Opinion

Felix Salmon

Foreclosure chart of the day

By Felix Salmon
July 29, 2009

The chart comes from the Center for Responsible Lending:

loan-mod-chart.jpg

According to Congressional testimony from CRL director Keith Ernst, the 1.5 million homes which have already been lost to foreclosure are just the tip of the iceberg compared to the 13 million total foreclosures expected over the five years from end-08 to 2014. He adds:

Many industry interests object to any rules governing lending, threatening that they won’t make loans if the rules are too strong from their perspective. Yet it is the absence of substantive and effective regulation that has managed to lock down the flow of credit beyond anyone’s wildest dreams. For years, mortgage bankers told Congress that their subprime and exotic mortgages were not dangerous and regulators not only turned a blind eye, but aggressively preempted state laws that sought to rein in some of the worst subprime lending. Then, after the mortgages started to go bad, lenders advised that the damage would be easily contained. As the global economy lies battered today with credit markets flagging, any new request to operate without basic rules of the road is more than indefensible; it’s appalling.

He also has a relatively simple idea which I think would help a lot in getting servicers to actually implement the loan modifications they say they’re committed to doing:

One way to help with the various concerns just listed is to create a mediation program that would require servicers to sit down face-to-face with borrowers to evaluate them for loan modification eligibility. Similar programs are at work in several jurisdictions across the country, and they can be very helpful to ensure that homeowners get a fair hearing and that all decisions are made in a fair and transparent way.

I fear that Congress is beginning to get reform fatigue, after so many attempted solutions have failed. But that’s no reason to stop trying new things — in fact, it’s a good reason to try even harder.

Comments
7 comments so far | RSS Comments RSS

I generally agree with what the Center says. The one area of disagreement that I have is over Judicial Loan Modifications. In normal times, this could be a very good idea. But in a bubble situation, lenders could rightly fear a sort of elevator effect. They suspect that they have to take the elevator to the ground floor, and the judicial modification in this situation could simply be delaying the descent by temporarily stopping at the third floor, say. While an orderly decline is generally best, this bubble was so bad that working our way through it more expeditiously might simply be the better idea.

To the extent that people need help with housing, we could offer a general housing subsidy for those in need. Otherwise, the idea above seems much better in these circumstances. Simply make sure that there was no fraud in the loan and see if the parties can work it out with some intervention.

 

Don,

I am with you in spirit. I see this upclose everyday as I am an attorney working for a non-profit who defends homeowners against foreclosures. Since last fall my state has instituted “mandatory settlement conferences” for the subprime/high cost loans. It has worked to some extent, more so in my are than in NYC, b/c in NYC the property values are much higher and it pays the lenders to litigate rather than just modify the loan.

We also see tons of bad behavior from the lender attorneys — lying to the court, foreclosing while we are presumably “negotiating”, and as AG Cuomo recently has been unearthing even wide-ranging schemes to defraud (guilty parties include creditors, their attorneys, process servers, etc). Their behaviour is punishable but it takes attorney time to make that happen, and our funds are low.

The lenders won’t just come to the table unless they are almost forced to. To even get the attention of someone on the phone, or who has any decision making power is challenging even for an attorney once we are in litigation; almost impossible for the homeowner-borrower looking for a modification. Many of these settlement conferences get “adjourned” b/c the lender does not bother to send anyone with settlement authority, or claims they did not receive papers. So, unfortunately it is not as simple as getting two sides to sit down at the kitchen table — oh, how much fairer the world would be if that were the case…. for the moment we’re stuck fighting the banksters (and their minions) through legislation and litigation.

But hey, Ron Paul in 2012 — one can always hope. In the meantime, END THE FED!

Victoria

Posted by Victoria | Report as abusive
 

Who wants to modify a loan on a 600,000 house that’s only worth 250,000 – 350,000 now and falling? Taking the 7 year hit on my credit for a forclosure sounds like a better business plan than waiting 15 years to break even on an overpriced house.

Posted by Steve | Report as abusive
 

I think there should be tax incentives and rehab loans available for the average real estate investor to buy up all these repossessed houses and fix them up for homebuyers. It will give new comps inthe neighborhoods and help with home values.

Every time we investors fix up a house, neighbors drive by and tell us that we are doing a great job. They thank us for doing something about the delapitated properties in the neighborhood.

Perhabs the Government should provide grant money to the average investor because that creates jobs for the unemployment problem we are seeing.

 

Job losses and real estate prices have escalated beyond where many buyers can afford conventional mortgages, regardless of interest rates. A Fee Simple ownership, which endures far beyond the lifetime of an individual, is a luxury that many can no longer afford. The best solution for cost reduction is the Life Estate form of ownership. The purchaser, for a reduced price, would purchase a form of ownership that would terminate on his/her death (or the death of the last surviving spouse).

For example, a 50 year old who just lost his/her job with no prospects in this economy for new employment might have enough paid up equity in their home for a fully paid up Life Estate equity.

Posted by Robert Chouinard | Report as abusive
 

I have been a responsible real estate investor for over 10 years. I did not get in over my head during the 2003-2006 madness. All my mortgage payments are still current but I am having a tough time keeping them up. The economy already forced me to shut down my restaurant as well as having to keep rent low to compete with all vacancies out there. Many of my properties are now like many others “underwater”. Every government rescue programs so far only aimed to help regular homeowners and not responsible investor like me. I am not too much underwater so I want to hold on but talking to banks is like talking to a wall. Even with my 790+ credit score and current payment, I could not get them to give me real help in any ways. There is just no incentive for me to hold on. I’m barely getting by in this economy. I’m doing my best not to add to the foreclosure problem but with curent policies, it’s better to dump it then keep it. I think I will be joining the foreclosure list soon. It make me sick to see banks received government rescue loans and still paid out bonuses in billions. Small investors received nothing.

Posted by Fred | Report as abusive
 

The banksters ought to at least be out of a job if not in jail. They, after all, nearly sank the world economy(and maybe still will) The CEO of GM was trashed for ineptitude in leadership. The banksters are guilty of malfeasance, now they are living it up with huge bonuses at taxpayer expence. You know who owns our politicians. Next, they will steal what money we have left through inflation. With these representatives, who needs a king?

Posted by Dan H | Report as abusive
 

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