Recession and Credit Crisis: Which America Do You Live In? Can Anybody Get A Loan Modification?

This week’s batch of news and emails left me feeling a little confused about the current state of our economy.

It almost feels as though there are two economies. First, we have the so-called “good news” from Wall Street, where the big financial companies are crowing about billion dollar profits, paying $100 million bonuses, and repaying warrants.

The other economy is reflected in the emails I’m receiving from Main Street, where people can’t get lenders to call them back about loan modifications, where jobs continue to be lost by the tens of thousands, home values continue to fall, net worths are decimated, and where foreclosures continue to rise, particularly in areas hardest-hit by unemployment.

Which America do you live in?

I’m willing to argue that the vast majority of Americans are overwhelmed by debt, sinking house values, and 401(k)s that have not recovered quite as well or as fast as the proposed bonuses of Wall Street. The vast majority of Americans are terrified that Wall Street and Capitol Hill can’t wait to declare an end to the recession, so everyone can get back to business and bonuses as usual.

Everyone, except the 7 million Americans who have lost their jobs, health insurance, and life savings in this recession. These folks are now seeing the end of their unemployment benefits coming while there are still 4 or 5 applicants for every job available.

I’m not sure we’re making the right kind of economic progress just yet. We can say that the housing crisis might have turned the corner, that housing prices rose a little in different markets and for some type of homes, and that more people are starting to buy new construction homes again.

Or did they? The June new construction housing start and building permit figures from the Commerce Department showing a significant rise in new construction numbers have an annotation at the bottom of the report that said, “The Census Bureau does not have sufficient statistical evidence to conclude that the actual change is different from zero.” In other words, maybe there was a rise in new construction numbers and maybe not.

If you talk to some long-time real estate agents, they’ve had few deals close this year.

Of more concern are the dozens of letters I receive each week from homeowners who are still being told by their mortgage servicers that they don’t qualify for a loan modification under President Obama’s Making Home Affordable (HASP) plan unless they are delinquent on their mortgage. Or, they’re being told that “foreclosures come first” and if there’s time, they’ll get to the loan modifications later. Or, they’re told they don’t qualify at all, without a reason being given.

And despite a financial incentive for second lenders to participate in loan modifications and refinancings, it’s clear that second lenders are slow to come to the table to help with these loan modifications – if they come at all.

What’s going on here?

This week, Housing Banking Committee Chair Barney Frank (D-MA) said loan modification programs, while helping more people, weren’t anywhere near where they should be.

“Congress has provided every legislative tool recommended by people in the mortgage industry, and in the administration, that we were told would be helpful in facilitating the modifications we need to diminish the flood of foreclosures which has been so much a part of our national economic problem,” he said.

Earlier this year, so-called “cram down” legislation, which would have permitted bankruptcy judges to modify primary home loans, passed the Senate but didn’t survive a vote in the House. Frank said the law wasn’t passed was because mortgage lenders promised they’d take care of the broad problem of helping families avoid foreclosure.

“People in the servicing industry and in the broader financial industry must understand that if this last effort to produce significant modifications fails, the argument for reviving the bankruptcy option will be extremely strong, and I think there is a substantial chance that the outcome will be different,” Frank said in a statement.

I think folks on Main Street would like to feel that they’re living in the same country as those people who live on Wall Street and in Washington, D.C., where the promise of large bonuses and government jobs with great retirement and health care benefits seems to have blinded some to the true level of suffering going on in the rest of the country.

This month, many cities passed the double digit mark for the official unemployment level. In Chicago, the official rate of unemployment hit 11.3 percent. The U-6, a truer picture of unemployment is probably closer to 16 percent nationwide, and some smaller metropolitan areas are now at or past 20 percent true unemployment.

If the latest RealtyTrac foreclosure survey is correct, and the rise in unemployment is directly tied to the latest record levels of foreclosures, Main Street is going to feel recessionary for some time to come.

More on Loan Modifications:

Mortgage Loan Modifications: Do You Have To Be Late To Qualify? and

Refinancing Mortgages Under the Obama’s Making Home Affordable Plan and Primary Residences