The Middle Class: Sought after but ignored

Right now, the people aspiring to be president will say and do anything to appeal narrowly to their party's base. But when the contest for the presidency really gets underway, they are likely to say and do anything to appeal broadly to America's middle class. And that is where the trouble starts.

Despite the occasional lip service, the position of the middle class in this country continues to erode. The size of the middle class continues to shrink; in many states families are spending ever more of their income just to keep a roof over their heads. The housing market — the single biggest investment for most — remains soft. But here is the rub: Wall Street is pushing for more foreclosures, not fewer, on homeowners who fall behind on mortgages. And no one in Washington is doing a thing about it.

Once the ideal of the American experience, the middle class continues to be the ever-shrinking American experience. Defining the middle class is hard, admittedly; people who are striving to be in it think they are and even those who are well off still consider themselves to be part of the engine of American upward mobility. But the Pew Charitable Trust recently studied all 50 states, categorizing households making between 67 and 200 percent of the state median income as middle class. Fair enough.

In each state, the middle class shrunk between 2000 and 2013, a period that includes years of economic growth before the Great Recession and a modest recovery after it. So, this is no episodic dip for the middle class. It is, instead, a structural and even existential challenge.

As worrisome as the decline in wages is the increased, relative cost of housing. In state after state, the slippage between falling wages and rising housing costs is making it harder for a family to simply keep a roof over its head.

In New York, for example, the percentage of income that went to housing rose 6 percent to 32 percent of annual income. In California, housing now costs nearly half — 44 percent — of a typical household's income. In Florida, that number is nearly 40 percent. In Texas, housing costs now consume nearly a third of household income for middle class families where they were only a quarter at the beginning of the century.

It nearly goes without saying that spending more than 25 or 30 percent of income on housing becomes a dangerous proposition for the cash flow of a middle class household. But it cannot be emphasized enough: At a time when most Americans were locked out of investing in the stock market, despite its low interest rates, their house was their single biggest investment.

The recovery of the housing market is an iffy proposition at best, too. Interest rates are low but demand is still sluggish. And yet, it is not only becoming relatively pricier to stay in a home, it is becoming dicer, too, because of the very people who created the 2008 financial meltdown and recession: Wall Street.

Some of the biggest names on Wall Street are threatening to sue to drive more American homeowners into foreclosure. After 2008, the Obama administration instituted relief programs giving federal backing to modifying the loans of homeowners who were either behind on their mortgages, under water on them, or both. This process has literally helped tens of millions of homeowners stay in their homes while ensuring that the investors who underwrote those mortgages still get their money. Even more of it, in fact.

Yet Blackrock, Pacific Investment Company and Met Life are threatening to sue the companies that administer these mortgages — on behalf of trustees for the investors — because they aren't pushing enough homeowners into foreclosure. It is not so much that these investors want a greater return on their investment; loan modifications stretch out mortgages for struggling homeowners with lower monthly payments, generally, but longer terms which lead, in turn, to a higher return over investment.

It is instead that these investors want their money faster. One of the objects of the Wall Street complaints is Atlanta-based Ocwen, which has modified some half-a-million mortgages while keeping investors whole. Yet pushing a home into foreclosure and auction leads to a quicker payout; buying it back again allows it to be rented at substantial profit and sold again with yet another mortgage-backed security. It's a nifty trick for investors.

But it is downright predatory because it's a bad deal for everyone else, not just struggling homeowners. More empty houses on the market could undermine what is at best an uncertain real estate market, a major underpinning of the economy. Austin, Texas, for example, has been alternately labeled this year as the hottest market in which to invest — and the most overvalued in the entire country. Anyone who says they have a strong fix on where the housing market is going is probably lying. And anyone who says the economic recovery is strong — well, they are, too.

It is a fine irony that likely defenders of the middle class like Ted Cruz and Hillary Clinton have friends on Wall Street; Cruz is married to a Goldman Sachs employee on leave, and Clinton has never met a banker whose money she didn't like. So, it would be wise for middle class voters, as 2016 approaches, to ask members of Congress, the administration and candidates alike: What are they going to do for the middle class?

And eight years after the housing meltdown, what are they going to do about Wall Street?

Richard Parker, a journalist whose work appears in the New York Times, the Atlantic and elsewhere, is the author of 'Lone Star Nation: How Texas Will Transform America.' From Tribune News Service.