How the state fared: Trouble in housing market, banks


A presidential election is a contest of competing ideas, values and personalities. The AJC is covering all those aspects and will continue to do so right up to Nov. 6. But that is not the focus of this series.

Its purpose is to look at Barack Obama’s record as it affects Georgia — set against the backdrop of the larger forces that shaped America during his first term. There is no intention to slight Mitt Romney; the Republican nominee merely does not have a record as president for which he is accountable.

This series sticks closely to the facts of what Obama’s administration has done and, wherever possible, the measurable results. It does not examine whether the results are good or bad. It merely seeks to present the most pertinent information clearly and concisely, without opinions or spin from either side.

Monday: Health care

Tuesday: Education and social services

Wednesday: Transportation and energy

Thursday: Immigration and defense

Friday: Jobs and the economy

Today: Housing market and banks

Housing: The Big Picture

Georgia’s housing market, traditionally a driver of the state’s economy, has been among the hardest hit since the fallout of the credit bubble and the Great Recession.

The state’s housing woes began during the tail end of the Bush administration. Foreclosures took a jump in 2006, following a home-buying wave built, in part, on loose lending, exotic mortgages and rampant speculation.

When the bubble burst, it took the economy into recession. Millions lost jobs, then lost their homes when they couldn’t make the payments.

Though the market is showing some signs of life, the sector remains troubled.

Foreclosures

184,546 foreclosures took place in Georgia from January 2009 to August 2012, according to RealtyTrac.

No. 6 was where Georgia ranked nationally for foreclosure in September, RealtyTrac said.

Home values and interest rates

After surging in the early-to mid-2000s, Georgia home values started to fall in 2007 and went into free fall after the financial system froze up.

No. 20 — dead last — was where Atlanta ranked among major metro areas in the latest year-over-year price-performance data. Though values have now risen for four months, they remain below their January 2000 level.

3.37 percent is the national average for a 30-year fixed-rate mortgage, near a record low, according to Freddie Mac.

Low rates, for those who can qualify for loans, are a boon. But they also reflect the continued weakness of the economy, which has forced the Federal Reserve to take unprecedented steps, including buying mortgage-backed securities, to get it moving.

Barack Obama’s impact

The president pledged in 2009 to help at least 7 million Americans avoid foreclosure through programs such as the Home Affordable Modification Program and the Home Affordable Refinance Program.

With about 2.8 million modifications or refinances accomplished to date, the programs fell well short of that promise. The former inspector general of the Troubled Asset Relief Program has criticized the Obama administration for not adequately helping distressed borrowers or prodding banks to follow through.

32,253 Georgians had gotten permanent modifications or forbearance plans as of August. Nationally, the number was 1,244,001.

61,754 Georgians had refinanced their homes under HARP through July. The national number was 1,541,190.

Many others have modified their loans through programs initiated by the banks themselves. A recent report by a coalition of major banks put the total of modifications at 4.6 million nationwide. The tally in Georgia, including bank-run programs, is approximately 170,000.

Mortgage settlement

$25 billion in penalties will be paid by the five-largest mortgage servicers under an agreement reached early this year with the attorneys general of 49 states. The states had sued over abusive foreclosure practices.

$810 million will come to Georgia as part of the deal, with most of it being administered by banks and regulators to modify loans or make payments to defrauded borrowers. Of that, nearly $100 million was directed into the state's General Fund to plug budget holes.

First-time homebuyer tax credit

87,187 Georgia tax filers claimed the first-time homebuyer tax credit, according to the IRS.

Romney’s approach

The GOP candidate has said he would:

* Reduce the government’s role in the housing sector;

* Reform government-supported mortgage giants Fannie Mae and Freddie Mac;

* Support alternatives to foreclosure, such as allowing distressed borrowers to remain in their homes as renters;

The financial system: The big picture

Lenders that had lived by the sword of willy-nilly mortgage underwriting died by the same sword once the housing market collapsed. When Obama took office, Bear Stearns, Lehman Brothers, AIG and Wachovia had already collapsed.

Georgia’s troubled banks were not heavily involved in subprime mortgage lending, but many funded developers who built speculative subdivisions and retail centers across the state. It was development stimulated by growth expectations that were propelled by a culture of too-easy credit.

Observers have estimated that half or more of Georgia’s banks were under some form of formal or informal regulatory order during the crisis. Regulatory orders are intended as prescriptions to return banks to health.

83 Georgia banks have failed since September 2008 — 78 of them since Obama was inaugurated. That makes Georgia No. 1 among the states.

432 banks have failed across the country during Obama's term.

Bank earnings

Bank earnings plummeted during the financial crisis, largely because of losses by the state’s largest banks: SunTrust Banks, Synovus Financial and United Community Banks. Regional powers SunTrust and Synovus were wounded by the fallout of the housing bubble beyond Georgia.

Earnings have begun to improve over the past several quarters, as banks have purged their books of costly soured loans and in some cases are finding new borrowers.

Obama’s impact

The Troubled Asset Relief Program, more commonly known as the “bank bailout,” started under George W. Bush but expanded under Obama. The rescue stretched beyond banks to cover insurer AIG and automakers Chrysler and General Motors.

TARP

$6.3 billion went to more than two dozen Georgia-based banks. Nationally, banks received $245 billion.

$5.77 billion has been repaid by Georgia-based banks, including principal, interest and dividends.

$1.3 billion in principal is still outstanding at Georgia banks that received TARP funds.

Regulatory overhaul

The Obama administration’s signature effort in terms of bank regulation has been Dodd-Frank, a voluminous bill designed to help prevent and lessen the impact of another financial crisis.

It requires “systemically important” institutions to create a “living will,” a blueprint for unwinding their operations if they get into serious trouble. In addition, the so-called “Volker Rule” would restrict banks from “proprietary trading,” or trading their own money for their own benefit.

It calls for greater transparency in the trading of derivatives, complicated contracts companies use to guard against risk. Derivatives made up of mortgages helped tank the economy during the crisis.

Finally, it created the federal Consumer Financial Protection Bureau.

Romney’s approach

The GOP candidate has said he would:

* Work for repeal of Dodd-Frank, which he calls overly burdensome (although during the first presidential debate he also said Dodd-Frank is “the biggest kiss” to Wall Street because it institutionalizes the notion that some financial organizations are Too Big To Fail);

* Replace Dodd-Frank with a regulatory scheme that is less costly and cumbersome for banks and would end the specter of taxpayer-funded bailouts.