The saying was once that when America sneezed, the world caught a cold. Now, when America sneezes, the world stares at us wondering why the hell we're not wearing masks. Ok, perhaps that's not the best metaphor.
The financial effects of the global public health crisis caused by the coronavirus is felt across the American economy, but of particular concern is the looming foreclosure and eviction crisis. Of equal concern, those in charge of the relevant national policy had, during the Financial Crisis and the ensuing Great Recession, profiteered from the same market conditions.
Recent market reports suggest the scale of this problem. Mortgage delinquency rates rose from mid 3% before the pandemic to 7.76% as of July, according to Black Knight. For context, at the peak of the financial crisis, mortgage delinquency was 10.57%. Another statistic is just as sobering: the number of mortgages in forbearance rose from 100,000 before the pandemic to 4.5 million now. According to the Chicago Fed, there were roughly 3.8 million foreclosures between 2007 and 2010.
The coming crisis will also affect renters, through a coming wave of evictions once the protections lapse and courts re-open. Currently, 40% of states no longer offer renters eviction protection, according to the BBC. Nearly seven million households are at risk of eviction, according to CNBC.
Before the pandemic, half of U.S. renters spent 30% of their income on housing. However, the most economically-disadvantaged 20% of Americans spent, on average, more than half their income on rent. And this was during a "healthy" economy – the pandemic's effects were disproportionately felt by poorer Americans, many of whom were working minimum-wage jobs that have been furloughed or their company has simply ceased to exist. The Federal Reserve reported that 37% of American households did not have sufficient cash reserves in 2019 to cover a $400 emergency expense.
For owners, foreclosures. For renters, evictions and potential homelessness. For profiteers, vast opportunities.
The sitting Secretary of the Treasury, Steve Mnuchin, previously served as head of IndyMac, renamed OneWest. Under his watch, the firm profited from dubious lending and foreclosure practices during the 2007-2008 financial crisis. And as Kamala Harris is in the news today for her vice-presidential nomination, it is worth remembering that she, as attorney general, was informed of Mnuchin and IndyMac's practices and failed to act, according to reporting by CNBC, Huffington Post, and The Intercept.
To phrase this as mildly as possible, it will be interesting to see how Mnuchin handles the coming wave of foreclosures.
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