putting a moratorium would
be a devastating blow to the financial system and that's really why we haven't
PAUL SOLMAN: Last question. Mark, in a comment on the
Business Desk: If homeownership is not realistic for all Americans, how many
are we talking about? And how do we take homeownership out of the myth of the
ALYSSA KATZ: I think we have to step back and ask what the
American dream is and where we lose the script. Because in my mind, the
American dream is about households having a stable economic footing. For not
just the last 80 years, but really even before that too, we've had generous
government support for land and property ownership as being a way to make that
American dream possible. But at some point in recent history, property
ownership went from being a wealth builder to a wealth destroyer.
So I think the question is not really about whether home
ownership is realistic for all Americans -- and clearly some people are going
to always be too poor to own any substantial amount of property and that's a
deeper economic question.
It's more about how homeowners at any income level
can count on owning property as an asset that will appreciate and provide that
stable economic foundation, and how the banking system and regulations can be
set up to promote that. And we had that pretty much from 1934 until 1983. As I write
in the book, deregulation of the banking system and the introduction of mortgage-backed
securities and subprime lending changed the equation and made home ownership a proposition
for losing wealth more than it was for building it.
PAUL SOLMAN: Great. Alyssa Katz, thank you very much. Anyone
who wants to understand the history of housing in America should get a copy of the book.
KATZ: Thank you so much for having me, Paul. This has been great.