Wednesday, April 9, 2008

Mortgage problems limited, OSU survey finds

The Columbus Dispatch

Americans own about 70 percent of the value in their homes, a sharp counterpoint to reports that homeowners are swamped by debt, a new survey shows.

The national survey, conducted by the Center for Human Resource Research at Ohio State University, indicates recent problems with mortgages are isolated to a small share of consumers.

"When it comes right down to it, consumers are managing their affairs better than Bear Stearns," said economist Randall Olsen, director of the research center.

He thinks the main problem isn't the prevalence of bad loans, but rather the inability of financial institutions to measure the potential losses from those loans.

"The biggest problem here is pricing the risk," he said.

In early March, the Federal Reserve reported that homeowners' share of equity had dropped to 47.9 percent in the fourth quarter of last year, the lowest percentage since the figures were first kept in 1945.

The low number was one of many indicators analysts used to show the poor health of the housing economy. High-profile meltdowns at investment banks, such as Bear Stearns, gave added weight to the idea of a far-reaching problem.

Olsen acknowledged that his study's numbers and the Fed's are considerably different. He expressed confidence in the validity of the data from his survey and noted that the Fed used a different type of data to come to its conclusion.

The OSU survey shows that the share of troubled borrowers is in the single digits, even among borrowers who are caught up in the most unfavorable loans. For instance, of the homeowners who owe more than 100 percent of their house value, only 7 percent have been 60 days late on payments in the previous year.

The survey was based on interviews with 3,500 randomly selected households.

Zach Schiller, research director for Policy Matters Ohio, doesn't quibble with the accuracy of the survey, but he thinks the results have been framed in a way that understates the problem.

"This is a problem that nearly brought down the financial system of the U.S. a few weeks ago. For someone to minimize it is really problematic," Schiller said.

He said the presence of troubled homeowners -- even if their share is small -- can harm entire neighborhoods if there is a foreclosure.

"It's very important that we not get caught up in the notion that, 'Oh gee, it's only X percent of the total,' " Schiller said.

Ohio had an estimated 83,230 new foreclosure filings last year, an increase of 45.8 percent since 2003. Franklin County had an estimated 8,928 foreclosures last year, up 47 percent since 2003. The 2007 estimates, based on actual results for January through September and projections for the rest of the year, were provided by Gov. Ted Strickland's task force on foreclosures.

The Mortgage Bankers Association has reported that Ohio led the nation in percentage of homes in foreclosure at the end of 2007, with 3.9 percent.

Amid all those negative indicators, the OSU survey provides a much-needed dose of common sense, said Jeff Wherry, executive director of the Ohio Mortgage Bankers Association.

"We tend to shine a light on a problem so intently that we lose the big picture," he said.

Wherry fears the situation is being over-hyped in a way that will lead to overreaction from lawmakers and regulators. He said this as policymakers consider a variety of ways to help people who are unable to pay their mortgages.

"My real fear is that the government is going to step in and say, 'We've got to bail some of these people out,' " he said. "I don't think people should be bailed out for making bad business decisions."