A foreclosed home in Winchester, Va. (Jay Mallin/ZUMA Press)

Mortgage giant Fannie Mae’s recent announcement that it will give homeowners facing foreclosure the chance to stay in their properties as renters for as long as a year is the latest aggressive move by the government to help troubled borrowers and tenants avoid being evicted. But as past efforts to stem the foreclosure crisis have already shown, even well-intentioned programs haven’t managed to reach significant numbers of people in peril – meaning any new approach faces a tough road ahead.

Image by: Matt Mahurin

The problem has been particularly widespread surrounding a provision in the law, called the Helping Families Save their Homes Act, that allows for borrowers with Section 8 affordable housing vouchers the option to also stay in their residences when their landlord is in foreclosure. Some tenants who call their state or local housing authorities in Massachusetts and Connecticut after a foreclosure eviction notice are mistakenly told they have to move, noted Judith Liben, a senior housing attorney with the Massachusetts Law Reform Institute, a nonprofit legal services advocacy group. Better training of housing authority staff would help fix the situation, she said.

“Even with well-intentioned policies, there’s a disconnect between a good idea put into law, and what really happens on the street,” Liben said. “We see that disconnect on the ground, all the time.”

Despite anti-foreclosure initiatives by the government and lenders, the housing crisis has continued to worsen. Foreclosure notices totaled a record high of nearly 938,000 in just the third quarter of this year, according to RealtyTrac, an online foreclosure database. The Center for Responsible Lending predicts a total of 9 million foreclosures by 2012. Vacant and abandoned foreclosed properties are adding to neighborhood blight problems. Renters increasingly have become caught as innocent bystanders, evicted often without notice when their landlord faces foreclosure.

The new federal protections are supposed to address that. But in some cases, tenants in foreclosed homes either can’t reach real estate agents in charge of selling the properties to let them know they want to continue renting, or they get incorrect information from agents and think their only option is to move out immediately, said Shelley White, litigation director at New Haven Legal Assistance in Connecticut. In some instances, law firms send misleading letters that imply a financial incentive to move, known as cash for keys, is a renters’ only option, she said.

“We’re definitely seeing a lot of problems with tenants that just get notes from Realtors that say the bank has foreclosed on your property, and it’s time to get out,” Wright said.

The difficulties in outreach to tenants comes as the government continues expanding options and assistance to borrowers and renters dealing with foreclosure. In addition to the new federal law, the Treasury Department plans soon to rollout its plan encouraging more short sales by offering financial incentives to lenders and borrowers. In a short sale, a homeowner sells his home for less than the amount owed on the mortgage, and lenders forgive the remaining loan balance.

Both Fannie and Freddie Mac earlier this year began allowing qualified tenants in foreclosed homes under their control to sign month-to-month leases. Freddie Mac also started offering former owners of foreclosed homes the month-to-month lease option. Last week, Fannie announced its new policy, which significantly expands on the idea, allowing some owners who didn’t qualify for a loan modification and can’t afford their mortgage  the option of staying on in their homes. The owner would voluntarily turn over the property to Fannie in a “deed for lease” transaction, instead of going through a lengthy foreclosure process. The former owners in exchange would be given the option to rent back their homes for at least a year. Unlike in a short sale, their credit is unlikely to take a hit because of the transaction. And even investors may be eligible, meaning they would turn over their properties to Fannie, but their tenants would have the option to remain.

“This is huge,” said Dean Baker, co-director of the Center for Economic and Policy Research, who proposed a similar own to rent idea when the financial crisis first hit two years ago.

Baker would prefer that Fannie’s new policy extend the the rent-back period even further, to five or 10 years. But, overall, Baker said Fannie’s program addresses the problem of growing numbers of vacant properties, and represents a shift to promoting rental policies as a foreclosure solution. “You’re guaranteed a year, and that gives you some stability and a chance to plan ahead,” he said.

He and others also described Fannie’s new program as a big step forward over some efforts currently in place to help renters in foreclosed homes.

Fannie Mae, for example, already gives renters in foreclosed homes the option to continue renting on a month-to-month basis, or to accept a cash for keys offer. According to Fannie’s data, the financial help has been a far more popular option. Since January, it has tallied 3,500 cash for keys agreements, and 300 signed leases. Fannie Mae spokesperson Amy Bonitatibus said the program was set up to offer both choices to renters. It is open to all tenants of Fannie Mae-owned properties, but she had no information on specifically how many tenants had been approached with offers.

The small number of leases signed isn’t really surprising, said Danilo Pelletiere, research director for the National Low Income Housing Coalition. The options to renters were offered post-foreclosure, by which time some tenants may have decided to make other living arrangements. Cash for keys can be a more attractive option than a month to month lease. The new federal tenant protection law also overlapped with Fannie’s program, so some tenants may not have felt a need to sign leases, he said.

Pelletiere and other advocates said they have much higher expectations for Fannie’s new approach for former owners. A deed for lease transaction can happen far more quickly than a foreclosure, and having a longer-term lease will be more attractive to many people. Fannie also has hired a national property management company to handle the new program, while its existing rental initiative for tenants uses local real estate agents and property managers.

“Because of the way it’s designed, it should do a much better job,” Pelletiere said. “That makes it much more likely that we’ll see a national response. It provides a way for Fannie to be proactive and to get to the property earlier. And it costs less than getting someone out of a home and foreclosing on them.”

Alan Mallach, a senior fellow at the National Housing Institute and the Brookings Institution, agreed. “What’s interesting will be to look at how many people this new policy affects,” Mallach said. “I think it will be significant.”

Pelletiere said he also found some encouragement in early results from Freddie Mac’s program earlier this year to rent back properties to former owners of foreclosed homes on a month by month basis. According to Freddie Mac’s figures, almost 12,000 units entered its portfolio of foreclosed homes between April and October. In 70 percent of cases, a borrower is working on a mortgage loan modification, leasing the home back, or accepting cash for keys. In another 27 percent of cases, the property was vacant by the time Freddie Mac took it over. In three to four percent of cases, an owner or renter faced eviction. Of those occupants who signed leases, two-thirds were owner occupants and one-third were tenants. Spokesman Brad German said he had no further breakdown of the numbers.

The long-held belief has been that owners would decline to become renters again, so having more owners than renters sign rental leases is an encouraging sign for Fannie’s new program, Pelletiere said.

Still, he and others noted the government wouldn’t be prompted to move toward a more aggressive rental policy if a greater number of loan modifications were successful. A recent report by the Congressional Oversight Panel for the government’s taxpayer-funded bailout program criticized the progress being made under the administration’s Making Home Affordable program, saying that in a best case scenario it would prevent fewer than half of expected foreclosures.

As foreclosure notices pile up, troubled tenants and borrowers don’t always understand they might be eligible for help, or they don’t know who to contact to apply for programs, or they just give up and leave upon a foreclosure – even in cases where they have new federal laws and programs intended to avoid evictions. To Liben, the Massachusetts housing attorney, one constant of the housing crisis has been that some people “get lost in the shuffle.” She’s waiting to see if that will finally change.

Federal Reserve Chairman Ben Bernanke (WDCpix)

Federal Reserve chairman Ben Bernanke announced last month that the recession was “likely over” and that the economy was in the early stages of a recovery. The problem is, many Americans don’t look around and see a recovery due to the still-abysmal unemployment rate. What’s scarier is that those numbers are probably going to get worse before they get better. The Congressional Budget Office predicts unemployment peaking at 10.2 percent next year and remaining at a very high 9.1 percent in 2011.

Illustration by: Matt Mahurin

“What people care about is numbers that affect their lives — employment, pay, housing. The story in almost all those cases looks bad,” said Dean Baker, director of the Center for Economic and Policy Research. “In one sense the recession will be over, but for all practical purposes, it still will be a recession for most people.”

In other words, we’re looking at a jobless recovery. “What it means is that the economy is recovering for Wall Street and business profits but it’s not distributing that prosperity effectively, and that’s not the recovery we need,” said Andrew Stettner, deputy director of the National Employment Law Project. “It’s not a true recovery until it lifts the fortunes of average Americans,” he added. Waiting for that could take a while: the Congressional Budget Office estimates it could take another five years to get back to America’s pre-crash unemployment rate.

Unlike recessions from roughly the end of World War II until the 1980s, a bounce-back in U.S. jobs isn’t going to come from the nation’s giant manufacturing sector cranking itself back up. While America still does produce goods both for export as well as for consumption at home, the 20th-century manufacturing-based economy has shifted to a service-oriented one, and roughly 70 percent of our economy these days is driven by consumer spending. As a result, recent recoveries have tended to be jobless ones in which the employment rolls take much longer to catch up with the rise in GDP that signals a recovery. After the 2001 recession, it took 17 quarters — more than four years — for the labor market to recover.

The severity of this recession as well as the enormous number of jobs lost is already creating a strain on the nascent recovery, and experts say it presents a number of challenges for average Americans as well as policy-makers. One of the most glaring is the issue of health care. The importance of the ongoing health care debate — and the need for reform — is highlighted by the plight of the unemployed when it comes to health insurance.

Currently, laid-off employees are eligible to remain in their employer’s group pool through the COBRA program for up to 18 months. Historically, many people who lose their jobs turn down the COBRA coverage because it requires individuals to shoulder the entire cost of the premium by themselves. In an acknowledgement that this is no ordinary recession, the federal $787 billion stimulus package includes a provision providing unemployed workers with a 65 percent subsidy of their COBRA premiums for nine months.

This is unprecedented, and yet many economists say it’s not nearly enough. “A lot of the people who start being unemployed aren’t reemployed after nine months,” Burtless said. The number of Americans on the jobless rolls for months or even years at a time is already swelling and expected to grow, which means it’s increasingly likely that the unemployed will run through their COBRA benefits by the time they land a new job. Even if a worker is lucky enough to land a job that includes health insurance (which is no guarantee these days, either), restrictions on pre-existing conditions kick in, leaving an untold number of Americans without a healthcare safety net.

Health insurance isn’t the only issue, though. “It’s a desperate situation because it’s going to be long term,” warned CEPR’s Baker. “Today you have people getting benefits, but people might be out of work for two or three years, and we’re not set up for having high rates of unemployment.” Baker points out that other developed nations are better equipped for a situation like this because of programs like long-term unemployment insurance, housing assistance and health care.

Prolonged unemployment is a double-whammy for those stuck without jobs for extended periods; not only are they out of work, but when the economy rebounds, they’re more likely to be passed over by the companies doing the rehiring in favor of people who have exited the workforce more recently. According to Lawrence Katz, a professor of economics at Harvard University, the unintended consequence of this escalation will be to push more workers into disability and early Medicare programs. “That becomes the only option and the difficulty with that is once people go on disability programs they basically never leave, which becomes very expensive,” he warned.

Benefits like unemployment payments are also facing a similar strain that’s likely to get worse before it gets better. Right now, laid-off workers in the states most severely impacted by the recession can draw up to 79 weeks of unemployment benefits. As with the COBRA subsidy, this is already an extension above and beyond the norm, but it’s not clear how much more of an appetite the federal government has to subsidize long-term joblessness.

There are a couple of encouraging signs that the government does understand the severity of the problem and is taking steps to address it. Support for a payroll tax credit, one oft-cited measure for increasing employment, is gaining support among both parties in Congress. One suggested version would give companies a credit of double the payroll tax for every employee hired or converted from part- to full-time. “We did a new jobs tax credit in the ‘70s that had some impact,” said Harvard’s Katz, adding that a broader wage subsidy would have a similar impact on the private sector but also offer employment support to nonprofits, as well.

The government could take a more direct role in boosting employment, Brookings’ Gary Burtless suggests. “I expect that if job creation is very anemic on private payrolls and continue to have a Democratic administration, there’s going to be a lot of initiative to somehow increase the share of the government’s stimulus efforts on job creation.”

It’s also possible that job-creation programs in stimulus bill may yet play a role in shoring up payrolls, although even pro-stimulus economists think that role will be minor. “It’s probably to date created between 700,000 to a little over a million jobs,” said CEPR’s Dean Baker. “It will make more of a difference, but it’s not big enough.”

There are still a couple of factors that could turn the tide in workers’ favor. Andrew Stettner points out that the stimulus-led investment in clean energy and “green” technology has the potential to put the U.S. back in the manufacturing game. “Right now, we’re borrowing and consuming. We need to move our economy more broadly to producing and inventing by investing in it to make it more competitive,” he said.

On a somewhat grimmer note, if America’s recovery lags behind that of our major trade partners or if the dollar is weak for a prolonged period, a surge in demand for exports could be a silver lining for the employment rate. Similarly, inventories in this country have been pared down so far that a big uptick in demand could lead to hiring, but since so much of what we consume comes from overseas, any employment boost there would be shared with other countries.

The worst-case scenario, says Brookings’ Gary Burtless, is that we experience a recession on par with the very steep one in 1981-82, but without the jobs recovery that followed. If this happens, Andrew Stettner of NELP predicts a societal fragmentation of nearly unprecedented magnitude. “I think you’ll start seeing a divided consciousness between the haves and have-nots by next year. Those who did lose their jobs and their savings will be increasingly isolated.”

Dean Baker, co-director of the Center for Economic and Policy Research, cautioned that we should “have no illusions,” that the Geithner plan is anything more than “a bailout for banks.” The simple answer to whether the plan will make life better at the bottom, he said, is no.

Baker’s comments are especially interesting in light of this development, via Naked Capitalism. It cites story from The New York Post reporting that Citigroup and Bank of America are using TARP money not to lend, but to buy up mortgage-backed assets in the secondary market, with the goal of gaming the new Geithner plan.

From Naked Capitalism:

The public has spent enough money on both banks so that in an economic sense, they ought to have been nationalized. Yet for reasons that are largely ideological and cosmetic (the banks’ debt would need to be consolidated were they owned 100% by Uncle Sam), they remain private. So not only are they seeking to extract far more than was intended even with the already generous subsidies embodied in this program, but this activity is also speculating with taxpayer money.

This sort of thing was predicted here and elsewhere. Welcome to yet more looting.

Here’s more, from The Post:

As Treasury Secretary Tim Geithner orchestrated a plan to help the nation’s largest banks purge themselves of toxic mortgage assets, Citigroup and Bank of America have been aggressively scooping up those same securities in the secondary market, sources told The Post…

But the banks’ purchase of so-called AAA-rated mortgage-backed securities, including some that use alt-A and option ARM as collateral, is raising eyebrows among even the most seasoned traders. Alt-A and option ARM loans have widely been seen as the next mortgage type to see increases in defaults.

One Wall Street trader told The Post that what’s been most puzzling about the purchases is how aggressive both banks have been in their buying, sometimes paying higher prices than competing bidders are willing to pay.

Well. So we all pay to help out banks, and this is the thanks we get. In the meantime, we pay no attention to the abandonment of some of America’s cities. I know the Obama administration doesn’t want to nationalize the banking system, but if this sort of thing keeps up, it may have no choice.

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Economist Dean Baker tore into this argument Monday on Marketplace.

The government has no legal obligation to honor AIG’s credit default swaps, but ostensibly it is choosing to do so because these swaps are held by financial institutions that could fail if the credit default swaps were not honored.

The problem is that the public has no idea if this claim is true because we don’t know who holds the swaps and how much they are owed. We don’t know if the Fed is only honoring AIG’s credit default swaps to ensure the solvency of banks and pension funds, or whether it may be paying off credit default swaps even in cases where hedge funds or other speculators were just making a bet that a bond would go bad.

The Fed and the Treasury are asking us to trust them with our money. But these are the people who completely missed the buildup of this financial bubble and minimized the problem at every turn. Their track record does not warrant much trust at this point.

Thanks, Dean. I couldn’t have said it better myself.

Economist Dean Baker of CEPR speaking at the National Press Club, Tuesday.

One in five union activists gets illegally fired in the run-up to unionization elections, economist Dean Baker said at an event held at the National Press Club, Tuesday. Baker’s estimate is based on data compiled by the National Labor Relations Board and analyzed by Baker’s colleagues at the Center for Economic and Policy Research (CEPR) — a liberal economic policy think tank in Washington.

The statistic is central to the progressive case for the Employee Free Choice Act, proposed legislation that would allow workers to bypass formal unionization elections in favor of an informal signup process known as a card check. Big business lobby groups like the Chamber of Commerce oppose the EFCA because the law would make union organizing much easier. But instead of arguing that less unionization is better, EFCA opponents claim that card check is undemocratic because it could mean workers can unionize without a secret ballot.

Baker argues that his statistic suggests that mandatory elections for contested unionization drives stifle workers’ democratic right to organize.  According to Baker, employer harassment and retaliation are major and often under-recognized obstacles to unionization. He sees the EFCA as a way to equalize the power imbalance between labor and management so that workers can decide for themselves whether they want to organize.

A provision in the bill would allow workers to form a union without going through a formal National Labor Relations Board election. Instead, under a so-called card check system, workers sign cards to indicate that they want to unionize. If a majority signs up, the union is on its way to official recognition. Card check is already a legal way to form a union as long as the employer accepts the results and agrees to recognize the union. Often employers demand an NLRB election in the face of a card check majority to buy time to change workers’ minds.

Under the the NLRB election system, between the time an election is announced and the day of the vote, employees are vulnerable to coercion by management, Baker says. There’s a fundamental power imbalance: Bosses can fire organizers, but organizers can’t fire the bosses.

“There’s a tendency to dismiss [harassment, but] one in five organizers ends up getting fired, according to the NLRB,” Baker said on Tuesday.

In a follow-up email, Baker explained that the one in five figure came from CERP’s analysis of NLRB data, using an influential methodology developed by two scholars at the University of Chicago who used these methods to challenge claims of widespread intimidation of workers by management. The estimate uses data on the number of workers who were reinstated after the NLRB determined that they had been illegally fired. Just over half of all illegal terminations took place during a unionization drive. CEPR and the Chicago scholars assumed that only pro-union workers would be singled out for illegal termination during a union drive. We know how many pro-union workers there were in any given shop based on the published results of the election. The CEPR team further posited that organizers and activists, a small subset of overall workers, are more likely to be fired than less vocal pro-union workers. When the CEPR team crunched the numbers for 2005, they estimated that 15-20% of the union organizers involved in these drives were illegally terminated.

Baker argues that this level of risk is chilling unionization. Workers who want to be in a union are afraid to speak out, he says. The EFCA card check provision would protect workers’ ability to freely choose whether they want a union, he maintains.

Arguments like these are powerful ammunition for progressives in their impending fight over the EFCA. If NLRB elections are systematically plagued by intimidation and power imbalances between labor and management, it is difficult to argue that they are democratic.