How to slow down foreclosures

By Felix Salmon
November 19, 2009
Peter Goodman's 2,300-word tale of Christopher Hall's foreclosure woes is a gem of a program in Philadelphia:

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Buried in Peter Goodman’s 2,300-word tale of Christopher Hall’s foreclosure woes is a gem of a program in Philadelphia:

Under the rules adopted by Philadelphia’s primary civil court, no owner-occupied house may be foreclosed on and sold by the sheriff’s office before a “conciliation conference,” a face-to-face meeting between the homeowner and the lender aimed at striking a workable compromise. Every homeowner facing a default filing is furnished with counseling, and sometimes legal representation…

Since the administration’s program was begun in March, it has been plagued by complaints of bureaucratic confusion and the indifference of mortgage companies. Many homeowners who have applied for loan modifications complain that their documents have been lost repeatedly or that they have been rejected without explanation.

The Philadelphia program forces an outcome by bringing together all the principals in one room. If the mortgage company proves intractable, the homeowner has the right to request mediation in front of a volunteer lawyer serving as a provisional judge, who relays recommendations to the program’s supervising judge. If the judge finds that the mortgage company is not acting in good faith, she can hold the house in limbo by denying permission for a sheriff’s sale.

This is a great idea: one of the biggest problems facing homeowners trying to come to some kind of a deal with their mortgage lender is that correspondence has a tendency to disappear into a black hole; that they find themselves dealing with an ever-rotating cast of customer service representatives who have a tendency to contradict each other and even themselves; and that constructive conversation, as opposed to a bureaucratic nightmare, is all but impossible.

The fact is that the banks simply don’t have enough trained and qualified personnel to be able to act in a sensible and intelligent manner with regard to each of the loan modification requests which are flooding in on a daily basis. But that’s the banks’ problem, and this Philadelphia scheme forces them to face up to it.

Daniel Indiviglio, I fear, doesn’t understand this at all, and seems to be living in an alternate universe where all bank decisions are entirely rational:

The bank is, ultimately, going to want to do whatever is in its best interest…

A face-to-face meeting won’t change that fact. And if foreclosure is a better alternative for the bank, then meeting in person won’t change that either. It’s a waste of time.

This might well be true: if foreclosure is in the bank’s best interest, then the in-person meeting won’t change that. But there is a very large number of foreclosures which aren’t in the bank’s best interest, and in-person meetings can change those outcomes for the better.

What’s more, even if any individual foreclosure might be in the bank’s best interest, it can also be in the bank’s best interest more generally to slow the whole process down:

In West Philadelphia, Councilman Curtis Jones Jr., one of the sponsors of the resolution, watched his childhood neighborhood consumed by foreclosure, as the homes of working families — their porches once lined with flower pots — were boarded up with plywood.

“It becomes a blight on your entire community,” Mr. Jones said. “It creates an environment that fosters everything bad, from prostitution to drug dealing to wildlife, like raccoons taking over whole houses. One house becomes 10, and 10 becomes the whole block.”

If banks face a situation where a wave of foreclosures can devastate property values, it’s in everybody’s interest to keep even defaulted homeowners in their homes for the time being, if only to preserve the value of the collateral. Schemes such as the one in Philadelphia can help break the vicious cycle of foreclosures leading to falling home prices leading to more foreclosures, and that’s good for all. I’d love to see the Philadelphia scheme rolled out in other cities struggling with this problem.


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Any word on the situations where the homeowner can’t identify the party that holds the actual note, or where that party can’t find the note? This has arisen in some jurisdictions, usually because the mortgage has been bundled by the original lender and passed along. A few sheriffs have even set a policy that they will not go forward with a foreclosure without the paper in hand.

Posted by Ken | Report as abusive

While I sympathize with the strategy of keeping people in their homes and understand it can be a good thing, I do have concerns about it being a temporary fix with negative ramifications in the long run. I believe we mostly can all agree that home prices ran up due to loose credit standards, which allowed people to purchase homes that they could not genuinely afford, thus, leading to defaults. Consequently, home prices need to come down, drastically in most cases. If we continue to bend over backwards to keep people in their homes because foreclosures are bad, the market for home prices cannot properly adjust. This creates several problems for the general public. First, non home owners will be priced out of the home market because home prices will remain too high, as some of these programs prevent home prices from properly adjusting downward, with the aid of foreclosures hitting the market. Second, it keeps people in homes they still likely cannot afford, even with adjustments to payments, given how outlandish the prices ran up; a quick look at re defaults in loan modifications aptly demonstrates this. Even if the programs recipients could make the adjusted payments, the program would tie them to the house, as the house would likely have to be sold at a loss, which the homeowner no doubt could not afford to do. Sometimes the market really does need to work things out, and intervention just kicks the can down the road.

Posted by KWL | Report as abusive

I agree with KWL completely. This is just the market working itself out. I see current events more as a correction than a crash.Housing prices do need to come down and foreclosures play a role in this. Also, home ownership is not for everyone and many will not be able to afford homes with or without modification.There were some unsustainable boom times the few years before. Now things are going back to the way they should have been. Painful? Yes. Necessary? Unfortunately, also yes.

Posted by AK | Report as abusive

That’s an interesting topic. Slow down foreclosure is something that’s really necessary recently

the best solution for that is to consult the help of real estate agents. when you are encountering a problem regarding FORECLOSURES, you need to consult the help of reliable real estate agents. i guess they can be of great help to us.

Very interesting topic. Many people needs assistance to stop foreclosures

Posted by paulstv | Report as abusive