Foreclosures Keep Coming

I hate to be harping on something, but I can’t help but notice a theme in the government reaction to the fiscal crisis.  We have seen the Federal Reserve act quickly and authoritatively when it comes to addressing a problem on Wall Street.  We have already witnessed a $700 billion stimulus package.  We had an emergency equity injection.  Not so far back, the government backed up JPM’s acquisition of Bear Stearns. Now there is talk that another stimulus is needed.

All of this is in relief to the limited efforts that have taken place to help homeowners.  The centerpiece of our foreclosure policy is the Neighborhood Stabilization Program.  That provides about $4 billion for communities – just a drop in the bucket compared to the Wall Street outreach.

[polldaddy poll=1025729]My thought is not that leaders are wrong for addressing challenges on Wall Street.  Rather, they seem to be applying a much higher barrier to the concerns for regular families.

The situation is getting worse.  Homes that a few months ago were merely sporting delinquencies are now in foreclosure court.  A court in Chicago is having to increase the number of judges dedicated full-time to foreclosures.

What’s more, the cost of lending is not going down.  The TED spread remains high.  LIBOr is high.  The banks are not using their new equity to make more loans.  They are hoarding their funds for a rainy day.

And, there are no provisions to make sure that this equity injection is not just a subsidy for shareholders.  I like that taking the funds has an impact on CEO pay, but that is more an exercise in political symbolism than in impactful policy.  It is worth asking if these banks should be allowed to take equity and still pay out dividends.  Some of the dividend payouts are now exceeding earnings.  Are tax payer funds being used just to protect payouts that need to be reduced?