The two big questions facing the U.S. economy at the start of 2011 were housing and jobs. Would home prices go up? Would the ranks of the jobless go down?
On jobs, the answer turned out to be a muted but encouraging yes. Through November, the United States added about 131,000 payroll jobs each month. That's still weak for a recovery, but it represents a sharp increase of 50,000 jobs per month from 2010.
Dig a little deeper and the news is even slightly more encouraging: Private employers have added an average of 155,000 jobs each month this year.
The U.S. housing market, in contrast, is still a basket case. American homes have lost $7 trillion in value since 2006, with as much as a quarter of all mortgage holders owing more than their house is worth.
For many families, this constitutes an economic catastrophe, one compounded by the federal government's overly timid and largely misdirected response via a dizzying potpourri of programs such as HOPE, HAMP, HARP, 2MP, PRA and others.
Most of the programs were administered by the lenders themselves, whose participation was voluntary and, as you might guess, tepid at best. This could have been avoided by making participation a condition of receiving any kind of federal financial assistance -- short-term loans, guarantees, preferred stock purchases. If you got bailed out, you had to help bail out a responsible homeowner, end of story.
Second, many of these programs initially focused too heavily on people who had little realistic hope of keeping their homes. Some even required that homeowners be in default, a criterion that helped inspire the "Honk if I'm paying your mortgage" bumper sticker.
Instead of focusing on lost causes, policymakers should have directed much of the federal firepower at homeowners like Karen Kopacz.
Kopacz has spent five years trying to persuade lenders to let her refinance her St. Paul home to take advantage of record-low interest rates of about 4 percent.
Until recently, the answer was always no and the reason was always the same. The estimated value on her two bedroom home had fallen to $140,000, well below the $206,000 she borrowed to buy it in 2005.
The irony, not lost on Kopacz, is that she never had equity in the house. When she bought the house Kopacz was able to finance the entire purchase price with a first and second mortgage.
A week later, she lost her job at a Minneapolis advertising agency.
In the six years since, Kopacz, a self-employed graphic designer and Web developer, has never missed a payment on her first or second mortgage. Her credit score is 785.
Many people behaved badly during the housing bubble. Lenders and mortgage brokers signed off on and even falsified customer information on risky, expensive loans that had little chance of being repaid. Consumers bought more house than they could reasonably afford, while others took out second mortgages and lines of credit to support a lifestyle beyond their means.
Then there are millions of homeowners like Kopacz, who are struggling to make the best of a bad situation -- to the enormous benefit of the lenders and investors that hold their mortgages.
Though Kopacz understands why some people choose to walk away from a home even when they can afford to make the payments, "I never thought of this as an option, even when people who I considered financially and intellectually savvy began suggesting it."
CoreLogic, the housing research firm, estimates that nearly 11 million homeowners are underwater on their mortgages, with nearly 70 percent of them paying interest rates of 5 percent or more.
One government study estimates that allowing 3 million mortgages to refinance at lower rates would save those homeowners more than $7 billion and prevent more than 110,000 foreclosures.
The government's first effort to help people like Kopacz, the Housing Assistance Refinance Program (HARP), failed miserably. It saddled borrowers and lenders with high fees and excluded owners like Kopacz whose homes experienced deep declines in value.
HARP, version 2.0, lifts many of those restrictions. But it also fails to address second mortgages, which often carry even higher interest rates. Otherwise, the early reviews aren't promising.
"When homeowners take the initiative to approach lenders about HARP, they often seem to get blank stares," said Dan Williams, a program director for LSS Financial Counseling.
Kopacz started a blog, Making Sense of HARP, www.makingsense ofharp.com, to chronicle her experience of trying to refinance under the government's program. After three tries, she finally got an offer from Bank of America that would lower the interest rate on her first mortgage from 6 percent to 4.5 percent, saving her about $250 a month.
She's shopping for a better deal.
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